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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION** Washington, D.C. 20549

FORM 10-QSB

**x******Quarterly
  Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended July 31, 2004

** ̈******Transition
  Report pursuant to 13 or 15(d) of the Securities Exchange Act of

For the transition period ________ 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                 | (IRS Employer Identification No.)
|incorporation or organization)                  |                                  
|                                                |                                  
|810 PEACE PORTAL DRIVE, SUITE 202               |                                  
|BLAINE, WA                                      | 98230                            
|(Address of principal executive offices)        | (Zip Code)                       
|                                                |                                  
|Issuer's telephone number, including area code: | (360) 332-1752                   

NOT APPLICABLE


Check whether the issuer (1) filed all reports required to
  be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
  the preceding 12 months (or for such shorter period that the issuer was required
  to file such reports), and (2) has been subject to such filing requirements
  for the past 90 days **x******
  Yes** ̈******No

State the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date: 7,042,500 Shares
  of Common Stock as of August 30, 2004.

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 three months ended July 31, 2004 are not necessarily
  indicative of the results that can be expected for the year ending April 30,
  2005.

2

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TERRACE VENTURES INC.

FINANCIAL STATEMENTS

JULY 31, 2004 AND JULY 31, 2003



F-1

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INDEX TO FINANCIAL STATEMENTS

|                                                      | Page       | 
|----------------------------------------------------- | ---------- | 
|                                                      |            | 
|Accountants' Review Report                            | F-3        | 
|                                                      |            | 
|Financial Statements:                                 |            | 
|                                                      |            | 
|Balance Sheet                                         | F-4        | 
|                                                      |            | 
|Statement of Operations and Accumulated
      Deficit | F-5        | 
|                                                      |            | 
|Statement of Changes in Stockholders
      Equity    | F-6        | 
|                                                      |            | 
|Statement of Cash Flows                               | F-7        | 
|                                                      |            | 
|Notes to Financial Statements                         | F-8 - F-11 | 
|                                                      |            | 
|Supplemental Statement:                               |            | 
|                                                      |            | 
|Statement of Operating Expenses                       | F-13       | 

F-2

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To the Board of Directors
  Terrace Ventures Inc.

We have reviewed the accompanying balance sheet of Terrace
  Ventures Inc., an exploration stage company, as of July 31, 2004 and July 31,
  2003, and the related statements of operations and accumulated deficit, changes
  in stockholders equity, and statement of cash flows for the three months
  then ended, in accordance with standards established by the American Institute
  of Certified Public Accountants. All information included in these financial
  statements is the representation of the management of Terrace Ventures Inc.

A review consists principally of inquiries of Company personnel
  and analytical procedures applied to financial data. It is substantially less
  in scope than an examination in accordance with generally accepted auditing
  standards, 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 financial statements in order for them
  to be in conformity with generally accepted accounting principles.

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 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.

Sarna & Company 
  Certified Public Accountants 
  September 10, 2004

F-3

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

ASSETS

|                     |   | JULY 31, |  |   | JULY 31, | 
|-------------------- | - | -------- |  | - | -------- | 
|                     |   | 2004     |  |   | 2003     | 
|                     |   |          |  |   |          | 
|Current Assets       |   |          |  |   |          | 
|Cash                 | $ | 3,560    |  | $ | 7,670    | 
|Total Current Assets |   | 3,560    |  |   | 7,670    | 
|                     |   |          |  |   |          | 
|TOTAL ASSETS         | $ | 3,560    |  | $ | 7,670    | 

LIABILITIES AND STOCKHOLDERS' EQUITY

|Current Liabilities                         |   |          |   |   |         |  
|------------------------------------------- | - | -------- | - | - | ------- | -
|Accounts Payable and Accrued Expenses       | $ | 24,824   |   | $ | 5,100   |  
|Total Current Liabilities                   |   | 24,824   |   |   | 5,100   |  
|                                            |   |          |   |   |         |  
|Stockholders' Equity                        |   |          |   |   |         |  
|Common Stock, $0.001 par value              |   |          |   |   |         |  
|100,000,000 shares authorized,              |   |          |   |   |         |  
|7,042,500 and 6,642,500
      shares issued |   | 704      |   |   | 664     |  
|Additional Paid in Capital                  |   | 82,546   |   |   | 42,586  |  
|Accumulated deficit                         |   | (104,514 | ) |   | (40,680 | )
|Total
      Stockholders' Equity (Deficit)  |   | (21,264  | ) |   | 2,570   |  
|TOTAL LIABILITIES AND                       |   |          |   |   |         |  
|STOCKHOLDERS' EQUITY                        | $ | 3,560    |   | $ | 7,670   |  

See Notes to Financial Statement

F-4

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

|                           |   | THREE MONTHS        |   |   | THREE MONTHS        |   |   |                     |  
|-------------------------- | - | ------------------- | - | - | ------------------- | - | - | ------------------- | -
|                           |   | ENDED               |   |   | ENDED               |   |   | INCEPTION -         |  
|                           |   | JULY
      31, 2004 |   |   | JULY
      31, 2003 |   |   | JULY
      31, 2004 |  
|                           |   |                     |   |   |                     |   |   |                     |  
|Revenues                   | $ | 0                   |   | $ | 0                   |   | $ | 0                   |  
|                           |   |                     |   |   |                     |   |   |                     |  
|Operating Expenses         |   | (7,568              | ) |   | (2,442              | ) |   | (104,514            | )
|                           |   |                     |   |   |                     |   |   |                     |  
|Loss Before Provision for  |   | (7,568              | ) |   | (2,442              | ) |   | (104,514            | )
|Income Taxes               |   |                     |   |   |                     |   |   |                     |  
|                           |   |                     |   |   |                     |   |   |                     |  
|Provision for Income Taxes |   | (0                  | ) |   | (0                  | ) |   | (0                  | )
|                           |   |                     |   |   |                     |   |   |                     |  
|Net Loss                   |   | (7,568              | ) |   | (2,442              | ) |   | (104,514            | )
|                           |   |                     |   |   |                     |   |   |                     |  
|Deficit, Beginning         |   |                     |   |   |                     |   |   |                     |  
|of Period                  |   | (96,946             | ) |   | (38,238             | ) |   | (0                  | )
|                           |   |                     |   |   |                     |   |   |                     |  
|Accumulated Deficit, End   |   |                     |   |   |                     |   |   |                     |  
|of Period                  | $ | (104,514            | ) | $ | (40,680             | ) | $ | (104,514            | )
|                           |   |                     |   |   |                     |   |   |                     |  
|                           |   |                     |   |   |                     |   |   |                     |  
|                           |   |                     |   |   |                     |   |   |                     |  
|Net Loss per Share         | $ | (0.01               | ) | $ | (0.01               | ) | $ | (0.01               | )
|                           |   |                     |   |   |                     |   |   |                     |  
|Weighted Average           |   |                     |   |   |                     |   |   |                     |  
|Shares Outstanding         |   | 7,042,500           |   |   | 6,642,500           |   |   | 6,058,482           |  

See Notes to Financial Statements

F-5

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

|                    | Common Stock |  |   | Additional |  |   | Accumulated |  |   | Total    |  
|------------------- | ------------ |  | - | ---------- |  | - | ----------- |  | - | -------- | -
|                    |              |  |   | Dollar     |  |   | Paid in     |  |   | Deficit  |  
|                    | Shares       |  |   | Amount     |  |   | Capital     |  |   |          |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2003      | 6,642,500    |  | $ | 664        |  | $ | 42,586      |  | $ | (38,238  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|July 31, 2003       | ----         |  |   | ----       |  |   | ----        |  |   | (2,442   | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|July 31, 2003       | 6,642,500    |  | $ | 664        |  | $ | 42,586      |  | $ | (40,680  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Common Stock Issued |              |  |   |            |  |   |             |  |   |          |  
|$0.10 per share     |              |  |   |            |  |   |             |  |   |          |  
|November 6, 2003    | 125,000      |  |   | 12         |  |   | 12,488      |  |   | ----     |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Common Stock Issued |              |  |   |            |  |   |             |  |   |          |  
|$0.10 per share     |              |  |   |            |  |   |             |  |   |          |  
|November 6, 2003    | 275,000      |  |   | 28         |  |   | 27,472      |  |   | ----     |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | ----         |  |   | ----       |  |   | ----        |  |   | (56,266  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (96,946  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|July 31, 2004       | ----         |  |   | ----       |  |   | ----        |  |   | (7,568   | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|July 31, 2004       | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (104,514 | )

See Notes to Financial Statements

F-6

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

|                                |   | MONTHS              |   |   | THREE MONTHS        |   |   |                     |  
|------------------------------- | - | ------------------- | - | - | ------------------- | - | - | ------------------- | -
|                                |   | ENDED               |   |   | ENDED               |   |   | INCEPTION -         |  
|                                |   | JULY
      31, 2004 |   |   | JULY
      31, 2003 |   |   | JULY
      31, 2004 |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Cash Flows from                 |   |                     |   |   |                     |   |   |                     |  
|Operating Activities:           |   |                     |   |   |                     |   |   |                     |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Net Loss                        | $ | (7,568              | ) | $ | (2,442              | ) | $ | (104,514            | )
|Increase (Decrease)             |   |                     |   |   |                     |   |   |                     |  
|Accounts
      Payable          |   | (2,006              | ) |   | -0                  | - |   | 24,824              |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Net Cash Used by                |   |                     |   |   |                     |   |   |                     |  
|Operating Activities            |   | (9,574              | ) |   | (2,442              | ) |   | (79,690             | )
|                                |   |                     |   |   |                     |   |   |                     |  
|Cash Flows from                 |   |                     |   |   |                     |   |   |                     |  
|Financing Activities:           |   |                     |   |   |                     |   |   |                     |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Proceeds
      Received         |   |                     |   |   |                     |   |   |                     |  
|Issuance
      of Common Stock  |   | -0                  | - |   | -0                  | - |   | 83,250              |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Cash Provided by                |   |                     |   |   |                     |   |   |                     |  
|Financing Activities            |   | -0                  | - |   | -0                  | - |   | 83,250              |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Net Increase (Decrease) in Cash |   | (9,574              | ) |   | (2,442              | ) |   | 3,560               |  
|                                |   |                     |   |   |                     |   |   |                     |  
|Cash at Beginning of Period     |   | 13,134              |   |   | 10,112              |   |   | -0                  | -
|                                |   |                     |   |   |                     |   |   |                     |  
|Cash at End of Period           | $ | 3,560               |   | $ | 7,670               |   | $ | 3,560               |  

See Notes to Financial Statements

F-7

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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

Basis of Presentation

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

Use of Estimates

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

Exploration Stage Company

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

No stock options have been issued by Terrace Ventures Inc.
  Accordingly, no pro forma compensation expense is reported in these financial
  statements.

F-8

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Mineral Property Acquisition and Exploration Costs

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

Depreciation, Amortization and Capitalization

The Company records depreciation and amortization when appropriate
  using both straight-line and declining balance methods over the estimated useful
  life of the assets (five to seven years). Expenditures for maintenance and repairs
  are charged to expense as incurred. Additions, major renewals and replacements
  that increase the property's useful life are capitalized. Property sold or retired,
  together with the related accumulated depreciation, is removed from the appropriate
  accounts and the resultant gain or loss is included in net income.

Income Taxes

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

Fair Value of Financial Instruments

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

F-9

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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 July
  31, 2004 and July 31, 2003 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.

F-10

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

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.

The financial statements of the Company have been prepared
  assuming that the Company will continue as a going concern, which contemplates,
  among other things, the realization of assets and the satisfaction of liabilities
  in the normal course of business. The Company has incurred cumulative net losses
  of $104,514 since its inception and requires capital for its contemplated operational
  and marketing activities to take place. The Company's ability to raise additional
  capital through the future issuances of common stock is unknown. The obtainment
  of additional financing, the successful development of the Company's contemplated
  plan of operations, and its transition, ultimately, to the attainment of profitable
  operations are necessary for the Company to continue operations. The ability
  to successfully resolve these factors raise substantial doubt about the Company's
  ability to continue as a going concern. The financial statements of the Company
  do not include any adjustments that may result from the outcome of these aforementioned
  uncertainties.

F-11

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SUPPLEMENTAL STATEMENT



F-12

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

|                         |   | THREE MONTHS        |  |   | THREE MONTHS        |  |   |                     | 
|------------------------ | - | ------------------- |  | - | ------------------- |  | - | ------------------- | 
|                         |   | ENDED               |  |   | ENDED               |  |   | INCEPTION -         | 
|                         |   | JULY
      31, 2004 |  |   | JULY
      31, 2003 |  |   | JULY
      31, 2004 | 
|                         |   |                     |  |   |                     |  |   |                     | 
|Operating Expenses       |   |                     |  |   |                     |  |   |                     | 
|Accounting               | $ | 2,000               |  | $ | -0-                 |  | $ | 19,420              | 
|Exploration Expense      |   | -0-                 |  |   | -0-                 |  |   | 24,266              | 
|Legal                    |   | 2,994               |  |   | -0-                 |  |   | 25,991              | 
|Office Administration    |   | 1,500               |  |   | 1,500               |  |   | 16,000              | 
|Office Expenses          |   | -0-                 |  |   | 192                 |  |   | 1,498               | 
|Regulatory Expenses/Fees |   | -0-                 |  |   | -0-                 |  |   | 4,294               | 
|Rent                     |   | 750                 |  |   | 750                 |  |   | 8,700               | 
|Telephone                |   | -0-                 |  |   | -0-                 |  |   | 1,344               | 
|Travel & Entertainment   |   | 324                 |  |   | -0-                 |  |   | 3,001               | 
|                         |   |                     |  |   |                     |  |   |                     | 
|Total Operating Expenses | $ | 7,568               |  | $ | 2,442               |  | $ | 104,514             | 

See Notes to Financial Statement

F-13

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Item 2.                    
  Management's Discussion and Analysis or Plan of Operations

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 within the meaning of Section 27A of the Securities Act of 1933 (the
  "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
  "Exchange Act"). 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, 2004. These factors may cause our actual results
  to differ materially from any forward-looking statement.

OVERVIEW

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 operations is to carry out exploration
  work on the Peach Claim in order to ascertain whether it possesses 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 purchased the Peach Claim property from Don Archibald for
  cash consideration of $5,000 pursuant to a purchase agreement dated August 15,
  2001.

The Peach Claim property is comprised of one mineral claim
  with a total area of approximately 1,236 acres, located in Nicola, Simalkameen
  and Osoyoos Mining Divisions, approximately 40 kilometres west of Kelowna, British
  Columbia, Canada.

Current State of Exploration

Our mineral claim presently does not have any mineral reserves.
  The property that is the subject to our mineral claim is undeveloped and does
  not contain any open-pit or underground mines. There is no plant or equipment
  located on the property that is the subject of the mineral claim. Power is readily
  available from nearby transmission lines. Water in sufficient quantities for
  drilling is available from nearby streams and lakes.

We have only recently commenced exploration of the Peach Claim
  and this exploration is currently in the preliminary stages. Our planned exploration
  program is exploratory in nature and no mineral reserves may ever be found.

Phase I of our exploration program was completed in June,
  2002. The Phase I exploratory program was conducted by our geological consultant,
  Paul Reynolds B.Sc., P.Geo, over a period of three days

3

---

and consisted of rock sampling and an assessment of areas
  previously reported to have potential mineralization. On June 27, 2002, Mr.
  Reynolds, completed his review of Phase I one work results on our Peach Claim
  and provided us with a report containing his conclusions. Mr. Reynolds concluded
  that the results were favorable and he recommended we proceed to the next stage
  of our exploration program. The second phase consisting of prospecting, geological
  outcrop mapping, and detailed soil sampling in areas of interest is anticipated
  to commence in late 2004.

The second phase consisting of prospecting, geological outcrop
  mapping, and detailed soil sampling in areas of interest is currently under
  way and is expected to be completed in the fall season of 2004. A decision on
  proceeding beyond the planned Phase III will be made by assessing whether the
  results of Phase II and Phase III were 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. The decision of the consultant whether or not to recommend
  proceeding will be based on a myriad of factors, including his subjective judgment
  and will depend primarily on the results of the immediately preceding stage.
  It is impossible to quantify in advance what will be sufficiently positive.

We plan to proceed with Phase IV of our exploration program,
  if recommended by our geologist, and subject to the results of Phase II and
  Phase III. Costs will depend on recommendations, which cannot be made until
  we receive the assay results for Phase II and Phase III.

PLAN OF OPERATIONS

Our plan of operations is to conduct mineral exploration activities
  on the Peach Claim in order to assess whether this claim possesses commercially
  exploitable mineral deposits. Our exploration program is designed to explore
  for commercially viable deposits of gold minerals. We have not, nor has any
  predecessor, identified any commercially exploitable reserves of these minerals
  on our mineral claim.

We completed Phase I of our planned four phase exploration
  program on the Peach Claim property in June, 2002. The total cost for the first
  phase was approximately $5,000. Following the successful completion of Phase
  I, our geologist recommended that we complete a second phase consisting of geological
  prospecting, geological outcrop mapping, and detailed soil sampling in areas
  of interest. Phase II of our exploration program has commenced and is expected
  to be completed in the fall season of 2004. The estimated cost of completing
  Phase II of our exploration program is approximately $7,500.

A decision on proceeding beyond the planned Phase II and Phase
  III explorations will be made by assessing whether the results of Phase II and
  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 II and Phase III. The decision whether
  or not to proceed will be based on the recommendations of our geological consultant.
  The decision of the consultant whether or not to recommend proceeding will be
  based on a number of factors, including his subjective judgment and will depend
  primarily on the results of the immediately preceding stage. It is impossible
  to quantify in advance what will be sufficiently positive.

We are currently proceeding with Phase II of our exploration
  program for the Peach Claim. We have sufficient cash on hand to pay the costs
  of Phase II of our proposed exploration program and will require additional
  financing to fund our operations for the next twelve months. We will also require
  additional financing in order to proceed with any additional work beyond Phase
  II of our exploration program.

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During this exploration stage, our president 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 approximately
  $25,000. Our cash on hand as at July 31, 2004 is $3,560. We have sufficient
  cash on hand to pay the costs of Phase II of our proposed exploration program,
  however, we will require further financing to fund our operations for the next
  twelve months. We will also require additional financing in order to proceed
  with any additional work beyond Phase II of our exploration program.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JULY 31, 2004 COMPARED TO THREE MONTHS
  ENDED JULY 31, 2003

|First Quarter Summary |                                  |          |                      
|--------------------- | -------------------------------- | -------- | ---------------------
|                      |                                  |          |                      
|                      | Three Months Ended July
      31 |         
|                      |                                  |          | Percentage           
|                      | 2004                             | 2003     | Increase / (Decrease)
|Revenue               | $0                               | $0       | -                    
|Expenses              | $7,568                           | $2,442   | 210%                 
|Net Income (Loss)     | $(7,568)                         | $(2,442) | 210%                 

Revenues

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 properties. We are presently in the exploration stage of our business
  and we can provide no assurance that we will discover commercially exploitable
  levels of mineral resources on our properties, or if such deposits are discovered,
  that we will enter into further substantial exploration programs.

|Operating Expenses             |                            |        |                      
|------------------------------ | -------------------------- | ------ | ---------------------
|                               | Three Months Ended July 31 |       
|                               |                            |        | Percentage           
|                               | 2004                       | 2003   | Increase / (Decrease)
|Professional fees              | $4,994                     | $0     | 100%                 
|Office facilities and services | $2,250                     | $2,442 | 5%                   
|Regulatory expenses and fees   | $0                         | $0     | -                    
|Mineral exploration expenses   | $0                         | $0     | -                    
|Miscellaneous expenses         | $324                       | $0     | 100%                 
|Total Operating Expenses       | $7,568                     | $2,442 | 210%                 

Our operating expenses incurred during the period ended July
  31, 2004 included the following: (a) office related fees in the amount of $1,824
  and rent in the amount of $750; and (b) professional fees in the amount of $4,994
  in connection with our corporate organization and ongoing reporting obligations
  under the Exchange Act.

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We anticipate our operating expenses will increase as we undertake
  our plan of operations. The increase will be attributable to our completion
  of Phase II of our geological exploration program and the professional fees
  to be incurred in connection with our ongoing reporting obligations under the
  Exchange Act.

Net Loss

We recorded a net loss of $7,568 for the three months ended
  July 31, 2004, compared to a net loss of $2,442 for the three months ended July
  31, 2003. Our loss during these periods was entirely attributable to operating
  expenses.

LIQUIDITY AND CAPITAL RESOURCES

|Working Capital           |                  |                   |                      
|------------------------- | ---------------- | ----------------- | ---------------------
|                          |                  |                   | Percentage           
|                          | At July 31, 2004 | At April 30, 2004 | Increase / (Decrease)
|Current Assets            | $3,560           | $13,134           | (72.8)%              
|Current Liabilities       | $24,824          | $26,830           | (7.4)%               
|Working Capital (Deficit) | $(21,264)        | $(13,696)         | 55.2%                

|Cash Flows                                     |                                  |         
|---------------------------------------------- | -------------------------------- | --------
|                                               | Three Months Ended July
      31
|                                               | 2004                             | 2003    
|Cash Flows from (used in) Operating Activities | $(9,574)                         | $(2,442)
|Cash Flows from (used in) Investing Activities | $0                               | $0      
|Cash Flows from (used in) Financing Activities | $0                               | $0      
|Net Increase (decrease) in Cash During Period  | $(9,574)                         | $(2,442)

We had cash of $3,560 at July 31, 2004 as compared to cash
  of $7,670 at July 31, 2003. We anticipate that we will incur approximately $25,000
  for operating expenses, including professional legal and accounting expenses
  associated with our reporting requirements under the Exchange Act during the
  next twelve months.

We have not attained profitable operations and are dependent
  upon obtaining financing to pursue any extensive exploration activities. For
  these reasons our auditors stated in their report to our audited financial statements
  for the year ended April 30, 2004 that they have substantial doubt we will be
  able to continue as a going concern.

Financing Requirements

From inception to July 31, 2004, we have suffered recurring
  losses in the amount of $104,514 and net cash outflows from operations. We expect
  to continue to incur substantial losses until we complete the development of
  our business.

Our current operating funds are sufficient to complete the
  proposed exploration program, however, they will be insufficient to complete
  the full exploration of the mineral claim and begin mining efforts should the

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mineral claim prove commercially viable. Therefore, we will
  need to obtain additional financing in order to complete our full business plan.
  As at July 31, 2004, we had cash in the amount of $3,560. We currently do not
  have any operations and we have no income. Our plan of operations calls for
  significant expenses in connection with the exploration of our mineral claim.
  We have sufficient cash on hand to complete Phase II of our proposed exploration
  program. However, we may need additional financing to proceed past Phase II
  of our exploration program. We may also require additional financing if the
  costs of the exploration of our mineral claim are greater than anticipated.
  We may also require additional financing to sustain our business operations
  if we are not successful in earning revenues. We currently do not have any arrangements
  for financing and we may not be able to obtain financing when required. 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.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that
  have or are reasonably likely to have a current or future effect on our financial
  condition, changes in financial condition, revenues or expenses, results of
  operations, liquidity, capital expenditures or capital resources that are material
  to our stockholders.

ITEM 3.                    CONTROLS
  AND PROCEDURES

(A) Evaluation Of Disclosure Controls And Procedures

As of the end of the period covered by this report, we carried
  out an evaluation, under the supervision and with the participation of our Principal
  Executive Officer and Principal Financial Officer, of the effectiveness of the
  design and operation of our disclosure controls and procedures. Our disclosure
  controls and procedures are designed to provide a reasonable level of assurance
  of achieving our disclosure control objectives. Our Principal Executive Officer
  and Principal Accounting Officer have concluded that our disclosure controls
  and procedures are, in fact, effective at this reasonable assurance level as
  of the period covered.

(B) Changes In Internal Controls Over Financial Reporting

In connection with the evaluation of our internal controls
  during our last fiscal quarter, our Principal Executive Officer and Principal
  Financial Officer have determined that there are no changes to our internal
  controls over financial reporting that has materially affected, or is reasonably
  likely to materially effect, our internal controls over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.                    
  LEGAL PROCEEDINGS

We currently are not a party to any material legal proceedings
  and to our knowledge, no such proceedings are threatened or contemplated.

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.

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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                                                                                                                                        
|        |                                                                                                                                                               
|2.1     | Articles of Incorporation. (1)                                                                                                                                
|        |                                                                                                                                                               
|2.2     | Bylaws. (1)                                                                                                                                                   
|        |                                                                                                                                                               
|6.1     | Mineral Claim Purchase Agreement dated August
      15, 2001 between Terrace Ventures Inc. and Don Archibald. (1)                                             
|        |                                                                                                                                                               
|14.1    | Code of Ethics. (2)                                                                                                                                           
|        |                                                                                                                                                               
|31.1    | Certification of Chief
      Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                     
|        |                                                                                                                                                               
|31.2    | Certification of Chief
      Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                     
|        |                                                                                                                                                               
|32.1    | Certification of Chief
      Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                               
|32.2    | Certification of Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
      to Section 906 of the Sarbanes-Oxley Act of 2002.

|(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 Annual Report on Form 10-KSB
      filed on September 8, 2004.                  

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SIGNATURES

In accordance with the requirements of the Securities and
  Exchange Act of 1934, the Registrant has duly caused this report to be signed
  on its behalf by the undersigned, thereunto duly authorised.



| | TERRACE VENTURES INC.
| | ---------------------
| |                      
| |                      
| |                      
| | By:                  
| |                      
| |                      
| |                      
| |                      
| |                      

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