---

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington, DC 20549

FORM 10-QSB

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

For the quarterly period ended July 31, 2006

[   ]Transition Report under 13 or 15(d) of
the Securities Exchange Act of 1934

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 incorporation or | (IRS Employer Identification No.)
|organization)                                    |                                  

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

(360) 220-5218Issuer's telephone number

NOT APPLICABLEFormer 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 [   ] No
[X]

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 32,505,000
Shares of Common Stock as of September 12, 2006.

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, 2006 are
not necessarily indicative of the results that can be expected for the year
ending April 30, 2007.

2

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TERRACE VENTURES INC.

FINANCIAL STATEMENTS

JULY 31, 2006





F-1

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INDEX TO FINANCIAL STATEMENTS

PageAccountants' Review Report
      F-3Financial
        Statements:Balance Sheets
      F-4Statements of Operations
        and Accumulated Deficit
      F-5Statements of Changes
        in Stockholders Equity
      F-6-7Statements of Cash Flows
      F-8Notes to Financial Statements
      F-9-14Supplemental
        Statements:Statements of Operating
        Expenses
      F-16


F-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 July 31, 2006, and the statements of operations and accumulated deficit,
  changes in stockholders equity, and statements of cash flows for the three
  month periods ended July 31, 2006 and July 31, 2005, and for the period February
  20, 2001 (date of inception) to July 31, 2006. 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, 2006, and the related statements of
  operations and accumulated deficit, changes in stockholders equity, and
  cash flows for the year then ended (not presented herein); and in our report
  dated July 19, 2006, 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 6 to
  the financial statements. In our opinion, the information set forth in the accompanying
  balance sheet as of April 30, 2006 is fairly stated, in all material respects,
  in relation to the balance sheet from which it has been derived.

/s/ Sarna & CompanySarna & Company 
  Certified Public Accountants 
  Westlake Village, California 
  September 11, 2006

F-3

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

|                                     |   | (Unaudited) |   |   | (Audited)  |  
|------------------------------------ | - | ----------- | - | - | ---------- | -
|                                     |   | July 31,    |   |   | April 30,  |  
|                                     |   | 2006        |   |   | 2006       |  
|                                     |   |             |   |   |            |  
|ASSETS                               |  
|                                     |   |             |   |   |            |  
|Current Assets:                      |   |             |   |   |            |  
|Cash                                 | $ | 50          |   | $ | 171        |  
|Trust Account Receivable             |   | 2,100       |   |   | 576        |  
|                                     |   |             |   |   |            |  
|Total Current Assets                 |   | 2,150       |   |   | 747        |  
|                                     |   |             |   |   |            |  
|Other Assets - Investment            |   | -0-         |   |   | -0-        |  
|                                     |   |             |   |   |            |  
|TOTAL ASSETS                         | $ | 2,150       |   | $ | 747        |  
|                                     |   |             |   |   |            |  
|                                     |   |             |   |   |            |  
|LIABILITIES AND STOCKHOLDERS' EQUITY |  
|                                     |   |             |   |   |            |  
|Current Liabilities:                 |   |             |   |   |            |  
|Accounts Payable
      and           |   |             |   |   |            |  
|Accrued Expenses                     | $ | 65,101      |   | $ | 73,478     |  
|Due to Shareholder                   |   | 21,150      |   |   | 21,150     |  
|                                     |   |             |   |   |            |  
|Total Current Liabilities            |   | 86,251      |   |   | 94,628     |  
|                                     |   |             |   |   |            |  
|Stockholders' Equity:                |   |             |   |   |            |  
|Common Stock, $0.001 par value       |   |             |   |   |            |  
|400,000,000 shares authorized,       |   |             |   |   |            |  
|32,170,000
      and 31,949,920      |   |             |   |   |            |  
|shares issued                        |   | 32,170      |   |   | 31,950     |  
|Additional Paid in Capital           |   | 1,051,080   |   |   | 996,280    |  
|Deficit Accumulated
      During     |   |             |   |   |            |  
|The
      Exploration Stage          |   | (1,167,351  | ) |   | (1,122,111 | )
|                                     |   |             |   |   |            |  
|Total Stockholders' Equity (Deficit) |   | (84,101     | ) |   | (93,881    | )
|                                     |   |             |   |   |            |  
|TOTAL LIABILITIES AND                |   |             |   |   |            |  
|STOCKHOLDERS'
      EQUITY           | $ | 2,150       |   | $ | 747        |  

See Notes to Financial Statements

F-4

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

|                           |   | THREE MONTHS ENDED |   |   |              |  
|-------------------------- | - | ------------------ | - | - | ------------ | -
|                           |   | JULY 31,           |   |   | INCEPTION to |  
|                           |   | 2006               |   |   | 2005         |  
|                           |   |                    |   |   |              |  
|Revenues                   | $ | 0                  |   | $ | 0            |  
|                           |   |                    |   |   |              |  
|Operating Expenses         |   | (45,240            | ) |   | (4,730       | )
|                           |   |                    |   |   |              |  
|Loss Before Provision for  |   |                    |   |   |              |  
|Income Taxes               |   | (45,240            | ) |   | (4,730       | )
|                           |   |                    |   |   |              |  
|Provision for Income Taxes |   | (0                 | ) |   | (0           | )
|                           |   |                    |   |   |              |  
|Net Loss                   |   | (45,240            | ) |   | (4,730       | )
|                           |   |                    |   |   |              |  
|Deficit, Beginning         |   |                    |   |   |              |  
|of Period                  |   | (1,122,111         | ) |   | (134,478     | )
|                           |   |                    |   |   |              |  
|Accumulated Deficit, End   |   |                    |   |   |              |  
|of Period                  | $ | (1,167,351         | ) | $ | (139,208     | )
|                           |   |                    |   |   |              |  
|                           |   |                    |   |   |              |  
|Net Loss per Share         | $ | (0.001             | ) | $ | (0.001       | )
|                           |   |                    |   |   |              |  
|Weighted Average           |   |                    |   |   |              |  
|Shares Outstanding         |   | 32,059,960         |   |   | 28,170,000   |  

See Notes to Financial Statements

F-5

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

Common Stock
      
      
      Additional
      
      
      
      
      
      TotalDollar
      
      
      Paid in
      
      
      Accumulated
      
      
      Stockholders'Shares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      Equity(Deficit)InceptionFebruary 20, 2001
      
      ----
      
      $
      ----
      
      $
      ----
      
      $
      ----
      
      $
      -----Common Stock Issued$0.001 per shareApril 9, 2001
      
      4,000,000
      
      
      4,000
      
      
      ----
      
      
      ----
      
      
      4,000Net Loss,April 30, 2001
      
      ----
      
      
      ----
      
      
      ----
      
      
      (1,410
      )
      
      (1,410
      )BalancesApril 30, 2001
      
      4,000,000
      
      
      4,000
      
      
      ----
      
      
      (1,410
      )
      
      2,590Common Stock Issued$0.01 per shareAugust 15, 2001
      
      2,500,000
      
      
      2,500
      
      
      22,500
      
      
      ----
      
      
      25,000Net Loss,April 30, 2002
      
      ----
      
      
      ----
      
      
      ----
      
      
      (19,196
      )
      
      (19,196
      )BalancesApril 30, 2002
      
      6,500,000
      
      
      6,500
      
      
      22,500
      
      
      (20,606
      )
      
      8,394Common Stock Issued$0.10 per shareSeptember 30, 2002
      
      142,500
      
      
      143
      
      
      14,107
      
      
      ----
      
      
      14,250Net Loss,April 30, 2003
      
      ----
      
      
      ----
      
      
      ----
      
      
      (17,632
      )
      
      (17,632
      )BalancesApril 30, 2003
      
      6,642,500
      
      
      6,643
      
      
      36,607
      
      
      (38,238
      )
      
      5,012Common Stock Issued$0.10 per shareNovember 6, 2003
      
      400,000
      
      
      400
      
      
      39,600
      
      
      ----
      
      
      40,000Net Loss,April 30, 2004
      
      ----
      
      
      ----
      
      
      ----
      
      
      (58,708
      )
      
      (58,708
      )BalancesApril 30, 2004
      
      7,042,500
      
      
      7,043
      
      
      76,207
      
      
      (96,946
      )
      
      (13,696
      )Net Loss,April 30, 2005
      
      ----
      
      
      ----
      
      
      ----
      
      
      (37,532
      )
      
      (37,532
      )BalancesApril 30, 2005
      
      7,042,500
      
      
      7,043
      
      
      76,207
      
      
      (134,478
      )
      
      (51,228
      )


See Notes to Financial Statements

F-6

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

DeficitAccumulatedCommon Stock
      
      
      Additional
      
      
      During the
      
      
      TotalDollar
      
      
      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 shareNovember 23,2005
      
      500,000
      
      
      50
      
      
      499,950
      
      
      ----
      
      
      500,0004-for-1 Stock Split,December 19, 2005
      
      22,627,500
      
      
      29,416
      
      
      (29,416
      )
      
      ----
      
      
      ----Common Stock Issued$0.25 per shareFebruary 3, 2006
      
      400,000
      
      
      400
      
      
      99,600
      
      
      ----
      
      
      100,000Common Stock Issued$0.25 per shareMarch 13, 2006
      
      380,000
      
      
      380
      
      
      94,620
      
      
      ----
      
      
      95,000Common Stock Issued$0.25 per shareMarch 31, 2006
      
      999,920
      
      
      1,000
      
      
      248,980
      
      
      ----
      
      
      249,980Net Loss, Period EndedApril 30, 2006
      
      ----
      
      
      ----
      
      
      ----
      
      
      (987,633
      )
      
      (987,633
      )BalancesApril 30, 2006
      
      31,949,920
      
      $
      31,950
      
      $
      996,280
      
      $
      (1,122,111
      )
      $
      (93,881
      )Common Stock Issued$0.25 per shareMay 24, 2006
      
      220,080
      
      
      220
      
      
      54,800
      
      
      ----
      
      
      55,020Net Loss, Period EndedJuly 31, 2006
      
      ----
      
      
      ----
      
      
      ----
      
      
      (45,240
      )
      
      (45,240
      )BalancesJuly 31, 2006
      
      32,170,000
      
      $
      32,170
      
      $
      1,051,080
      
      $
      (1,167,351
      )
      $
      (84,101
      )


See Notes to Financial Statements

F-7

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

|                                   |   | THREE MONTHS ENDED |   |   |              |  
|---------------------------------- | - | ------------------ | - | - | ------------ | -
|                                   |   | JULY 31,           |   |   | INCEPTION to |  
|                                   |   | 2006               |   |   | 2005         |  
|                                   |   |                    |   |   |              |  
|Cash Flows from                    |   |                    |   |   |              |  
|Operating Activities:              |   |                    |   |   |              |  
|                                   |   |                    |   |   |              |  
|Net Loss                           | $ | (45,240            | ) | $ | (4,730       | )
|                                   |   |                    |   |   |              |  
|Adjustments to Reconcile Net       |   |                    |   |   |              |  
|Income to Net Cash Provided/(Used) |   |                    |   |   |              |  
|by Operating Activities:           |   |                    |   |   |              |  
|Unrealized Loss on Investment      |   | -0-                |   |   | -0-          |  
|(Increase)/Decrease
      in:      |   |                    |   |   |              |  
|Trust
      Account Receivable     |   | (1,524             | ) |   | -0-          |  
|Increase(Decrease)
      in:       |   |                    |   |   |              |  
|Cash Overdraft                     |   | -0-                |   |   | 8            |  
|Accounts Payable                   |   | (8,377             | ) |   | 4,700        |  
|                                   |   |                    |   |   |              |  
|Net Cash
      Provided/(Used)     |   |                    |   |   |              |  
|by Operating Activities            |   | (55,141            | ) |   | (22          | )
|                                   |   |                    |   |   |              |  
|Cash Flows from                    |   |                    |   |   |              |  
|Investing Activities:              |   |                    |   |   |              |  
|                                   |   |                    |   |   |              |  
|Stock Investment                   |   | -0-                |   |   | -0-          |  
|                                   |   |                    |   |   |              |  
|Net Cash
      Used                |   |                    |   |   |              |  
|by Investing Activities            |   | -0-                |   |   | -0-          |  
|                                   |   |                    |   |   |              |  
|Cash Flows from                    |   |                    |   |   |              |  
|Financing Activities:              |   |                    |   |   |              |  
|                                   |   |                    |   |   |              |  
|Loans from Shareholders            |   | -0-                |   |   | -0-          |  
|Proceeds Related to                |   |                    |   |   |              |  
|Issuance of Common Stock           |   | 55,020             |   |   | -0-          |  
|                                   |   |                    |   |   |              |  
|Net Cash
      Provided by         |   |                    |   |   |              |  
|Financing Activities               |   | 55,020             |   |   | -0-          |  
|                                   |   |                    |   |   |              |  
|                                   |   |                    |   |   |              |  
|Net Increase (Decrease) in Cash    |   | (121               | ) |   | (22          | )
|                                   |   |                    |   |   |              |  
|Cash at Beginning of Period        |   | 171                |   |   | 22           |  
|                                   |   |                    |   |   |              |  
|Cash at End of Period              | $ | 50                 |   | $ | -0-          |  

See Notes to Financial Statements

F-8

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TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (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

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

F-9

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TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (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.

F-10

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TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Investments

Investments that are purchased in other companies are valued
  at cost less any impairments in the value that are 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 July 31,
  2006 and July 31, 2005 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.

F-11

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TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (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 $1,167,351 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  STOCK SPLIT

On December 19, 2005, the Company completed a four-for-one forward
  split of its issued and outstanding common stock. As a result of this stock
  split, the Companys authorized capital increased from 100,000,000 shares
  of common stock with a par value of $0.001 per share, of which 7,542,500 shares
  were issued and outstanding, to 400,000,000 shares of common stock with a par
  value of $0.001 per share, of which 30,170,000 were issued and outstanding as
  of December 19, 2005.

As a result of this stock split, weighted average shares outstanding
  and earnings per share for the three months ended July 31, 2006 and the three
  months ended July 31, 2005 and for the period February 20, 2001 to July 31,
  2006 have been restated for the effect of the split.

F-12

---

TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (Unaudited)

NOTE 7  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, have been 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 July 31, 2006,
  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.

NOTE 8  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 July 10, 2006, the merger agreement
  expired and was not extended by the parties.

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.

F-13

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TERRACE VENTURES INC. 
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS 
  JULY 31, 2006 
  (Unaudited)

NOTE 8  SUBSEQUENT EVENTS

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.

F-14

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SUPPLEMENTAL STATEMENT







F-15

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

|                            |   | THREE MONTHS ENDED |  |   |              | 
|--------------------------- | - | ------------------ |  | - | ------------ | 
|                            |   | JULY 31,           |  |   | INCEPTION to | 
|                            |   | 2006               |  |   | 2005         | 
|                            |   |                    |  |   |              | 
|Operating Expenses:         |   |                    |  |   |              | 
|Accounting & Audit          | $ | 8,600              |  | $ | -0-          | 
|Consulting                  |   | 1,250              |  |   | -0-          | 
|Exploration and Development |   | -0-                |  |   | -0-          | 
|Legal                       |   | 23,365             |  |   | 913          | 
|Office Administration       |   | 5,600              |  |   | 3,000        | 
|Office Expenses             |   | 295                |  |   | 67           | 
|Regulatory Expenses/Fees    |   | 5,380              |  |   | -0-          | 
|Rent                        |   | 750                |  |   | 750          | 
|Telephone                   |   | -0-                |  |   | -0-          | 
|Travel & Entertainment      |   | -0-                |  |   | -0-          | 
|                            |   |                    |  |   |              | 
|                            |   |                    |  |   |              | 
|Total Operating Expenses    | $ | 45,240             |  | $ | 4,730        | 

See Notes to Financial Statements

F-16

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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, 2006. These factors
may cause our actual results to differ materially from any forward-looking
statement.

General

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 carry out 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.

RECENT CORPORATE DEVELOPMENTS

Since our last fiscal year ended April 30, 2006, we have
experienced the following significant corporate developments in our business:

|1. | On July 10, 2006, our Agreement and Plan of Merger
      Agreement dated May 24, 2006 with Sporg Corporation (Sporg), a private
      company engaged in the internet registration services, Sporg Technology
      Corp., and Gordon F. Burley (the Merger Agreement) expired and has not
      been extended by the parties. We have recently been notified that Sporg
      filed a notice of intention to make a proposal under the Canada Bankruptcy
      Act, and are no longer pursuing any merger with Sporg. Under the terms of
      the Merger Agreement, our wholly- owned subsidiary, Sporg Technology
      Corp., was to merge with Sporg and immediately
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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|   | thereafter we would merge with the Subsidiary and change
        our name to Sporg Technology Corp (the Merger). Concurrent
        with the completion of the Merger, our principal shareholder, Gordon F.
        Burley, was to surrender for cancellation 15,800,000 shares of our common
        stock held by him. We also approved a private placement of up to 2,000,000
        shares of our common stock at a price of $0.30 per share to permit us
        to provide up to $525,000 of interim financing to Sporg pending completion
        of the Merger. Also under the terms of the Merger Agreement, we would
        issue two shares of our common stock in exchange for each outstanding
        share of common stock of Sporg, and grant options and warrants to purchase
        our shares to the existing option and warrant holders of Sporg. Closing
        of the Merger was subject to a number of conditions, including: (i) delivery
        of required financial statements by Sporg; (ii) Terrace providing the
        interim financing; (iii) Terrace obtaining a financing proposal from a
        reputable investment dealer for equity financing of not less than $3,000,000;
        (iv) substantial revisions to Sporgs agreements with its senior
        management; and (v) termination of any investor rights agreement with
        a major investor of Sporg.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2. | On June 5, 2006, we acquired an additional 161,538 shares
        of Sporg at a price of $0.65 per share in a private placement transaction.
        During the year ended April 30, 2006, we acquired 1,428,429 shares of
        the common stock of Sporg at a price of $0.65 per share in private placement
        transactions completed during the year. We now hold 1,589,967 shares representing
        approximately 6.5% of Sporg. The shares were acquired as part of the interim
        financing provided to Sporg under the Merger Agreement. Terrace is presently
        holding the Sporg shares for investment purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3. | On June 6, 2006, we completed and closed the offering
        (the Offering) of up to 4,000,000 (post-4:1 split) shares
        of our common stock at a price of $0.25 for gross proceeds of $1,000,000.
        The Offering was made pursuant to Regulation S of the Securities Act of
        1933. We issued the 4,000,000 (post-4:1 split) shares of our common stock
        to ten investors pursuant to the Offering, for gross proceeds of $1,000,000.
        These shares were issued pursuant to the exemptions from registration
        contained in Regulation S promulgated under the Securities Act of 1933
        on the basis of representations made by the subscribers that the subscribers
        were not U.S. persons, as that term is defined under Regulation
        S, and that the subscribers were not acquiring the shares for the account
        or benefit of a U.S. person.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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. 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.

Current State of Exploration

Our mineral claim presently does not have any mineral reserves.
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  June 2002 Exploration Program

Phase I of our exploration program was completed in June, 2002.
The Phase I exploratory program was conducted by Mr. Reynolds over a period of
three days and consisted of rock sampling and an

4

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assessment of areas previously reported to have potential
mineralization. On June 27, 2002, Mr. Reynolds, our consulting geologist,
completed his review of Phase I 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 Phase II of our
exploration program.

Phase II  September 2004 Exploration Program

Phase II of our exploration program was designed to follow-up
prospecting, sampling and mapping of the earlier exploration carried out by
Fairfield Minerals Ltd. The target of the 2004 program was the location of a
gold bearing quartz vein system similar to the Siwash North deposit, previously
found and bulk sampled by Fairfield. Using Fairfield assessment reports as
guides, a program of follow-up sampling, prospecting and mapping was carried out
over four areas of anomalous samples. The September 2004 exploration program was
successful in locating gold mineralized quartz float and bedrock in areas with
anomalous soil sample sites from surveys done by Fairfield Minerals Ltd. Our
geologist concluded that further exploration work should be undertaken on the
Peach Claim property to assess its potential to host high grade gold
mineralization within quartz (and sulphide) veins. We budgeted to expend $5,000
on our planned exploration program over the next twelve months. We plan to
commence Phase III of our exploration program in mid 2006.

Phase III - 2006 Exploration Program

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. We intend to commence Phase III of our exploration program in
late 2006 to early 2007.

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.

Cash Requirements For The Next Twelve Months

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 $15,000.

Category
      Planned Expenditures Over the Next Twelve
        MonthsProfessional Fees
    $8,000Mineral Exploration costs
    $5,000Miscellaneous
    $2,000TOTAL
    $15,000


Our plan of operation is to proceed with Phase III of the
exploration of the Peach Claim in late 2006 to early 2007. 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

5

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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.

RESULTS OF OPERATIONS

Three Months Summary

|         | Three Months Ended | Three Months Ended | Percentage           
|-------- | ------------------ | ------------------ | ---------------------
|         | July 31, 2006      | July 31, 2005      | Increase / (Decrease)
|Revenue  | $ -                | $ -                | N/A                  
|Expenses | (45,240)           | (4,730)            | 856.45%              
|Net Loss | $(45,240)          | $(4,730)           | 856.45%              

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 | Three
      Months Ended | Percentage           
|--------------------------- | ------------------------ | ------------------------ | ---------------------
|                            | July
      31, 2006      | July
      31, 2005      | Increase / (Decrease)
|Accounting & Audit          | $8,600                   | $0                       | 100%                 
|Consulting                  | 1,250                    | 0                        | 100%                 
|Exploration and Development | 0                        | 0                        | 0.00%                
|Legal                       | 23,365                   | 913                      | 2459.15%             
|Office Administration       | 5,600                    | 3,000                    | 86.67%               
|Office Expenses             | 295                      | 67                       | 340.30%              
|Regulatory Expenses/Fees    | 5,380                    | 0                        | 100%                 
|Rent                        | 750                      | 750                      | 0.00%                
|Telephone                   | 0                        | 0                        | 0.00%                
|Travel & Entertainment      | 0                        | 0                        | 0.00%                
|Total Operating Expenses    | $45,240                  | $4,730                   | 856.45%              

The majority of our operating expenses for the quarter ended
July 31, 2006 consisted of professional fees incurred by us in meeting our
ongoing reporting obligations under federal securities laws. The increases in
our expenses for the three months ended July 31, 2006 as compared to the
comparative period in 2005 are primarily due to increase in our professional
expenses associated with our reporting obligations under the Exchange Act and as
a result of our failed merger negotiations with Sporg Corporation.

6

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During the year ended April 30, 2006, our board of directors
approved an offering (the Offering) of up to 4,000,000 (post-4:1 split) shares
of our common stock at a price of $0.25 for gross proceeds of $1,000,000. The
Offering was made pursuant to Regulation S of the Securities Act of 1933. During
the year we issued the 4,000,000 (post-4:1 split) shares of our common stock to
ten investors pursuant to the Offering, for gross proceeds of $1,000,000. The
proceeds of the Offering were used to acquire our 6.5% stockholding interest in
Sporg. The shares were acquired as part of the interim financing provided to
Sporg under the terms of the proposed Merger Agreement with Sporg. We are
presently holding the Sporg shares for investment purposes. The investment was
recorded at cost as there was no available market for these shares. As a result
of Sporgs intention to file a proposal under the Canada Bankruptcy Act, the
cost of these shares totaling $928,480 has been reduced for a permanent decline
in value to zero. The shares were acquired as part of the interim financing
provided to Sporg under the terms of the Merger Agreement with Sporg.

We anticipate that our operating expenses will increase as we
undertake our plan of operation and pursue our exploration program for the Peach
Claim. Our expenses will continue to increase 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 July 31, 2006 | At April 30, 2006 | Percentage           
|                          | (Unaudited)      | (Audited)         | Increase / (Decrease)
|Current Assets            | $2,150           | $747              | 187.82%              
|Current Liabilities       | (86,251)         | (94,628)          | (8.85)%              
|Working Capital (Deficit) | ($84,101)        | ($93,881)         | (10.42)%             

|Cash Flows                                           |                            |      
|---------------------------------------------------- | -------------------------- | -----
|                                                     | Three Months Ended July 31
|                                                     | 2006                       | 2005 
|Cash Flows from (used in)
      Operating Activities | $(55,141)                  | $(22)
|Cash Flows from (used in) Investing
      Activities | 0                          | 0    
|Cash Flows from (used in)
      Financing Activities | 55,020                     | 0    
|Net Increase (decrease) in Cash During Period        | $(121)                     | $(22)

We had cash on hand of $50 and a working capital deficit of
$84,101 as of July 31, 2006 compared to working capital deficit $93,881 as of
April 30, 2006. We anticipate that we will incur approximately $15,000for operating expenses, including professional legal and accounting expenses
associated with our reporting requirements under the Exchange Act during the
next twelve months.

Financing Requirements

As at July 31, 2006, we had cash in the amount of $50. Our
current operating funds are not sufficient to complete the proposed exploration
program and will be insufficient 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. 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. We currently do not have any

7

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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.

From inception to July 31, 2006, we have suffered aggregate
losses in the amount of $1,167,351 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.

Off-Balance Sheet Arrangements

None.

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 Annual 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 minable 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, 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

8

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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 $1,167,351 for the period from
February 20, 2001 (inception) to July 31, 2006, 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 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. As at July 31,
2006, we had cash in the amount of $50. 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. 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.

Since this is an exploration project, we face a high risk of
business failure due to our inability to predict the success of our business.

We have just begun the initial stages of exploration of our
mineral claim, and thus have no way to evaluate the likelihood that we will be
able to operate the business successfully. We were incorporated on February 20,
2001, and to date have been involved primarily in organizational activities, the
acquisition of the mineral claim, obtaining a summary geological report and
performing certain limited work on our mineral claim. We have not earned any
revenues to date.

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

9

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resources at the time in order to purchase such claims. If no
funding is available, we may be forced to abandon our operations.

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.

We have no known mineral reserves and if we cannot find any
we will have to acquire additional mineral claims or cease our operations.

We have no mineral reserves. If we do not find a mineral
reserve containing gold or if we cannot explore the mineral reserve, either
because we do not have the money to do it or because it will not be economically
feasible to do so, we will have to cease operations and you will lose your
investment. Mineral exploration, particularly for gold, is highly speculative.
It involves many risks and is often non-productive. The chances of finding
reserves on our mineral properties are remote and funds expended on exploration
will likely be lost. If the results of exploration do not reveal mineral
reserves, we may decide to abandon our claim and acquire new claims for
exploration. The acquisition of additional claims will be dependent upon our
possessing sufficient capital resources at the time in order to purchase such
claims. If no funding is available, we may be forced to abandon

10

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our operations. We have not entered into any discussions,
understandings, arrangements or other agreements, preliminary or otherwise, for
acquiring any additional mineral claims and/or funding arrangements for the
purpose of acquiring additional mineral claims.

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.

Because we anticipate our operating expenses will increase
prior to our earning revenues, we may never achieve profitability.

Prior to completion of our exploration stage, we anticipate
that we will incur increased operating expenses without realizing any revenues.
We therefore expect to incur significant losses into the foreseeable future. We
recognize that if we are unable to generate significant revenues from the
exploration of our mineral claim, we will not be able to earn profits or
continue operations. There is no history upon which to base any assumption as to
the likelihood that we will prove successful, and we can provide no assurance
that we will generate any revenues or ever achieve profitability. If we are
unsuccessful in addressing these risks, our business will most likely fail.

Because of the inherent dangers involved in mineral
exploration, there is a risk that we may incur liability or damages as we
conduct our business.

The search for valuable minerals involves numerous hazards. As
a result, we may become subject to liability for such hazards, including
pollution, cave-ins and other hazards against which we cannot insure or against
which we may elect not to insure. At the present time we have no coverage to
insure against these hazards. The payment of such liabilities may have a
material adverse effect on our financial position.

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

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.

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.

11

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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.

Howard Thomson and Gordon F. Burley, our executive officers and
directors, do not have any formal training as geologists or in the technical
aspects of management of a mineral exploration company. 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.

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
and Mr. Burley 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. Mr. Burley expects to spend approximately 5 to 7 hours per week on
our business. Competing demands on Mr. Thomson's and Mr. Burleys time may lead
to a divergence between their 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

12

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securities registered on certain national securities exchanges
or quoted on the Nasdaq system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or quotation system.

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

|1. | contains a description of the nature and level of risk in
      the market for penny stocks in both public offerings and secondary
      trading;                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                          
|2. | contains a description of the broker's or dealer's duties
      to the customer and of the rights and remedies available to the customer
      with respect to a violation to such duties or other requirements of
      securities laws;
|   |                                                                                                                                                                                                                                          
|3. | contains a brief, clear, narrative description of a
      dealer market, including bid and ask prices for penny stocks and the
      significance of the spread between the bid and ask price;                                           
|   |                                                                                                                                                                                                                                          
|4. | contains a toll-free telephone number for inquiries on
      disciplinary actions;                                                                                                                                                       
|   |                                                                                                                                                                                                                                          
|5. | defines significant terms in the disclosure document or
      in the conduct of trading in penny stocks; and                                                                                                                             
|   |                                                                                                                                                                                                                                          
|6. | contains such other information and is in such form,
      including language, type, size and format, as the SEC shall require by
      rule or regulation.                                                                              

The broker-dealer also must provide, prior to effecting any
transaction in a penny stock, the customer with: (a) bid and offer quotations
for the penny stock; (b) the compensation of the broker-dealer and its
salesperson in the transaction; (c) the number of shares to which such bid and
ask prices apply, or other comparable information relating to the depth and
liquidity of the market for such stock; and (d) a monthly account statements
showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules; the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for our stock.

ITEM
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 have concluded that these disclosure controls and procedures
are effective.

There were no changes in our internal control over financial
reporting during the three months ended July 31, 2006 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

13

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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 Terrace Ventures Inc. and Don Archibald.(1)                                                         
|        |                                                                                                                                                                          
|10.2    | 2006 Stock Incentive Plan.(4)                                                                                                                                            
|        |                                                                                                                                                                          
|10.3    | Stock Option Agreement between Terrace Ventures Inc. and
      Howard Thomson dated March 31, 2006.(4)                                                                   
|        |                                                                                                                                                                          
|10.4    | Management Consulting Agreement dated March 21, 2006
      between Terrace Ventures Inc. and Howard Thomson.(4)                                                          
|        |                                                                                                                                                                          
|10.5    | Agreement and Plan of Merger dated for reference May 24,
      2006 among Terrace Ventures Inc., Sporg Technology Corp., Sporg
      Corporation and Gordon F. Burley.(5)

14

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|14.1 | Code of Ethics.(3)                                                                                                                                                                            
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                               
|21.1 | List Of Subsidiaries.(6)                                                                                                                                                                      
|     |                                                                                                                                                                                               
|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.

|(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.                    

15

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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: | September 14, 2006 | By: | /s/ Howard Thomson                                       
|      |                    |     | HOWARD THOMSON                                           
|      |                    |     | Chief Executive Officer and Chief
      Financial Officer
|      |                    |     | President, Secretary and
      Treasurer                 
|      |                    |     | Director                                                 
|      |                    |     | (Principal Executive Officer)                            
|      |                    |     | (Principal Accounting Officer)                           

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