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**UNITED STATES
  SECURITIES 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 January 31, 2005

 ̈ Transition Report
  pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 For the transition
  period to________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 March 15, 2005.

Transitional Small Business Disclosure Format (check one):
  Yes ̈ No x

1

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PART I - FINANCIAL INFORMATION

|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

The accompanying unaudited financial statements have been
  prepared in accordance with the instructions to Form 10-QSB and Item 310(b)
  of Regulation S-B, and, therefore, do not include all information and footnotes
  necessary for a complete presentation of financial position, results of operations,
  cash flows, and stockholders' equity in conformity with generally accepted accounting
  principles. In the opinion of management, all adjustments considered necessary
  for a fair presentation of the results of operations and financial position
  have been included and all such adjustments are of a normal recurring nature.
  Operating results for the nine months ended January 31, 2005 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

JANUARY 31, 2005 AND JANUARY 31, 2004

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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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., an exploration stage company, as of January 31, 2005 and January
  31, 2004, and the related statements of operations and accumulated deficit,
  changes in stockholders’ equity, and statement of cash flows for the three
  months and nine months then ended. All information included in these financial
  statements is the representation 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, 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 for them
  to be in conformity with accounting principles generally accepted in the United
  States of America.

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 
  March 3, 2005

F-3

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|TERRACE VENTURES INC.          
|-------------------------------
|(AN  EXPLORATION STAGE COMPANY)
|BALANCE SHEET                  
|(UNAUDITED)                    
|                               
|ASSETS                         

|                     |   | JANUARY 31, |  |   | JANUARY 31, | 
|-------------------- | - | ----------- |  | - | ----------- | 
|                     |   | 2005        |  |   | 2004        | 
|                     |   |             |  |   |             | 
|Current Assets       |   |             |  |   |             | 
|Cash                 | $ | 386         |  | $ | 32,209      | 
|Total Current Assets |   | 386         |  |   | 32,209      | 
|                     |   |             |  |   |             | 
|                     |   |             |  |   |             | 
|TOTAL ASSETS         | $ | 386         |  | $ | 32,209      | 




|Current Liabilities                         |   |          |   |   |         |  
|------------------------------------------- | - | -------- | - | - | ------- | -
|Accounts Payable and Accrued Expenses       | $ | 39,422   |   | $ | 10,101  |  
|                                            |   |          |   |   |         |  
|Total Current Liabilities                   |   | 39,422   |   |   | 10,101  |  
|                                            |   |          |   |   |         |  
|                                            |   |          |   |   |         |  
|Stockholders' Equity                        |   |          |   |   |         |  
|Common Stock, $0.001 par value              |   |          |   |   |         |  
|100,000,000
      shares authorized,        |   |          |   |   |         |  
|7,042,500 and
      6,642,500 shares issued |   | 704      |   |   | 704     |  
|Additional Paid in Capital                  |   | 82,546   |   |   | 82,546  |  
|Accumulated deficit                         |   | (122,286 | ) |   | (61,142 | )
|Total Stockholders' Equity (Deficit)        |   | (39,036  | ) |   | 22,108  |  
|TOTAL LIABILITIES AND                       |   |          |   |   |         |  
|STOCKHOLDERS' EQUITY                        | $ | 386      |   | $ | 32,209  |  




See Notes to Financial Statements

F-4

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

|                      |   | THREE MONTHS ENDED |   |   | NINE MONTHS ENDED |   |   |             |  
|--------------------- | - | ------------------ | - | - | ----------------- | - | - | ----------- | -
|                      |   | JANUARY 31,        |   |   | JANUARY 31,       |   |   | INCEPTION - |  
|                      |   | 2005               |   |   | 2004              |   |   | 2005        |  
|Revenues              | $ | 0                  |   | $ | 0                 |   | $ | 0           |  
|                      |   |                    |   |   |                   |   |   |             |  
|Operating Expenses    |   | (8,425             | ) |   | (13,898           | ) |   | (25,340     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Loss Before Provision |   | (8,425             | ) |   | (13,898           | ) |   | (25,340     | )
|for Income Taxes      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|Provision for         |   |                    |   |   |                   |   |   |             |  
|Income Taxes          |   | (0                 | ) |   | (0                | ) |   | (0          | )
|                      |   |                    |   |   |                   |   |   |             |  
|Net Loss              |   | (8,425             | ) |   | (13,898           | ) |   | (25,340     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Deficit, Beginning    |   |                    |   |   |                   |   |   |             |  
|of Period             |   | (113,861           | ) |   | (47,244           | ) |   | (96,946     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Accumulated Deficit,  |   |                    |   |   |                   |   |   |             |  
|End of Period         | $ | (122,286           | ) | $ | (61,142           | ) | $ | (122,286    | )
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|Net Loss per Share    | $ | (0.001             | ) | $ | (0.002            | ) | $ | (0.004      | )
|                      |   |                    |   |   |                   |   |   |             |  
|Weighted Average      |   |                    |   |   |                   |   |   |             |  
|Shares Outstanding    |   | 7,042,500          |   |   | 6,842,500         |   |   | 7,042,500   |  

See Notes to Financial Statements

F-5

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

|                    | Common Stock |  |   | Additional |  |   | Accumulated |  |   | Total    |  
|------------------- | ------------ |  | - | ---------- |  | - | ----------- |  | - | -------- | -
|                    |              |  |   | Dollar     |  |   | Paid in     |  |   | Deficit  |  
|                    | Shares       |  |   | Amount     |  |   | Capital     |  |   |          |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2003      | 6,642,500    |  | $ | 664        |  | $ | 42,586      |  | $ | (38,238  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|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        |              |  |   |            |  |   |             |  |   |          |  
|January 31, 2004    | ----         |  |   | ----       |  |   | ----        |  |   | (22,904  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|January 31, 2004    | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (61,142  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | ----         |  |   | ----       |  |   | ----        |  |   | (35,804  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (96,946  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|January 31, 2005    | ----         |  |   | ----       |  |   | ----        |  |   | (25,340  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|January 31, 2005    | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (122,286 | )

See Notes to Financial Statements

F-6

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

|                                |   | NINE MONTHS  |   |   | NINE MONTHS  |   |   |              |  
|------------------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | -
|                                |   | ENDED        |   |   | ENDED        |   |   | INCEPTION -  |  
|                                |   | JAN 31, 2005 |   |   | JAN 31, 2004 |   |   | JAN 31, 2005 |  
|                                |   |              |   |   |              |   |   |              |  
|Cash Flows from                 |   |              |   |   |              |   |   |              |  
|Operating Activities:           |   |              |   |   |              |   |   |              |  
|                                |   |              |   |   |              |   |   |              |  
|Net Loss                        | $ | (25,340      | ) | $ | (22,904      | ) | $ | (122,286     | )
|Increase(Decrease)              |   |              |   |   |              |   |   |              |  
|Accounts
      Payable          |   | (12,592      | ) |   | (5,001       | ) |   | 39,422       |  
|                                |   |              |   |   |              |   |   |              |  
|NetCash Used by                 |   |              |   |   |              |   |   |              |  
|Operating Activities            |   | (12,748      | ) |   | (17,903      | ) |   | (82,864      | )
|                                |   |              |   |   |              |   |   |              |  
|Cash Flows from                 |   |              |   |   |              |   |   |              |  
|Financing Activities:           |   |              |   |   |              |   |   |              |  
|                                |   |              |   |   |              |   |   |              |  
|Proceeds
      Received         |   |              |   |   |              |   |   |              |  
|Issuance
      of Common Stock  |   | -0           | - |   | -0           | - |   | 83,250       |  
|Stock
      Subscriptions       |   | -0           | - |   | 40,000       |   |   | -0           | -
|                                |   |              |   |   |              |   |   |              |  
|Cash Provided by                |   |              |   |   |              |   |   |              |  
|Financing Activities            |   | -0           | - |   | 40,000       |   |   | 83,250       |  
|                                |   |              |   |   |              |   |   |              |  
|                                |   |              |   |   |              |   |   |              |  
|Net Increase (Decrease) in Cash |   | (12,748      | ) |   | 22,097       |   |   | 386          |  
|                                |   |              |   |   |              |   |   |              |  
|Cash at Beginning of Period     |   | 13,134       |   |   | 10,112       |   |   | -0           | -
|                                |   |              |   |   |              |   |   |              |  
|Cash at End of Period           | $ | 386          |   | $ | 32,209       |   | $ | 386          |  

See Notes to Financial Statements

F-7

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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

Basis of Presentation

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

Use of Estimates

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

Exploration Stage Company

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

Pro Forma Compensation Expense

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)
  (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-9

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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 January31,
  2004 and January31, 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)
  (UNAUDITED)

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 $122,286 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
  (UNAUDITED)

|                         |   | THREE MONTHS ENDED |   |   | NINE MONTHS ENDED |   |   |             |  
|------------------------ | - | ------------------ | - | - | ----------------- | - | - | ----------- | -
|                         |   | JANUARY 31,        |   |   | JANUARY 31,       |   |   | INCEPTION - |  
|                         |   | 2005               |   |   | 2004              |   |   | 2005        |  
|Operating Expenses       |   |                    |   |   |                   |   |   |             |  
|Accounting               | $ | 2,120              |   | $ | -0                | - | $ | 6,240       |  
|Exploration Expense      |   | -0                 | - |   | 5,000             |   |   | -0          | -
|Legal                    |   | 3,616              |   |   | 6,376             |   |   | 10,974      |  
|Office Administration    |   | 1,500              |   |   | 1,500             |   |   | 4,500       |  
|Office Expenses          |   | 30                 |   |   | -0                | - |   | 60          |  
|Regulatory Expenses/Fees |   | 409                |   |   | -0                | - |   | 992         |  
|Rent                     |   | 750                |   |   | 750               |   |   | 2,250       |  
|Telephone                |   | -0                 | - |   | -0                | - |   | -0          | -
|Travel & Entertainment   |   | -0                 | - |   | 272               |   |   | 324         |  
|                         |   |                    |   |   |                   |   |   |             |  
|                         |   |                    |   |   |                   |   |   |             |  
|Total Operating Expenses | $ | 8,425              |   | $ | 13,898            |   | $ | 25,340      |  

See Notes to Financial Statements

F-13

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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, 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 operation
  is to carry out exploration work on the Peach Claim in order to ascertain whether
  it possesses deposits of gold. Further exploration of the Peach 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 the Peach 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 the Nicola, Simalkameen
  and Osoyoos Mining Divisions, approximately 40 kilometres west of Kelowna, British
  Columbia, Canada.

PLAN OF OPERATION

Our plan of operation 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 was completed in late 2004.
  We expect a report on the Phase II

3

---

results within the next few weeks. The cost of completing
  Phase II of our exploration program was $7,500.

A decision on whether to proceed beyond the planned Phase
  II exploration will be made by assessing whether the results of Phase II 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. The decision whether or not to proceed will
  also 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.

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. Our cash on hand as at January 31, 2005 was $386. 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

Third Quarter and Nine Months Summary

|         |   | Third Quarter Ended January 31 |   |   | Nine Months Ended January 31 |  
|-------- | - | ------------------------------ | - | - | ---------------------------- | -
|         |   |                                |   |   |                              |  
|         |   |                                |   |   |                              |  
|         |   | 2005                           |   |   | 2004                         |  
|Revenue  |   | -                              |   |   | -                            |  
|Expenses | $ | (8,425                         | ) | $ | (13,898                      | )
|Net Loss | $ | (8,425                         | ) | $ | (13,898                      | )

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.

4

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Operating Expenses

|                       |   | Third Quarter Ended January 31 |  |   | Nine Months Ended January 31 |           
|---------------------- | - | ------------------------------ |  | - | ---------------------------- | ----------
|                       |   |                                |  |   |                              | Percentage
|                       |   |                                |  |   |                              | Increase /
|                       |   | 2005                           |  |   | 2004                         | (Decrease)
|Accounting             | $ | 2,120                          |  | $ | --                           | 100       
|Exploration Expense    |   | --                             |  |   | 5,000                        | (100      
|Legal and Professional |   | 3,616                          |  |   | 6,376                        | (43.3     
|Fees                   |   |                                |  |   |                              |           
|Office Administration  |   | 1,500                          |  |   | 1,500                        | --        
|Office Expenses        |   | 30                             |  |   | --                           | 100       
|Regulatory             |   | 409                            |  |   | --                           | 100       
|Expenses/Fees          |   |                                |  |   |                              |           
|Rent                   |   | 750                            |  |   | 750                          | --        
|Telephone              |   | --                             |  |   | --                           | --        
|Travel & Entertainment |   | --                             |  |   | 272                          | (100      
|Total Operating        |   |                                |  |   |                              |           
|Expenses               | $ | 8,425                          |  | $ | 13,898                       | (39.4     




We anticipate our operating expenses will increase as we undertake
  our plan of operation. The increase is expected to be attributable to our ongoing
  exploration expenses and the professional fees to be incurred in connection
  with our reporting obligations under the Exchange Act.

Net Loss

Our net loss incurred during the three month period ended
  January 31, 2005 was entirely attributable to our operating expenses and to
  the fact that we did not earn any revenue during this period.

LIQUIDITY AND CAPITAL RESOURCES

|Cash Flows                                     |   |                              |   |   |         |  
|---------------------------------------------- | - | ---------------------------- | - | - | ------- | -
|                                               |   | Nine Months Ended January 31 |  
|                                               |   | 2005                         |   |   | 2004    |  
|Cash Flows from (used in) Operating Activities | $ | (12,748                      | ) | $ | (17,903 | )
|Cash Flows from (used in) Investing Activities |   | --                           |   |   | --      |  
|Cash Flows from (used in) Financing Activities |   | --                           |   |   | 40,000  |  
|Net Increase (decrease) in Cash During Period  | $ | (12,748                      | ) | $ | 22,097  |  

5

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|Working Capital           |   |                     |   |   |                     |  |                       |   
|------------------------- | - | ------------------- | - | - | ------------------- |  | --------------------- | --
|                          |   |                     |   |   |                     |  | Percentage            |   
|                          |   | At January 31, 2005 |   |   | At January 31, 2004 |  | Increase / (Decrease) |   
|Current Assets            | $ | 386                 |   | $ | 32,209              |  | (98.8                 | )%
|Current Liabilities       |   | 39,422              |   |   | 10,101              |  | 290.3                 | % 
|Working Capital (Deficit) | $ | (39,036             | ) | $ | 22,108              |  | (276.6                | )%




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 January 31, 2005, we have suffered cumulative
  losses of $122,286. We expect to continue to incur substantial losses until
  we complete the development of our business.

As at January 31, 2005, we had cash in the amount of $386.
  We currently do not have any operations and we have no income. We have completed
  Phase II of our planned four phase exploration program and will decide whether
  to proceed with our exploration program upon receipt of the Phase II results.
  Our current working capital is insufficient to proceed with the next phase of
  our exploration program for the Peach Claim. If we determine that additional
  exploration is warranted, we will require additional financing in order to proceed
  with the next phase of our exploration program. We may also require additional
  financing if the costs of the exploration of the Peach Claim are greater than
  anticipated or to sustain our business operations if we are not ultimately successful
  in earning revenues. We currently do not have any arrangements for financing
  and we may not be able to obtain financing when required. Our ability to obtain
  additional financing will be subject to a number of factors, including the market
  prices for mineral properties and gold.

Off-Balance Sheet Arrangements

We have no 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.

6

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|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 financial 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.

7

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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.

8

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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.                  

9

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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:                  
| |                      
| |                      
| |                      
| |                      
| |                      
| |                      

10

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