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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 October 31, 2004

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

For the transition period ________ to ________

Commission File Number 000-50569

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

|NEVADA                                          | 91-2147101                       
|----------------------------------------------- | ---------------------------------
|(State or other jurisdiction of                 | (IRS Employer Identification No.)
|incorporation or organization)                  |                                  
|                                                |                                  
|810 PEACE PORTAL DRIVE, SUITE 202               |                                  
|BLAINE, WA                                      | 98230                            
|(Address of principal executive offices)        | (Zip Code)                       
|                                                |                                  
|Issuer's telephone number, including area code: | (360) 332-1752                   

NOT APPLICABLE


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

State the number of shares outstanding of each of the issuer's
  classes of common stock, as of the latest practicable date: 7,042,500 Shares
  of Common Stock as of December 15, 2004.

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

2

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TERRACE VENTURES INC.

FINANCIAL STATEMENTS

OCTOBER 31, 2004 AND OCTOBER 31, 2003

F-1

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INDEX TO FINANCIAL STATEMENTS

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

F-2

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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 October 31, 2004 and October
  31, 2003, and the related statements of operations and accumulated deficit,
  changes in stockholders’ equity, and statement of cash flows for the three
  months and six 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
  December 14, 2004

F-3

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

|ASSETS                                      |   |             |   |   |             |  
|------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                            |   |             |   |   |             |  
|                                            |   | OCTOBER 31, |   |   | OCTOBER 31, |  
|                                            |   | 2004        |   |   | 2003        |  
|                                            |   |             |   |   |             |  
|Current Assets                              |   |             |   |   |             |  
|Cash                                        | $ | 9,530       |   | $ | 45,053      |  
|Total Current Assets                        |   | 9,530       |   |   | 45,053      |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|TOTAL ASSETS                                | $ | 9,530       |   | $ | 45,053      |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|LIABILITIES AND STOCKHOLDERS' EQUITY        |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|Current Liabilities                         |   |             |   |   |             |  
|Accounts Payable and Accrued Expenses       | $ | 40,141      |   | $ | 5,620       |  
|Stock Subscription Liability                |   | -0          | - |   | 40,000      |  
|Total Current Liabilities                   |   | 40,141      |   |   | 45,620      |  
|                                            |   |             |   |   |             |  
|                                            |   |             |   |   |             |  
|Stockholders' Equity                        |   |             |   |   |             |  
|Common Stock, $0.001 par value              |   |             |   |   |             |  
|100,000,000
      shares authorized,        |   |             |   |   |             |  
|7,042,500
      and 6,642,500 shares issued |   | 704         |   |   | 664         |  
|Additional Paid in Capital                  |   | 82,546      |   |   | 42,586      |  
|Accumulated deficit                         |   | (113,861    | ) |   | (43,817     | )
|Total Stockholders' Equity (Deficit)        |   | (30,611     | ) |   | (567        | )
|TOTAL LIABILITIES AND                       |   |             |   |   |             |  
|STOCKHOLDERS' EQUITY                        | $ | 9,530       |   | $ | 45,053      |  

See Notes to Financial Statement

F-4

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

|                      |   | THREE MONTHS ENDED |   |   | SIX MONTHES ENDED |   |   |             |  
|--------------------- | - | ------------------ | - | - | ----------------- | - | - | ----------- | -
|                      |   | OCTOBER 31,        |   |   | OCTOBER 31,       |   |   | INCEPTION - |  
|                      |   | 2004               |   |   | 2003              |   |   | 2004        |  
|Revenues              | $ | 0                  |   | $ | 0                 |   | $ | 0           |  
|                      |   |                    |   |   |                   |   |   |             |  
|Operating Expenses    |   | (9,347             | ) |   | (3,238            | ) |   | (16,915     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Loss Before Provision |   | (9,347             | ) |   | (3,238            | ) |   | (16,915     | )
|for Income Taxes      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|Provision for         |   |                    |   |   |                   |   |   |             |  
|Income  Taxes         |   | (0                 | ) |   | (0                | ) |   | (0          | )
|                      |   |                    |   |   |                   |   |   |             |  
|Net Loss              |   | (9,347             | ) |   | (3,238            | ) |   | (16,915     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Deficit,  Beginning   |   |                    |   |   |                   |   |   |             |  
|of Period             |   | (104,514           | ) |   | (40,579           | ) |   | (96,946     | )
|                      |   |                    |   |   |                   |   |   |             |  
|Accumulated Deficit,  |   |                    |   |   |                   |   |   |             |  
|End of  Period        | $ | (113,861           | ) | $ | (43,817           | ) | $ | (113,861    | )
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|                      |   |                    |   |   |                   |   |   |             |  
|Net Loss  per Share   | $ | (0.01              | ) | $ | (0.01             | ) | $ | (0.01       | )
|                      |   |                    |   |   |                   |   |   |             |  
|Weighted  Average     |   |                    |   |   |                   |   |   |             |  
|Shares  Outstanding   |   | 7,042,500          |   |   | 6,642,500         |   |   | 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  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|October 31, 2003    | ----         |  |   | ----       |  |   | ----        |  |   | (5,579   | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|October 31, 2003    | 6,642,500    |  | $ | 664        |  | $ | 42,586      |  | $ | (43,817  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Common Stock Issued |              |  |   |            |  |   |             |  |   |          |  
|$0.10 per share     |              |  |   |            |  |   |             |  |   |          |  
|November 6, 2003    | 125,000      |  |   | 12         |  |   | 12,488      |  |   | ----     |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Common Stock Issued |              |  |   |            |  |   |             |  |   |          |  
|$0.10 per share     |              |  |   |            |  |   |             |  |   |          |  
|November 6, 2003    | 275,000      |  |   | 28         |  |   | 27,472      |  |   | ----     |  
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | ----         |  |   | ----       |  |   | ----        |  |   | (53,129  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|April 30, 2004      | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (96,946  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Net Loss            |              |  |   |            |  |   |             |  |   |          |  
|Period Ended        |              |  |   |            |  |   |             |  |   |          |  
|October 31, 2004    | ----         |  |   | ----       |  |   | ----        |  |   | (16,915  | )
|                    |              |  |   |            |  |   |             |  |   |          |  
|Balances            |              |  |   |            |  |   |             |  |   |          |  
|October 31, 2004    | 7,042,500    |  | $ | 704        |  | $ | 82,546      |  | $ | (113,861 | )

See Notes to Financial Statements

F-6

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

|                                |   | SIX MONTHS         |   |   | SIX MONTHS         |   |   |              |  
|------------------------------- | - | ------------------ | - | - | ------------------ | - | - | ------------ | -
|                                |   | ENDED              |   |   | ENDED              |   |   | INCEPTION -  |  
|                                |   | OCT
      31, 2004 |   |   | OCT
      31, 2003 |   |   | OCT 31, 2004 |  
|                                |   |                    |   |   |                    |   |   |              |  
|Cash  Flows from                |   |                    |   |   |                    |   |   |              |  
|Operating Activities:           |   |                    |   |   |                    |   |   |              |  
|                                |   |                    |   |   |                    |   |   |              |  
|Net  Loss                       | $ | (16,915            | ) | $ | (5,579             | ) | $ | (113,861     | )
|Increase (Decrease)             |   |                    |   |   |                    |   |   |              |  
|Accounts Payable                |   | 13,311             |   |   | 520                |   |   | 40,141       |  
|                                |   |                    |   |   |                    |   |   |              |  
|Net  Cash Used by               |   |                    |   |   |                    |   |   |              |  
|Operating Activities            |   | (3,604             | ) |   | (5,059             | ) |   | (73,720      | )
|                                |   |                    |   |   |                    |   |   |              |  
|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 |   | (3,604             | ) |   | 34,941             |   |   | 9,530        |  
|                                |   |                    |   |   |                    |   |   |              |  
|Cash  at Beginning of Period    |   | 13,134             |   |   | 10,112             |   |   | -0           | -
|                                |   |                    |   |   |                    |   |   |              |  
|Cash  at End of Period          | $ | 9,530              |   | $ | 45,053             |   | $ | 9,530        |  

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 October 31, 2004 and October
  31, 2003 represents the minimum state income tax expense of the Company, which
  is not considered significant.

NOTE 3 - COMMITMENTS AND CONTINGENCIES

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

Litigation 
  The Company is not presently involved in any litigation.

NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

F-10

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TERRACE VENTURES INC.
  (AN EXPLORATION STAGE COMPANY) 
  NOTES TO FINANCIAL STATEMENTS (CONTINUED)
  (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 $113,861 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 |  |   | SIX MONTHES ENDED |  |   |             | 
|------------------------ | - | ------------------ |  | - | ----------------- |  | - | ----------- | 
|                         |   | OCTOBER 31,        |  |   | OCTOBER  31,      |  |   | INCEPTION - | 
|                         |   | 2004               |  |   | 2003              |  |   | 2004        | 
|Operating Expenses       |   |                    |  |   |                   |  |   |             | 
|Accounting               | $ | 2,120              |  | $ | -0-               |  | $ | 4,120       | 
|Exploration Expense      |   | -0-                |  |   | -0-               |  |   | -0-         | 
|Legal                    |   | 4,364              |  |   | 520               |  |   | 7,358       | 
|Office Administration    |   | 1,500              |  |   | 1,500             |  |   | 3,000       | 
|Office Expenses          |   | 30                 |  |   | 468               |  |   | 30          | 
|Regulatory Expenses/Fees |   | 583                |  |   | -0-               |  |   | 583         | 
|Rent                     |   | 750                |  |   | 750               |  |   | 1,500       | 
|Telephone                |   | -0-                |  |   | -0-               |  |   | -0-         | 
|Travel & Entertainment   |   | -0-                |  |   | -0-               |  |   | 324         | 
|                         |   |                    |  |   |                   |  |   |             | 
|                         |   |                    |  |   |                   |  |   |             | 
|Total Operating Expenses | $ | 9,347              |  | $ | 3,238             |  | $ | 16,915      | 

See Notes to Financial Statement

F-13

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ITEM 2.     MANAGEMENT’S DISCUSSION AND
  ANALYSIS OR PLAN OF OPERATIONS

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

FORWARD LOOKING STATEMENTS

The information in this discussion contains forward-looking
  statements. These forward-looking statements involve risks and uncertainties,
  including statements regarding our capital needs, business strategy and expectations.
  Any statements contained herein that are not statements of historical facts
  may be deemed to be forward-looking statements. In some cases, you can identify
  forward-looking statements by terminology such as “may”, “will”,
  “should”, “expect”, “plan”, “intend”,
  “anticipate”, “believe”, estimate”, “predict”,
  “potential” or “continue”, the negative of such terms
  or other comparable terminology. Actual events or results may differ materially.
  In evaluating these statements, you should consider various factors, including
  the risks discussed below, and, from time to time, in other reports we file
  with the United States Securities and Exchange Commission (the “SEC”),
  including our Annual Report on Form 10-KSB for the year ended April 30, 2004.
  These factors may cause our actual results to differ materially from any forward-looking
  statement.

OVERVIEW

We are an exploration stage company engaged in the acquisition
  and exploration of mineral properties. We own a 100% undivided interest in a
  mineral claim that we refer to as the “Peach” mineral claim (the
  “Peach Claim”) located in the Nicola, Simalkameen and Osoyoos Mining
  Divisions of the Province of British Columbia, Canada. Our plan of operations
  is to carry out exploration work on the Peach Claim in order to ascertain whether
  it possesses deposits of gold. Further exploration of this mineral claim is
  required before a final determination as to its viability can be made. No commercially
  viable mineral deposit may exist on our mineral claim. We can provide no assurance
  that our mineral claim contains a mineral deposit until appropriate exploratory
  work is done and an evaluation based on that work concludes further work programs
  are justified. At this time, we have no reserves on our mineral claim.

We purchased the Peach Claim property from Don Archibald for
  cash consideration of $5,000 pursuant to a purchase agreement dated August
  15, 2001.

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

PLAN OF OPERATIONS

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

We completed Phase I of our planned four phase exploration
  program on the Peach Claim property in June, 2002. The total cost for the first
  phase was approximately $5,000. Following the successful completion of Phase
  I, our geologist recommended that we complete a second phase consisting of geological
  prospecting, geological outcrop mapping, and detailed soil sampling in areas
  of interest. Phase II of our exploration program was completed in late 2004.
  We expect a report on the Phase II results in early 2005. The cost of completing
  Phase II of our exploration program was $7,500.

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A decision on proceeding 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 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 October 31, 2004 is $9,530. 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

Second Quarter and Six Months Summary

|         | Second Quarter Ended October 31 |  | Six Months Ended October 31 | 
|-------- | ------------------------------- |  | --------------------------- | 
|         |                                 |  |                             | 
|         |                                 |  |                             | 
|         | 2004                            |  | 2003                        | 
|Revenue  | -                               |  | -                           | 
|Expenses | ($ 9,347)                       |  | ($ 3,238)                   | 
|Net Loss | ($ 9,347)                       |  | ($ 3,238)                   | 

Revenues

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

Operating Expenses

|                       | Second Quarter Ended October 31 |      | Six Months Ended October 31 | 
|---------------------- | ------------------------------- | ---- | --------------------------- | 
|                       |                                 |      | Percentage                  | 
|                       | 2004                            | 2003 | Increase /                  | 
|                       |                                 |      | (Decrease)                  | 
|Legal and Professional | $6,484                          | $520 | 1146.9%                     | 

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|Fees                  |        |        |         |  |         |        |         | 
|--------------------- | ------ | ------ | ------- |  | ------- | ------ | ------- | 
|Office Administration | $1,500 | $1,500 | -       |  | $3,000  | $3,000 | -       | 
|Regulatory Expenses   | $583   | $0     | -       |  | $583    | $0     | -       | 
|Rent                  | $750   | $750   | -       |  | $1,500  | $1,500 | -       | 
|Miscellaneous         | $30    | $468   | (93.5%) |  | $354    | $559   | (36.6%) | 
|Total Operating       | $9,347 | $3,238 | 188.6%  |  | $16,915 | $5,579 | 203.1%  | 
|Expenses              |        |        |         |  |         |        |         | 

The increase in our operating expenses for the period ended
  October 31, 2004 was primarily due to the increase in professional fees incurred
  in connection with the filing of our registration statement on Form 10-SB with
  the SEC, including subsequent amendments thereto and our ongoing reporting obligations
  under the Exchange Act.

We anticipate our operating expenses will increase as we undertake
  our plan of operations. 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 loss during the six months ended October 31, 2004 was entirely attributable to operating expenses.

LIQUIDITY AND CAPITAL RESOURCES

|Cash Flows                                     |                             |  |          | 
|---------------------------------------------- | --------------------------- |  | -------- | 
|                                               | Six Months Ended October 31
|                                               | 2004                        |  | 2003     | 
|Cash Flows from (used in) Operating Activities | ($3,604)                    |  | ($5,059) | 
|Cash Flows from (used in) Investing Activities | $0                          |  | $0       | 
|Cash Flows from (used in) Financing Activities | $0                          |  | $40,000  | 
|Net Increase (decrease) in Cash During Period  | ($3,604)                    |  | $34,941  | 

|Working Capital           |                     |  |                     |  |                       | 
|------------------------- | ------------------- |  | ------------------- |  | --------------------- | 
|                          |                     |  |                     |  | Percentage            | 
|                          | At October 31, 2004 |  | At October 31, 2003 |  | Increase / (Decrease) | 
|Current Assets            | $9,530              |  | $45,053             |  | (78.8%)               | 
|Current Liabilities       | $40,141             |  | $45,620             |  | (12%)                 | 
|Working Capital (Deficit) | ($30,611)           |  | ($567)              |  | 5298%                 | 

We had cash of $9,530 at October 31, 2004 as compared
  to cash of $45,053 as at October 31, 2003. 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.

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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 October 31, 2004, we have suffered recurring
  losses in the amount of $113,861 and net cash outflows from operations.
  We expect to continue to incur substantial losses until we complete the development
  of our business.

Our current operating funds are sufficient to complete the
  proposed exploration program, however, they will be insufficient to complete
  the full exploration of the mineral claim and begin mining efforts should the
  mineral claim prove commercially viable. Therefore, we will need to obtain additional
  financing in order to complete our full business plan. As at October 31, 2004,
  we had cash in the amount of $9,530. We currently do not have any operations
  and we have no income. Our plan of operations calls for significant expenses
  in connection with the exploration of our mineral claim. We may need additional
  financing to proceed past Phase II of our exploration program. We may also require
  additional financing if the costs of the exploration of our mineral claim are
  greater than anticipated. We may also require additional financing to sustain
  our business operations if we are not successful in earning revenues. We currently
  do not have any arrangements for financing and we may not be able to obtain
  financing when required. Obtaining additional financing would be subject to
  a number of factors, including the market prices for the mineral property and
  gold. These factors may make the timing, amount, terms or conditions of additional
  financing unavailable to us.

Off-Balance Sheet Arrangements

We have no 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.

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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 Accounting Officer have concluded that our disclosure controls
  and procedures are, in fact, effective at this reasonable assurance level as
  of the period covered.

(B) Changes In Internal Controls Over Financial Reporting

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

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PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

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

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

None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.     OTHER INFORMATION

None.

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ITEM 6.     EXHIBITS

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

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

(1) Filed with the SEC as an exhibit to our Registration
  Statement on Form 10-SB originally filed on February 2, 2004. 
       (2) Filed with the SEC as an exhibit to our Annual
  Report on Form 10-KSB filed on September 8, 2004.

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SIGNATURES

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

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

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