---

UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, DC 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, 2006

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

For the transition period ________ to ________

Commission File Number 000-50569

TERRACE VENTURES INC.(Name of small business issuer in its charter)

|NEVADA                                           |  | 91-2147101                          
|------------------------------------------------ |  | ------------------------------------
|(State or other jurisdiction of incorporation or |  | (I.R.S. Employer Identification No.)
|organization)                                    |  |                                     
|                                                 |  |                                     
|                                                 |  |                                     
|810 PEACE PORTAL DRIVE, SUITE 202                |  |                                     
|BLAINE, WA                                       |  | 98230                               
|(Address of principal executive offices)         |  | (Zip Code)                          
|                                                 |  |                                     
|                                                 |  |                                     
|(360) 220-5218                                   |  |                                     
|Issuer's telephone number                        |  |                                     

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

Check whether the issuer (1) filed all reports required to be
  filed by Section 13 or 15(d) of the Exchange Act during the past twelve months
  (or for such shorter period that the registrant was required to file such reports),
  and (2) has been subject to such filing requirements for the past 90 days. Yes
  [ X ]   No [  ]

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

State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As of March 7,
2006, the Issuer had30,570,000Shares of Common Stock
outstanding.

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

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B, and, therefore, do not include all information and footnotes
necessary for a complete presentation of financial position, results of
operations, cash flows, and stockholders' equity in conformity with generally
accepted accounting principles. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the nine months ended January 31, 2006
are not necessarily indicative of the results that can be expected for the year
ending April 30, 2006.

2

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TERRACE VENTURES INC.

FINANCIAL STATEMENTS

JANUARY 31, 2006



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INDEX TO FINANCIAL STATEMENTS

PageAccountants' Review Report
      F-1Financial Statements:Balance Sheets
      F-2Statements
        of Operations and Accumulated Deficit
      F-3Statements
        of Changes in Stockholders Equity
      F-4Statements
        of Cash Flows
      F-5Notes to
        Financial Statements
      F-6 - F10Supplemental Statements:Statements
        of Operating Expenses
      F-12


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Report of Independent Registered Public Accounting Firm

To the Board of Directors 
  Terrace Ventures Inc.

We have reviewed the accompanying balance sheet of Terrace Ventures
  Inc. as of January 31, 2006, and the statements of operations and accumulated
  deficit, changes in stockholders equity, and statements of cash flows
  for the nine month periods ended January 31, 2006 and January 31, 2005, and
  for the period February 20, 2001 (date of inception) to January 31, 2006. These
  interim financial statements are the responsibility of the management of Terrace
  Ventures Inc.

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

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

Our review was made for the purpose of expressing limited assurance
  that there are no material modifications that should be made to the financial
  statements in order for them to be in conformity with U.S. generally accepted
  accounting principles. The supplemental statement of operating expenses is presented
  for the purposes of additional analysis and is not a required part of the basic
  financial statements. Such information has been subjected to the inquiry and
  analytical procedures applied in the review of the basic financial statements,
  and we are not aware of any material modifications that should be made thereto.

The accompanying financial statements have been prepared assuming
  that the Company will continue as a going concern. As discussed in Note 6 to
  the financial statements, the Company has suffered recurring losses from operations,
  which raise substantial doubt about its ability to continue as a going concern.
  The financial statements do not include any adjustments that might result from
  the outcome of this uncertainty.

We have previously audited, in accordance with standards of the
  Public Company Accounting Oversight Board (United States), the balance sheet
  of Terrace Ventures Inc. as of April 30, 2005, and the related statements of
  operations and accumulated deficit, changes in stockholders equity, and
  cash flows for the year then ended (not presented herein); and in our report
  dated July 10, 2005, we expressed an unqualified opinion on those financial
  statements which included an explanatory paragraph describing Terrace Ventures
  Inc.s ability to continue as a going concern as described in Note 6 to
  the financial statements. In our opinion, the information set forth in the accompanying
  balance sheet as of April 30, 2005 is fairly stated, in all material respects,
  in relation to the balance sheet from which it has been derived.



/s/ Sarna & Company
  Sarna & Company
  Certified Public Accountants 
  Westlake Village, California 
  March 17, 2006

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

|                                     |   | (Unaudited) |   |   | (Audited) |  
|------------------------------------ | - | ----------- | - | - | --------- | -
|                                     |   | January 31, |   |   | April 30, |  
|                                     |   | 2006        |   |   | 2005      |  
|                                     |   |             |   |   |           |  
|ASSETS                               |  
|                                     |   |             |   |   |           |  
|Current Assets:                      |   |             |   |   |           |  
|Cash                                 |   | 201         |   | $ | 22        |  
|Trust Account Receivable             | $ | 540         |   |   | -0-       |  
|                                     |   |             |   |   |           |  
|Total Current Assets                 |   | 741         |   |   | 22        |  
|                                     |   |             |   |   |           |  
|Other Assets:                        |   |             |   |   |           |  
|Investment                           |   | 494,000     |   |   | -0-       |  
|                                     |   |             |   |   |           |  
|                                     |   |             |   |   |           |  
|TOTAL ASSETS                         | $ | 494,741     |   | $ | 22        |  
|                                     |   |             |   |   |           |  
|                                     |   |             |   |   |           |  
|LIABILITIES AND STOCKHOLDERS' EQUITY |  
|                                     |   |             |   |   |           |  
|Current Liabilities:                 |   |             |   |   |           |  
|Accounts Payable
      and           |   |             |   |   |           |  
|Accrued Expenses                     | $ | 82,006      |   | $ | 51,250    |  
|                                     |   |             |   |   |           |  
|Total Current Liabilities            |   | 82,006      |   |   | 51,250    |  
|                                     |   |             |   |   |           |  
|Stockholders' Equity:                |   |             |   |   |           |  
|Common Stock, $0.001
      par value |   |             |   |   |           |  
|400,000,000
      shares authorized, |   |             |   |   |           |  
|30,170,000 and 7,042,500             |   |             |   |   |           |  
|shares issued                        |   | 30,170      |   |   | 7,043     |  
|Additional Paid
      in Capital     |   | 553,080     |   |   | 76,207    |  
|Accumulated deficit                  |   | (170,515    | ) |   | (134,478  | )
|                                     |   |             |   |   |           |  
|Total Stockholders' Equity (Deficit) |   | 412,735     |   |   | (51,228   | )
|                                     |   |             |   |   |           |  
|TOTAL LIABILITIES AND                |   |             |   |   |           |  
|STOCKHOLDERS' EQUITY                 | $ | 494,731     |   | $ | 22        |  

See Notes to Financial Statements

F-2

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

THREE MONTHS ENDED
      
      
      NINE MONTHS ENDEDJANUARY 31,
      
      
      JANUARY 31,
      
      
      INCEPTION to2006
      
      
      2005
      
      
      2006
      
      
      2005
      
      
      JANUARY 31, 2006Revenues
      $
      0
      
      $
      0
      
      $
      0
      
      $
      0
      
      $
      0Operating Expenses
      
      (21,848
      )
      
      (8,425
      )
      
      (36,037
      )
      
      (25,340
      )
      
      (170,515
      )Loss Before Provision forIncome Taxes
      
      (21,848
      )
      
      (8,425
      )
      
      (36,037
      )
      
      (25,340
      )
      
      (170,515
      )Provision for Income Taxes
      
      (0
      )
      
      (0
      )
      
      (0
      )
      
      (0
      )
      
      (0
      )Net Loss
      
      (21,848
      )
      
      (8,425
      )
      
      (36,037
      )
      
      (25,340
      )
      
      (170,515
      )Deficit, Beginningof Period
      
      (148,667
      )
      
      (113,861
      )
      
      (134,478
      )
      
      (96,946
      )
      
      (0
      )Accumulated Deficit, Endof Period
      $
      (170,515
      )
      $
      (122,286
      )
      $
      (170,515
      )
      $
      (122,286
      )
      $
      (170,515
      )Net Loss per Share
      $
      (0.001
      )
      $
      (0.001
      )
      $
      (0.001
      )
      $
      (0.001
      )
      $
      (0.007
      )Weighted AverageShares Outstanding
      
      29,503,333
      
      
      28,170,000
      
      
      28,614,444
      
      
      28,170,000
      
      
      25,481,417


See Notes to Financial Statements

F-3

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

Common Stock
      
      
      Additional
      
      
      
      
      
      TotalDollar
      
      
      Paid in
      
      
      Accumulated
      
      
      Stockholders'Shares
      
      
      Amount
      
      
      Capital
      
      
      Deficit
      
      
      Equity(Deficit)InceptionFebruary 20, 2001
      
      ----
      
      $
      ----
      
      $
      ----
      
      $
      ----
      
      $
      -----Common Stock Issued$0.001 per shareApril 9, 2001
      
      4,000,000
      
      
      4,000
      
      
      ----
      
      
      ----
      
      
      4,000Net Loss,April 30, 2001
      
      ----
      
      
      ----
      
      
      ----
      
      
      (1,410
      )
      
      (1,410
      )BalancesApril 30, 2001
      
      4,000,000
      
      
      4,000
      
      
      ----
      
      
      (1,410
      )
      
      2,590Common Stock Issued$0.01 per shareAugust 15, 2001
      
      2,500,000
      
      
      2,500
      
      
      22,500
      
      
      ----
      
      
      25,000Net Loss,April 30, 2002
      
      ----
      
      
      ----
      
      
      ----
      
      
      (19,196
      )
      
      (19,196
      )BalancesApril 30, 2002
      
      6,500,000
      
      
      6,500
      
      
      22,500
      
      
      (20,606
      )
      
      8,394Common Stock Issued$0.10 per shareSeptember 30, 2002
      
      142,500
      
      
      143
      
      
      14,107
      
      
      ----
      
      
      14,250Net Loss,April 30, 2003
      
      ----
      
      
      ----
      
      
      ----
      
      
      (17,632
      )
      
      (17,632
      )BalancesApril 30, 2003
      
      6,642,500
      
      
      6,643
      
      
      36,607
      
      
      (38,238
      )
      
      5,012Common Stock Issued$0.10 per shareNovember 6, 2003
      
      400,000
      
      
      400
      
      
      39,600
      
      
      ----
      
      
      40,000Net Loss,April 30, 2004
      
      ----
      
      
      ----
      
      
      ----
      
      
      (58,708
      )
      
      (58,708
      )BalancesApril 30, 2004
      
      7,042,500
      
      
      7,043
      
      
      76,207
      
      
      (96,946
      )
      
      (13,696
      )Net Loss,April 30, 2005
      
      ----
      
      
      ----
      
      
      ----
      
      
      (37,532
      )
      
      (37,532
      )BalancesApril 30, 2005
      
      7,042,500
      
      
      7,043
      
      
      76,207
      
      
      (134,478
      )
      
      (51,228
      )Common Stock Issued$1.00 per shareNovember 23, 2005
      
      500,000
      
      
      500
      
      
      499,500
      
      
      ----
      
      
      500,000Stock Split, 4 for 1
      
      22,627,500
      
      
      22,627
      
      
      (22,627
      )
      
      ----
      
      
      ----Net Loss,January 31, 2006
      
      ----
      
      
      ----
      
      
      ----
      
      
      (36,037
      )
      
      (36,037
      )BalancesJanuary 31, 2006
      
      30,170,000
      
      $
      30,170
      
      $
      553,080
      
      $
      (170,515
      )
      $
      412,735


See Notes to Financial Statements

F-4

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

|                                         |   | NINE MONTHS ENDED |   |   |              |  
|---------------------------------------- | - | ----------------- | - | - | ------------ | -
|                                         |   | JANUARY 31,       |   |   | INCEPTION to |  
|                                         |   | 2006              |   |   | 2005         |  
|                                         |   |                   |   |   |              |  
|Cash Flows from                          |   |                   |   |   |              |  
|Operating Activities:                    |   |                   |   |   |              |  
|                                         |   |                   |   |   |              |  
|Net Loss                                 | $ | (36,037           | ) | $ | (25,340      | )
|                                         |   |                   |   |   |              |  
|Adjustments to Reconcile Net             |   |                   |   |   |              |  
|Income to Net Cash
      Provided/(Used) |   |                   |   |   |              |  
|by Operating Activities:                 |   |                   |   |   |              |  
|(Increase)/Decrease
      in:            |   |                   |   |   |              |  
|Trust
      Account Receivable           |   | (540              | ) |   | -0-          |  
|Increase(Decrease)
      in:             |   |                   |   |   |              |  
|Accounts Payable                         |   | 30,756            |   |   | 12,592       |  
|                                         |   |                   |   |   |              |  
|Net Cash Provided/(Used)                 |   |                   |   |   |              |  
|by
      Operating Activities            |   | (5,821            | ) |   | (12,748      | )
|                                         |   |                   |   |   |              |  
|Cash Flows from                          |   |                   |   |   |              |  
|Investing Activities:                    |   |                   |   |   |              |  
|                                         |   |                   |   |   |              |  
|Stock Investment                         |   | (494,000          | ) |   | -0-          |  
|                                         |   |                   |   |   |              |  
|Net Cash Used                            |   |                   |   |   |              |  
|by
      Investing Activities            |   | (494,000          | ) |   | -0-          |  
|                                         |   |                   |   |   |              |  
|Cash Flows from                          |   |                   |   |   |              |  
|Financing Activities:                    |   |                   |   |   |              |  
|                                         |   |                   |   |   |              |  
|Proceeds Related to                      |   |                   |   |   |              |  
|Issuance of Common Stock                 |   | 500,000           |   |   | -0-          |  
|                                         |   |                   |   |   |              |  
|Net Cash Provided
      by               |   |                   |   |   |              |  
|Financing Activities                     |   | 500,000           |   |   | -0-          |  
|                                         |   |                   |   |   |              |  
|                                         |   |                   |   |   |              |  
|Net Increase (Decrease) in Cash          |   | 179               |   |   | (12,748      | )
|                                         |   |                   |   |   |              |  
|Cash at Beginning of Period              |   | 22                |   |   | 13,134       |  
|                                         |   |                   |   |   |              |  
|Cash at End of Period                    | $ | 201               |   | $ | 386          |  

See Notes to Financial Statements

F-5

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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

Basis of Presentation

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

Use of Estimates

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

Exploration Stage Company

The Company has been in the exploration stage since its formation
  and has not yet realized any revenues from its planned operations. The Company
  is primarily engaged in the acquisition and exploration of mining properties.
  Upon the location of commercially minable reserves, the Company plans to prepare
  for mineral extraction and enter the development stage. To date, the exploration
  stage of the Companys operations consists of the contracting with a geologist
  to sample and assess the mining viability of the Companys claim.

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-6

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Mineral Rights

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.

F-7

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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.

Per Share Information

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

NOTE 2 - PROVISION FOR INCOME TAXES

The provision for income taxes for the periods ended January
  31, 2006 and January 31, 2005 represents the minimum state income tax expense
  of the Company, which is not considered significant.

NOTE 3 - COMMITMENTS AND CONTINGENCIES

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

LitigationThe 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-8

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

NOTE 6  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 $170,515 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 Exploration 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.

NOTE 7  STOCK ISSUANCES

On November 23, 2005, the Company entered into an agreement to
  acquire, on a private placement basis, 760,000 shares of common stock of Sporg
  Corporation, a Nevada corporation engaged in the internet registration services
  business, at a price of $0.65 per share. This represents a 3.4% ownership interest
  in Sporg Corporation.

To fund this acquisition, on November 23, 2005 the Company issued
  500,000 shares of its common stock at a price of $1.00 per share to a subscriber
  as part of a private placement of 1,000,000 shares of the Companys common
  stock. There is no assurance that the balance of this private placement will
  be completed.

F-9

---

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

NOTE 7  STOCK ISSUANCES - CONTINUED

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

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

NOTE 8  SUBSEQUENT EVENTS

On February 3, 2006, the Company issued 100,000 shares of its
  common stock at a price of $1.00 per share to a subscriber, in furtherance of
  the private placement described in Note 7. The proceeds of this stock issuance
  were used to purchase an additional $100,000 in shares of Sporg Corporation
  as an investment.

F-10

---









SUPPLEMENTAL STATEMENTS

---

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

THREE MONTHS ENDED
      
      
      NINE MONTHS ENDEDJANUARY 31,
      
      
      JANUARY 31,
      
      
      INCEPTION to2006
      
      
      2005
      
      
      2006
      
      
      2005
      
      
      JANUARY
        31, 2006Operating Expenses:Accounting & Audit
      $
      4,870
      
      $
      2,120
      
      $
      7,870
      
      $
      6,240
      
      $
      32,530Exploration and Development
      
      -0-
      
      
      -0-
      
      
      -0-
      
      
      -0-
      
      
      24,266Legal
      
      13,479
      
      
      3,616
      
      
      19,995
      
      
      10,974
      
      
      62,094Office Administration
      
      -0-
      
      
      1,500
      
      
      3,000
      
      
      4,500
      
      
      23,500Office Expenses
      
      30
      
      
      30
      
      
      203
      
      
      60
      
      
      1,820Regulatory Expenses/Fees
      
      2,719
      
      
      409
      
      
      2,719
      
      
      992
      
      
      8,760Rent
      
      750
      
      
      750
      
      
      2,250
      
      
      2,250
      
      
      13,200Telephone
      
      -0-
      
      
      -0-
      
      
      -0-
      
      
      -0-
      
      
      1,344Travel & Entertainment
      
      -0-
      
      
      -0-
      
      
      -0-
      
      
      324
      
      
      3,001Total Operating
        Expenses
      $
      21,848
      
      $
      8,425
      
      $
      36,037
      
      $
      25,340
      
      $
      170,515


See Notes to Financial Statements

F-11

---

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, 2005. 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.

Acquisition of the Peach 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.

Description of Peach Mineral Claim

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. The claim is accessible by a gravel road. We obtained
information on the area from the British Columbia Department of Mines and
Geological Consultants in 2001. We believed the timing was opportune at that
time to obtain this property at the price paid.

Current State of Exploration

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

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

3

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June 2002 Exploration Program

Phase I of our exploration program was completed in June, 2002.
The Phase I exploratory program was conducted by Mr. Reynolds over a period of
three days and consisted of rock sampling and an assessment of areas previously
reported to have potential mineralization. On June 27, 2002, Mr. Reynolds, our
consulting geologist, completed his review of Phase I work results on our Peach
Claim and provided us with a report containing his conclusions. Mr. Reynolds
concluded that the results were favorable and he recommended we proceed to Phase
II of our exploration program.

September 2004 Exploration Program

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

Recent Corporate Developments

Since the completion of our fiscal quarter ended October 31,
2005, we have experienced the following corporate developments:

|1. | On March 21, 2006, our board of directors adopted our
      2006 Stock Incentive Plan (the Plan). The purpose of the Plan is to
      advance the interests of our company and our stockholders by strengthening
      our ability to obtain and retain the services of the types of employees,
      consultants, officers and directors who will contribute to our long term
      success. The Plan is administered by our Board of Directors or by a
      committee of two or more directors appointed by the Board of Directors
      (the "Administrator"). Subject to the provisions of the Plan, the
      Administrator has full and final authority to grant the awards of stock
      options and to determine the terms and conditions of the awards and the
      number of shares to be issued pursuant thereto. Options granted under the
      Plan may be either "incentive stock options," which qualify for special
      tax treatment under the Internal Revenue Code of 1986, as amended, (the
      "Code") and nonqualified stock options. The maximum number of shares of
      our common stock with respect to which options or rights may be granted
      under the Plan is 5,000,000 shares. The maximum number of shares available
      for issuance under the Plan will be increased effective the first day of
      each of our fiscal quarters beginning with May 1, 2006 by an amount equal
      to: 15% of the total increase in the number of our shares outstanding in
      the prior fiscal quarter or a lesser number as may be determined by our
      board of directors. The exact terms of the option granted are contained in
      an option agreement between us and the person to whom such option is
      granted. The exercise price for incentive stock options and non-qualified
      options must be no less than 75% of the fair market value of the common
      stock on the date of grant. The Plan terminates on March 21, 2016 unless
      sooner terminated by action of the Board of Directors. All awards granted
      under the Plan expire ten years from the date of grant, or such shorter
      period as is determined by the Administrator. No option is exercisable by
      any person after such expiration. If an award expires, terminates or is
      canceled, the shares of our common stock not purchased thereunder may
      again be available for issuance under the Plan. In connection with our
      adoption of the 2006 Stock Incentive Plan, we granted Howard Thomson, our
      CEO, CFO and a member of our board of directors, fully vested
      non-qualified stock options to purchase 200,000 shares of our common stock
      at a price of $0.27 US per share for a term expiring March 21,
  2008.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

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|2. | On March 21, 2006, we entered into a management
      consulting agreement with Howard Thomson, pursuant to which Mr. Thomson
      agreed to act as our president, secretary, treasurer, Chief Executive
      Officer and Chief Financial Officer and provide certain management
      consulting services in consideration of which we agreed to pay a fee of
      $2,500 per month and make a payment of $2,500 for prior services provided
      in the month of February, 2006. Pursuant to the terms of the agreement,
      Mr. Thomson may also be granted incentive stock options from time to time
      as the board of Terrace may determine in their discretion. The agreement
      may be terminated by Terrace at any time on three months notice to Mr.
      Thomson and Mr. Thomson may terminate on 30 days notice. The agreement is
      for an initial term of two years.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | During the quarter ended January 31, 2006, our board of
      directors approved an offering (the Offering) of up to 4,000,000 shares
      of our common stock at a price of $0.25 for gross proceeds of $1,000,000
      (as adjusted following a four for one forward stock split effected on
      December 19, 2005). The Offering was made pursuant to Regulation S of the
      Securities Act of 1933 (Regulation S). As of the date of this quarterly
      report we have issued 2,780,000 shares of our common stock to four
      investors pursuant to the Offering, for gross proceeds of $695,000. See
      Recent Sales of Unregistered Securities, below.                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|4. | On March 14, 2006, we entered into an agreement to
      acquire on a private placement basis 130,000 shares of common stock of
      Sporg Corporation (Sporg), a Nevada corporation, at a price of $0.65 US
      per share. Sporg is engaged in the internet registration services
      business. As of the date of this quarterly report we have acquired
      1,043,845 shares representing approximately 4.4% of the issued and
      outstanding shares of Sporg. We acquired the shares for investment
      purposes and are considering acquiring additional shares of Sporg in the
      future.                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|5. | On February 3, 2006, we entered into an agreement to
      acquire on a private placement basis 153,845 shares of common stock of
      Sporg Corporation (Sporg), a Nevada corporation, at a price of $0.65 US
      per share. We acquired the shares for investment purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|6. | On January 16, 2006, Howard Thomson was appointed as a
      member of our Board of Directors. Gordon F. Burley resigned as our
      President, Secretary, Treasurer, Chief Executive Officer and Chief
      Financial Officer. In place of Mr. Burley, Mr. Thomson, was appointed as
      the President, Secretary, Treasurer, Chief Executive Officer and Chief
      Financial Officer of Terrace.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|7. | Effective December 19, 2005, we completed a four-for-one
      forward split of our issued and outstanding common stock. As a result of
      the stock split, our authorized capital increased from 100,000,000 shares
      of common stock with a par value of $0.001 per share, of which 7,542,500
      shares were issued and outstanding, to 400,000,000 shares of common stock
      with a par value of $0.001 per share, of which 30,170,000 are issued and
      outstanding. As a result of the stock split, the symbol under which our
      shares traded on the OTC Bulletin Board changed from TVNT to TVEN,
      effective December 19, 2005.                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|8. | On November 23, 2005, we entered into an agreement to
      acquire on a private placement basis 760,000 shares of common stock of
      Sporg, at a price of $0.65 US per share. We acquired the shares for
      investment purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|9. | On November 23, 2005, Ryan S. McCleery resigned as a
      member of our Board of Directors and as the Chief Financial Officer,
      Secretary and Treasurer of Terrace. In place of Mr. McCleery, Gordon F.
      Burley, our President, Chief Executive Officer and a member of our Board
      of Directors, was appointed as our Chief Financial Officer, Secretary and
      Treasurer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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

5

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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 engaged Mr. Reynolds, B.Sc. P.Eng., our geological
consultant, to prepare a geological evaluation report on the Peach Claim. We
received this report entitled "Geological Summary Report on the Peach Property"
on September 25, 2001. This report summarized the results of the history of the
exploration of the mineral claim, the regional and local geology of the mineral
claim and the mineralization and the geological formations identified as a
result of the prior exploration. The geological report also gave conclusions
regarding potential mineralization of the mineral claim and recommended a four
phase exploration program on the 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 was completed in late 2004, at a cost of $7,500.
Based on the results of Phase II of the exploration program we determined to
proceed with Phase III subject to obtaining additional financing.

Our plan of operation is to proceed with Phase III of the
exploration of the Peach Claim in mid-2006. A decision on proceeding beyond the
planned Phase III will be made by assessing whether the results of Phase III are
sufficiently positive to enable us to obtain the financing we will need for us
to continue through additional stages of the exploration program. This
assessment will include an assessment of the market for financing of mineral
exploration projects at the time of our assessment and an evaluation of our cash
reserves after the completion of Phase III. The decision whether or not to
proceed will be based on the recommendations of our geological consultant. 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.

Cash Requirements

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.

RESULTS OF OPERATIONS

Third Quarter and Nine Months Summary

|         |   | Three Months Ended January 31 |   |   | Nine Months Ended January 31 |  
|-------- | - | ----------------------------- | - | - | ---------------------------- | -
|         |   |                               |   |   |                              |  
|         |   |                               |   |   |                              |  
|         |   | 2006                          |   |   | 2005                         |  
|Revenue  |   | -                             |   |   | -                            |  
|Expenses | $ | (21,848                       | ) | $ | (8,425                       | )
|Net Loss | $ | (21,848                       | ) | $ | (8,425                       | )

6

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Revenues

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

Operating Expenses

|                            |   | Three Months Ended January 31 |  |   | Nine Months Ended January 31 | 
|--------------------------- | - | ----------------------------- |  | - | ---------------------------- | 
|                            |   |                               |  |   |                              | 
|                            |   |                               |  |   |                              | 
|                            |   | 2006                          |  |   | 2005                         | 
|Accounting                  |   | 4,870                         |  | $ | 2,120                        | 
|Exploration Expense         |   | --                            |  |   | --                           | 
|Legal and Professional Fees |   | 13,479                        |  |   | 3,616                        | 
|Office Administration       |   | --                            |  |   | 1,500                        | 
|Office Expenses             |   | 30                            |  |   | 30                           | 
|Regulatory Expenses/Fees    |   | 2,719                         |  |   | 409                          | 
|Rent                        |   | 750                           |  |   | 750                          | 
|Telephone                   |   | --                            |  |   | --                           | 
|Travel & Entertainment      |   | --                            |  |   | --                           | 
|Total Operating Expenses    | $ | 21,848                        |  | $ | 8,425                        | 

The increase in our operating expenses was primarily as a
result of increases in accounting and audit fees, legal fees and regulatory
expenses for the quarter ended January 31, 2006.

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 period ended January 31, 2006
was entirely attributable to our operating expenses and to the fact that we did
not earn any revenue during this period.

LIQUIDITY AND FINANCIAL CONDITION

|Working Capital           |   |                     |   |   |                   |   |  |                       | 
|------------------------- | - | ------------------- | - | - | ----------------- | - |  | --------------------- | 
|                          |   | At January 31, 2006 |   |   | At April 30, 2005 |   |  | Percentage            | 
|                          |   | (Unaudited)         |   |   | (Audited)         |   |  | Increase / (Decrease) | 
|Current Assets            | $ | 741                 |   | $ | 22                |   |  | 3,268.2%              | 
|Current
      Liabilities | $ | (82,006             | ) | $ | (55,950           | ) |  | 46.6%                 | 
|Working Capital (Deficit) | $ | (81,265             | ) | $ | (51,228           | ) |  | 58.6%                 | 

7

---

|Cash Flows                                     |   |                              |   |   |         |  
|---------------------------------------------- | - | ---------------------------- | - | - | ------- | -
|                                               |   | Nine Months Ended January 31 |  
|                                               |   | 2006                         |   |   | 2005    |  
|Cash Flows from (used in) Operating Activities | $ | (5,821                       | ) | $ | (12,748 | )
|Cash Flows from (used in) Investing Activities | $ | (494,000                     | ) |   | --      |  
|Cash Flows from (used in) Financing Activities | $ | 500,000                      |   |   | --      |  
|Net Increase (decrease) in Cash During Period  | $ | 179                          |   | $ | (12,748 | )

We had cash on hand of $301 and a working capital deficit of
$81,265 as of January 31, 2006 compared to working capital deficit $51,228 as of
April 30, 2005. Our operating expenses for the nine months ended January 31,
2006 increased to $21,848 from $8,425 during the comparative period of 2005. The
increase in our operating expenses was primarily as a result of increases in
accounting and audit fees, legal fees and regulatory expenses. 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.

Investment Activities

On March 14, 2006, we entered into an agreement to acquire on a
private placement basis 130,000 shares of common stock of Sporg Corporation
(Sporg), a Nevada corporation, at a price of $0.65 US per share. Sporg is
engaged in the internet registration services business. As of the date of this
quarterly report, we hold 1,043,845 shares representing approximately 4.4% of
the issued and outstanding shares of Sporg. We acquired the shares for
investment purposes and are considering acquiring additional shares of Sporg in
the future.

Financing Requirements

As at January 31, 2006, we had cash in the amount of
approximately $741. We do not have sufficient cash on hand to complete Phase III
of our proposed exploration program. We also require additional financing to
sustain our business operations if we are not successful in earning revenues. We
also require additional financing to sustain our business operations if we are
not successful in earning revenues.

During the quarter ended January 31, 2006, our board of
directors approved an offering (the Offering) of up to 4,000,000 shares of our
common stock at a price of $0.25 for gross proceeds of $1,000,000 (as adjusted
following a four for one forward stock split effected on December 19, 2005). The
Offering was made pursuant to Regulation S. As of the date of this quarterly
report we have issued 2,780,000 shares of our common stock to four investors
pursuant to the Offering, for gross proceeds of $695,000. From inception to
January 31, 2006, we have suffered aggregate losses in the amount of $170,515
and net cash outflows from operations. Since our inception, we have used our
common stock to raise money for our property acquisition, for corporate expenses
and to repay outstanding indebtedness. 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, 2005 that they
have substantial doubt we will be able to continue as a going concern. Obtaining
additional financing is 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.

8

---

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.

Critical Accounting Policies

The preparation of financial statements in conformity with
United States generally accepted accounting principles requires our management
to make estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.

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

Use of Estimates

Management uses estimates and assumptions in preparing our
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

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

Mineral Property Acquisition and Exploration Costs

We expense all costs related to the acquisition and exploration
of mineral properties in which we have secured exploration rights prior to
establishment of proven and probable reserves. To date, we have not established
the commercial feasibility of any exploration prospects; therefore, all costs
are being expensed.

Depreciation, Amortization and Capitalization

We record depreciation and amortization when appropriate using
both straight-line and declining balance methods over the estimated useful life
of the assets (five to seven years). Expenditures for maintenance and repairs
are charged to expense as incurred. Additions, major renewals and 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.

9

---

RISKS AND UNCERTAINTIES

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

We have incurred a net loss of $170,515 for the period from
February 20, 2001 (inception) to January 31, 2006 and have no revenues to date.
Our future is dependent upon our ability to obtain financing and upon future
profitable operations from the development of our mineral claim. These factors
raise substantial doubt that we will be able to continue as a going concern.

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

Our current operating funds are sufficient to complete the
proposed exploration program; however, they will be insufficient to complete the
full exploration of the mineral claim and begin mining efforts should the
mineral claim prove commercially viable. Therefore, we will need to obtain
additional financing in order to complete our full business plan. As at January
31, 2006, we had cash in the amount of $741. Our plan of operation calls for
significant expenses in connection with the exploration of our mineral claim. We
do not have sufficient cash on hand to complete Phase III of our proposed
exploration program. We also require additional financing to sustain our
business operations if we are not successful in earning revenues. Obtaining
additional financing would be subject to a number of factors, including the
market prices for the mineral property and gold. These factors may make the
timing, amount, terms or conditions of additional financing unavailable to
us.

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

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

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

You should be aware of the difficulties normally encountered by
new mineral exploration companies and the high rate of failure of such
enterprises. The likelihood of success must be considered in light of the
problems, expenses, difficulties, complications and delays encountered in
connection with the exploration of the mineral properties that we plan to
undertake. These potential problems include, but are not limited to,
unanticipated problems relating to exploration, and additional costs and
expenses that may exceed current estimates. The expenditures to be made by us in
the exploration of the mineral claim may not result in the discovery of mineral
deposits. Problems such as unusual or unexpected formations and other conditions
are involved in mineral exploration and often result in unsuccessful exploration
efforts. If the results of our Phase III exploration do not reveal viable
commercial mineralization, we may decide to abandon our claim and acquire new
claims for new exploration. The acquisition of additional claims will be
dependent upon us possessing capital resources at the time in order to purchase
such claims. If no funding is available, we may be forced to abandon our
operations.

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

Prior to completion of our exploration stage, we anticipate
that we will incur increased operating expenses without realizing any revenues.
We therefore expect to incur significant losses into the foreseeable future. We
recognize that if we are unable to generate significant revenues from the
exploration of our mineral claim, we will not be able to earn profits or
continue operations. There is no

10

---

history upon which to base any assumption as to the likelihood
that we will prove successful, and we can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are unsuccessful in
addressing these risks, our business will most likely fail.

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

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

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

Access to the Peach Claim may be restricted through some of the
year due to weather in the area. As a result, any attempt to test or explore the
property is largely limited to the times when weather permits such activities.
These limitations can result in significant delays in exploration efforts. Such
delays can have a significant negative effect on our exploration efforts.

The property comprises 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. This is an essentially undeveloped area in British Columbia. The area
consists of many mountains and lakes with heavy forestation. An unpaved gravel
road is the only access. Winters are often severe with rain, freezing rain,
wind, and snow common between November and March, making the road often unsafe
and impassable for travel.

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

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

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

Mr. Howard Thomson, our sole executive officer and a member of
our Board of Directors, does not have any formal training as a geologist or in
the technical aspects of management of a mineral exploration company. Our
management lacks technical training and experience with exploring for, starting,
and operating a mine. With no direct training or experience in these areas, our
management may not be fully aware of the specific requirements related to
working within this industry. Our management's decisions and choices may not
take into account standard engineering or managerial approaches mineral
exploration companies commonly use. Consequently, our operations, earnings, and
ultimate financial success could suffer irreparable harm due to management's
lack of experience in this industry.

Because our executive officer has only agreed to provide his
services on a part-time basis, he may not be able or willing to devote a
sufficient amount of time to our business operations, causing our business to
fail.

Mr. Howard Thomson, our sole executive officer and a member of
our Board of Directors, is employed on a full time basis by other companies.
Because we are in the early stages of our business, Mr. Thomson

11

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will not be spending a significant amount of time on our
business. Mr. Thomson expects to expend approximately 5 to 7 hours per week on
our business. Competing demands on Mr. Thomson's time may lead to a divergence
between their interests and the interests of other shareholders.

Because our stock is a penny stock, shareholders will be
more limited in their ability to sell their stock.

The Securities and Exchange Commission (the SEC) has adopted
rules that regulate broker-dealer practices in connection with transactions in
penny stocks. Penny stocks are generally equity securities with a price of less
than $5.00, other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or quotation system.

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

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

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

As our business assets and our directors and officers are
located outside of the United States, investors may be limited in their ability
to enforce civil actions against our assets or our directors and officers.

Our business assets are located in Canada and our sole director
and officer is a resident of Canada. Consequently, it may be difficult for
United States investors to effect service of process within the United

12

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States upon our assets or our sole director and officer, or to
realize in the United States upon judgments of United States courts predicated
upon civil liabilities under U.S. Federal Securities Laws. There is substantial
doubt whether an original action could be brought successfully in Canada against
any of our assets or our sole director and officer predicated solely upon such
civil liabilities.

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 has 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 has determined that there are no changes to our internal
controls over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial reporting.

13

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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

We completed the following sales of securities without
registration pursuant to the Securities Act of 1933 that have not been reported
on our previous Quarterly Reports on Form 10-QSB during the current fiscal year:

|1. | Effective on March 14, 2006, we issued 340,000 shares of
      our common stock at a price of $0.25 per share to an investor. The
      issuance is part of a private placement (the Offering) of up to
      4,000,000 shares of our common stock approved by our board of directors in
      November, 2005 (as adjusted following a four for one forward stock split
      effected on December 19, 2005). These shares were issued pursuant to the
      exemptions to registration contained in Regulation S promulgated under the
      Securities Act of 1933 on the basis of representations made by the
      subscriber that the subscriber was not a U.S. person, as that term is
      defined under Regulation S, and that the subscriber was not acquiring the
      shares for the account or benefit of a U.S. person.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2. | Effective on March 13, 2006, we issued 40,000 shares of
      our common stock at a price of $0.25 per share to an investor. The
      issuance was made pursuant to the terms of the Offering and the shares
      were issued pursuant to the exemptions to registration contained in
      Regulation S promulgated under the Securities Act of 1933 on the basis of
      representations made by the subscriber that the subscriber was not a U.S.
      person, as that term is defined under Regulation S, and that the
      subscriber was not acquiring the shares for the account or benefit of a
      U.S. person.                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|3. | Effective on February 3, 2006, we issued 400,000 shares
      of our common stock at a price of $0.25 per share to an investor. The
      issuance was made pursuant to the terms of the Offering and the shares
      were issued pursuant to the exemptions to registration contained in
      Regulation S promulgated under the Securities Act of 1933 on the basis of
      representations made by the subscriber that the subscriber was not a U.S.
      person, as that term is defined under Regulation S, and that the
      subscriber was not acquiring those shares for the account or benefit of a
      U.S. person.                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4. | On November 23, 2005, we issued 2,000,000 shares of our
      common stock at a price of $0.25 per share to an investor (as adjusted
      following a four for one forward stock split effected on December 19,
      2005). The issuance was made pursuant to the terms of the Offering and the
      shares were issued pursuant to the exemptions to registration contained in
      Regulation S promulgated under the Securities Act of 1933 on the basis of
      representations made by the subscriber that the subscriber was not a U.S.
      person, as that term is defined under Regulation S, and that the
      subscriber was not acquiring those shares for the account or benefit of a
      U.S. person.                                                                                                            

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

14

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

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

Exhibit

NumberDescription of
Exhibit

|3.1  | Articles of Incorporation.(1)                                                                                                                                     
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                   
|3.2  | Certificate of Change to Authorized
        Capital effective December 19, 2005.(2)                                                                               
|     |                                                                                                                                                                   
|3.3  | Bylaws.(1)                                                                                                                                                        
|     |                                                                                                                                                                   
|10.1 | Mineral Claim Purchase Agreement dated
        August 15, 2001 between Terrace Ventures Inc. and Don Archibald.(1)                                                
|     |                                                                                                                                                                   
|10.2 | 2006 Stock
        Incentive Plan.                                                                                                                                
|     |                                                                                                                                                                   
|10.3 | Stock Option
        Agreement between Terrace Ventures Inc. and Howard Thomson dated March
        31, 2006.                                                     
|     |                                                                                                                                                                   
|10.4 | Management
        Consulting Agreement dated March 21, 2006 between Terrace Ventures Inc.
        and Howard Thomson.                                            
|     |                                                                                                                                                                   
|14.1 | Code of Ethics.(2)                                                                                                                                                
|     |                                                                                                                                                                   
|31.1 | Certification
        of Chief Executive Officer and Chief Financial Officer pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                   
|     |                                                                                                                                                                   
|32.1 | Certification
        of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Notes

|(1) | Filed with the SEC as an exhibit to our Registration
      Statement on Form 10-SB originally filed on February 2, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                         
|(2) | Filed with the SEC as an exhibit to our Annual Report on
      Form 10-KSB filed on September 8, 2004.                  
|    |                                                                                                                         
|(3) | Filed with the SEC as an exhibit to our Current Report on
      Form 8-K filed on December 27, 2005.                    

15

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REPORTS ON FORM 8-K

The following Current Reports on Form 8-K were filed since the
beginning of our quarterly period ended January 31, 2006:

Date of Report on Form 8-K
      (YYYY/MM/DD)
      Date of Filing with
      the SEC (YYYY/MM/DD)
      Description of Form
      8-K2005/11/23
      2005/11/28
      Item 2.01 - Acquisition of Assets; 
        Item 3.02 - Unregistered Sale of Equity Securities; and Item 5.02
      - Resignation of Ryan McCleery as officer and director and appointment of
      Gordon F. Burley as CFO, Secretary and Treasurer.2005/12/19
      2005/12/27
      Item 5.03 - Amendment to Articles of Incorporation;
        and 
        Item 8.01 - New Stock Trading Symbol to TVEN.2006/01/16
      2006/01/17
      Item 5.02 - Resignation of Gordon F. Burley as Officer
        and appointment of Howard Thomson as Director and Officer.2006/02/03
      2006/02/14
      Item 2.01 - Acquisition of Assets; and 
        Item 3.02 - Unregistered Sale of Equity Securities.2006/03/13
      2006/03/17
      Item 2.01 - Acquisition of Assets; and 
        Item 3.02 - Unregistered Sale of Equity Securities.


16

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SIGNATURES

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

|      |                |     | TERRACE VENTURES INC.                              
|----- | -------------- | --- | ---------------------------------------------------
|      |                |     |                                                    
|      |                |     |                                                    
|Date: | March 21, 2006 | By: | /s/ Howard
      Thomson                           
|      |                |     | HOWARD THOMSON                                     
|      |                |     | Chief Executive Officer and Chief Financial Officer
|      |                |     | President, Secretary and Treasurer                 
|      |                |     | Director                                           
|      |                |     | (Principal Executive Officer)                      
|      |                |     | (Principal Accounting Officer)                     

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