|UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549
|---------------------------------------------------------------------



|FORM 10-QSB
|-----------



|(Mark One)
|----------

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



|For the quarterly period ended August 31, 2006
|----------------------------------------------



|OR
|--

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from __________ to ______________



|Commission File Number 000-49631
|--------------------------------



|TERRA NOSTRA RESOURCES CORP.(Exact name of registrant as specified in its charter)
|----------------------------------------------------------------------------------



|NevadaState or other jurisdiction of incorporation or organization
|------------------------------------------------------------------



|86-0875500(I.R.S. Employer Identification No.)
|----------------------------------------------



|55 S. Lake Avenue, Suite 700Pasadena, CA 91101(Address of principal executive offices)(626) 796-0088(Issuers telephone number)
|-------------------------------------------------------------------------------------------------------------------------------

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

|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|----------------------------------------------------------------------------------------------------------------
|Yes                                                                                                             

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the

|Exchange Act after the distribution of securities under a plan confirmed by a court. |  | Yes  |  | No
|------------------------------------------------------------------------------------ |  | ---- |  | --
|APPLICABLE ONLY TO CORPORATE ISSUERS                                                 |  |      |  |   
|Number of shares outstanding of each of class of common equity:                      |  |      |  |   
|49,206,448 shares of common stock outstanding as of October 17, 2006                 |  |      |  |   
|Transitional Small Business Disclosure Format: Yes                                   |  | No X |  |   
|                                                                                     |  |      |  |   

---



|PART I - FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
|----------------------------------------------------------

The financial statements included herein have been prepared by Terra Nostra Resources Corporation (the Company) without audit, in accordance with generally accepting
accounting principles for interim financial information and with the instructions for Form 10-QSB and Rule 10-01 of Regulation S-X. Certain information and footnote disclosures normally included in the financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted as allowed by such rules and regulations, and the Company believes that the disclosures are adequate to make the information presented not misleading. Operating results for
the three month period ended August 31, 2006 and 2005 are not necessarily indicative of the results that may be expected for the year ending May 31, 2007. For further information, refer to the financial statements and footnotes included in the
Companys Annual Financial Statements for May 31, 2006 filed on Form 10-KSB 1 filed with the Securities and Exchange Commission on October 16, 2006.

While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts
that will exist, and procedures that will be implemented by the Company later in the fiscal year.

The management of the Company believes that the accompanying unaudited financial statements contain all adjustments (including normal recurring adjustments) necessary to present
fairly the operations and cash flows for the periods presented.

|Consolidated Balance Sheets                    |  | F-1 to |  | F-2 
|---------------------------------------------- |  | ------ |  | ----
|                                               |  |        |  |     
|Consolidated Statements of Operations          |  | F-3    |  |     
|                                               |  |        |  |     
|Consolidated Cash Flow Statements              |  | F-4    |  |     
|                                               |  |        |  |     
|Consolidated Statement of Stockholders Equity |  | F-5    |  |     
|                                               |  |        |  |     
|Notes to the Consolidated Financial Statements |  | F-6 to |  | F-15
|                                               |  |        |  |     

2

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|Terra Nostra Resources Corp. and SubsidiariesConsolidated Balance Sheets |  |                
|------------------------------------------------------------------------ |  | ---------------
|                                                                         |  |                
|                                                                         |  | (Unaudited)    
|                                                                        
|US$                                                                      |  | August 31, 2006
|Current Assets                                                           |  |                
|Cash                                                                     |  | 18,122,379     
|Cash - Restricted                                                        |  | 13,459,777     
|Notes Receivable                                                         |  | 6,283          
|Accounts Receivable                                                      |  | 565,682        
|Other Receivables, Net                                                   |  | 15,512,415     
|Other Receivables - Related party                                        |  | 24,082,416     
|Short Term Investment                                                    |  | 25,130         
|Inventory                                                                |  | 32,520,230     
|Prepaid Expenses                                                         |  | 2,008,458      
|Prepaid Expenses - Related party                                         |  | 231,875        
|Total Current Assets                                                     |  | 106,534,645    
|                                                                        
|Long-Term Assets                                                         |  |                
|Investment                                                               |  | 8,300,248      
|PP&E                                                                     |  | 46,435,182     
|Less Accumulated Depreciation                                            |  | (5,376,508)    
|Construction Materials                                                   |  | 41,050         
|Construction in Progress                                                 |  | 18,370,903     
|Land Use Rights                                                          |  | 5,055,413      
|Total Long-Term Assets                                                   |  | 72,826,288     
|                                                                        
|Other Assets                                                             |  |                
|Deferred and Other Assets                                                |  | 254,890        
|Total Deferred and Other Assets                                          |  | 254,890        
|                                                                        
|Total Assets                                                             |  | 179,615,823    
|                                                                        
|Liabilities and Shareholders' Equity                                     |  |                
|Current Liabilities                                                      |  |                
|Accounts Payable                                                         |  | 1,287,295      
|Bank Loans, Short Term                                                   |  | 50,210,466     
|Notes Payable, Other                                                     |  | 22,884,338     
|Land Use Rights Payable                                                  |  | 2,718,885      
|Construction Costs Payable                                               |  | 11,936,389     
|Tax Payable                                                              |  | 10,195,413     
|Other Liabilities                                                        |  | 9,152,609      
|Other Liabilities - Related Party                                        |  | 32,583,561     
|Total Current Liabilities                                                |  | 140,968,956    
|                                                                        
|Long Term Liabilities                                                    |  |                
|Land Use Rights Payable                                                  |  |                
|Minority interest                                                        |  | 27,417,437     
|Total Long Term Liabilities                                              |  | 27,417,437     

F-1

---

|Shareholders' Equity                                              |  | August 31, 2006 |  | May 31, 2006
|----------------------------------------------------------------- |  | --------------- |  | ------------
|                                                                 
|Class A Common Stock - authorized 100,000,000 shares with a par   |  |                 |  |             
|value of $0.001; 49,156,448 issued and outstanding as at Aug. 31, |  |                 |  |             
|2006 and May 31, 2006                                             |  | 49,156          |  | 49,156      
|Additional Paid in Capital                                        |  | 34,965,558      |  | 34,965,558  
|Accumulated Other Comprehensive Income                            |  | 543,473         |  | 254,677     
|Reserves                                                          |  | 2,189,922       |  | 2,028,858   
|Retained Earnings                                                 |  | (26,518,679)    |  | (25,008,923)
|Total Shareholders' Equity                                        |  | 11,229,430      |  | 12,289.326  
|                                                                 
|Total Liabilities and Shareholders' Equity                        |  | 179,615,823     |  | 169,921,482 

The accompanying notes are an integral part of these financial statements

F-2

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|Terra Nostra Resources Corp. and Subsidiaries      |  |                            
|-------------------------------------------------- |  | ---------------------------
|Consolidated Statements of Operations
 (Unaudited) |  |                            
|                                                   |  |                            
|                                                  
|                                                   |  | For the Three Months Ending
|                                                   |  | Aug. 31, 2006              
|Revenues                                           |  | 59,463,131                 
|Cost of Sales                                      |  | 55,002,593                 
|                                                  
|Gross Profit                                       |  | 4,460,538                  
|                                                  
|Expenses:                                          |  |                            
|Selling                                            |  | 58,695                     
|General and Administrative - North America         |  | 1,288,255                  
|General and Administrative - PRC                   |  | 246,653                    
|Depreciation and Amortization                      |  | 665,511                    
|                                                  
|Total Expenses                                     |  | 2,259,114                  
|                                                  
|Operating Profit / (Loss)                          |  | 2,201,424                  
|                                                  
|Investment Income / (Loss)                         |  | 1,485                      
|Interest (Expense)                                 |  | ( 862,860)                 
|                                                  
|Other Income / (Expense)                           |  |                            
|Other Income                                       |  | 8,721                      
|Non-operating Expense                              |  | (73,228)                   
|                                                  
|Income / (Loss) Before Income Tax                  |  | 1,275,542                  
|                                                  
|Provision for Income Tax                           |  | 1,592,578                  
|                                                  
|Income / (Loss) Before Minority Interest           |  | (317,036)                  
|Minority Interest                                  |  | (1,031,655)                
|                                                  
|Net Income (Loss)                                  |  | (1,348,692)                
|                                                  
|Other Comprehensive Income:                        |  |                            
|Foreign Currency Translation Adjustment            |  | 508,577                    
|Minority Interests Share                          |  | (219,782)                  
|                                                  
|Comprehensive Income (Loss)                        |  | (1,059,897)                
|                                                  
|(Loss) Per Share - weighted average                |  | $ (0.02)                   
|(Loss) Per Share - fully diluted                   |  | $ (0.02)                   
|                                                  
|Weighted Average Number of Shares                  |  | 49,156,448                 
|Fully Diluted Number of Shares                     |  | 49,193,550                 

The accompanying notes are an integral part of these financial statements

F-3

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|Terra Nostra Resources Corp. and Subsidiaries                             |  |                            
|------------------------------------------------------------------------- |  | ---------------------------
|Consolidated Statements of Cash Flows
 (Unaudited)                        |  |                            
|                                                                          |  |                            
|                                                                         
|US$                                                                       |  | For the Three Months Ending
|                                                                          |  | Aug. 31, 2006              
|Net Income (Loss)                                                         |  | (1,348,692)                
|                                                                         
|Adj. to Reconcile Net Income to Net Cash from Operating Activities:       |  |                            
|Depreciation                                                              |  | 665,511                    
|Amortization                                                              |  | -                          
|Minority Interest                                                         |  | 1,251,437                  
|                                                                         
|Changes in Assets and Liabilities:                                        |  |                            
|Accounts Receivable                                                       |  | 7,296,401                  
|Other Receivables                                                         |  | ( 8,375,812)               
|Other Receivables - Related Party                                         |  | 1,624,954                  
|Notes Receivable                                                          |  | 56,070                     
|Inventory                                                                 |  | (7,015,151)                
|Prepaid Expenses                                                          |  | 1,528,931                  
|Prepaid Expenses - Related Party                                          |  | 1,220,384                  
|Accounts Payable                                                          |  | (578,205)                  
|Tax Payable                                                               |  | 1,171,244                  
|Other Liabilities                                                         |  | 3,323,598                  
|Other Liabilities - Related Party                                         |  | 1,585,143                  
|Net Cash Flows from Operating Activities                                  |  | 2,405,813                  
|                                                                         
|Cash Flows from Investing Activities:                                     |  |                            
|Acquisition of Property, Plant and Equipment                              |  | (353,761)                  
|Construction Materials                                                    |  | (427)                      
|Construction in Progress                                                  |  | (1,178,392)                
|Construction Costs Payable                                                |  | 1,947,142                  
|Land Use Rights                                                           |  | (189)                      
|Investment in Intangible Assets                                           |  | (25,309)                   
|Deferred Assets                                                           |  | 102,821                    
|Investment                                                                |  | (4,435,353)                
|Net Cash Flows from Investing Activities                                  |  | (3,943,468)                
|                                                                         
|Cash Flows from Financing Activities:                                     |  |                            
|Proceeds from Borrowings                                                  |  | (196,079)                  
|Cash Pledged to Bank                                                      |  | (2,026,570)                
|Notes Payable                                                             |  | 2,245,340                  
|Capital Contributions                                                     |  | -                          
|Net Cash Flows from Financing Activities                                  |  | 22,691                     
|                                                                         
|Net Increase (Decrease) in Cash                                           |  | (1,514,964)                
|                                                                         
|Effect of Exchange Rates on Foreign Currency Transactions                 |  | 288,796                    
|                                                                          |  |                            
|                                                                         
|Cash - Beginning of Period                                                |  | 19,348,547                 
|Cash - End of Period                                                      |  | 18,122,379                 
|                                                                         
|Supplemental Cash Flow Disclosures:                                       |  |                            
|Interest Paid                                                             |  | 1,143,611                  
|Income Tax Paid                                                           |  | 1,042,408                  
|                                                                         
|The accompanying notes are an integral part of these financial statements |  |                            

F-4

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|                        |  |                                                                                                                                                   |  |          |  |              |  |            
|----------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | ------------ |  | -----------
|                        |  | Terra Nostra Resources Corp. and SubsidiariesConsolidated Statements of Shareholders Equity
 For the Three Months Ended August 31, 2006 and 2005 |  |          |  |             
|                        |  |                                                                                                                                                   |  |          |  |             
|                       
|                       
|                        |  | Common                                                                                                                                            |  |          |  | Additional   |  |            
|                        |  | Stock                                                                                                                                             |  | Share    |  | Paid-in      |  |            
|                        |  | Outstanding                                                                                                                                       |  | Capital  |  | Capital      |  | Reserves   
|Balance at June 1, 2005 |  | 40,146,448                                                                                                                                        |  | $ 40,146 |  | $ 18,382,720 |  | $ 5,314,498
|Capital contribution    |  | 84,000                                                                                                                                            |  |          |  | 164,916      |  |            
|during the year         |  |                                                                                                                                                   |  | 84       |  |              |  |            
|Net income for the year |  |                                                                                                                                                   |  |          |  |              |  |            
|Reclassify shareholder  |  |                                                                                                                                                   |  |          |  | 493,840      |  |            
|loan interest           |  |                                                                                                                                                   |  |          |  |              |  |            
|Other comprehensive     |  |                                                                                                                                                   |  |          |  |              |  |            
|income/(loss)           |  |                                                                                                                                                   |  |          |  |              |  |            
|                        |  |                                                                                                                                                   |  |          |  |              |  |            
|Balance at August 31,   |  | 40,230,448                                                                                                                                        |  | $ 40,230 |  | $ 19,041,476 |  | $ 5,314,498
|2005                    |  |                                                                                                                                                   |  |          |  |              |  |            
|                        |  |                                                                                                                                                   |  |          |  |              |  |            
|                       
|                       
|                       
|Balance at June 1, 2006 |  | 49,156,448                                                                                                                                        |  | $ 49,156 |  | $ 34,965,558 |  | $ 2,028,858
|Capital contribution    |  |                                                                                                                                                   |  |          |  |              |  |            
|during the year         |  | -                                                                                                                                                 |  |          |  |              |  |            
|Excess in capital       |  |                                                                                                                                                   |  |          |  |              |  |            
|contribution            |  | -                                                                                                                                                 |  |          |  |              |  |            
|Net income for the      |  |                                                                                                                                                   |  |          |  |              |  |            
|quarter                 |  | -                                                                                                                                                 |  |          |  |              |  |            
|Addition of Reserve     |  |                                                                                                                                                   |  |          |  |              |  | 161,064    
|Other comprehensive     |  |                                                                                                                                                   |  |          |  |              |  |            
|income/(loss)           |  | -                                                                                                                                                 |  |          |  |              |  |            
|                        |  |                                                                                                                                                   |  |          |  |              |  |            
|Balance at August 31,   |  | 49,156,448                                                                                                                                        |  | $ 49,156 |  | $ 34,965,558 |  | $ 2,189,922
|2006                    |  |                                                                                                                                                   |  |          |  |              |  |            
|                        |  |                                                                                                                                                   |  |          |  |              |  |            

F-5

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TERRA NOSTRA RESOURCES CORP. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS August 31, 2006 (Stated in U.S. Dollars) (Unaudited)



|Note 1
|------



|Background
|----------

Terra Nostra Resources Corp (Terra Nostra or the Company) was formed through a reverse merger with Terra Nostra Technology Ltd. (TNRL), a fully reporting OTC/Bulletin Board company and a Nevada corporation. As part of this transaction, Terra Nostra paid a finders fee and other consideration while TNRL completed a divestiture and cleared other outstanding debts pursuant to the agreement. The reverse merger was consummated in April, 2005.

In 1994, Shandong Jinpeng Copper Co. Ltd. (SJCC) was founded as a wholly Sino private company. SJCC was owned by Ke Zhang, an individual of the PRC (Sino Partner) and used to acquire an existing copper processing operation, having associated assets and land use rights, from a local government agency.

On December 23, 2002, Shandong Quanxin Stainless Steel Co. Ltd. (SQSS) was formed through a foreign Sino joint venture agreement between SJCC and Hong Kong Hanbang Investment (HKHI). Pursuant to the agreement, each party held 50% of the joint venture, which had total registered capital of $26,600,000.

SJCC and SQSS are herein collectively referred to as Subsidiaries of the Company.

On January 2, 2005, the December 23, 2002 agreement between SJCC and HKHI was amended and restated (the SQSS JV). Under SQSS JV, TNRL was substituted for HKHI as the foreign partner of the Sino Joint Venture and the ownership ratio was changed to 51% and 49% for the foreign and Sino partners, respectively. Under the SQSS JV, TNRL had a total capital contribution commitment of US$13,566,000.

Under the laws of the Peoples Republic of China (PRC) on Joint Ventures Using Chinese and Foreign Investment, SJCC agreed to contribute certain fixed assets utilized in the production of stainless steel, including equipment, buildings, production lines, property rights and other fixed assets to the joint venture company in exchange for its 49% ownership. Pursuant to the SQSS JV, the effectiveness of the agreement was subject to the fulfilment of certain conditions precedent, including satisfactory due diligence among others by TNRL. Both parties have fulfilled their registered capital obligations under the SQSS joint venture agreement.

On January 10, 2005, Shandong Terra-Nostra Jinpeng Metallurgical Co. Ltd (STJMC) was formed under a Sino-Foreign Joint Venture Contract (STJMC JV) by converting the corporate structure of SJCC from a private PRC company to a Sino-Foreign joint venture company. TNRL, with a total capital contribution commitment of US$27,234,000, became a 51% foreign owner and Sino Partner became a 49% owner. Sino Partner agreed to contribute certain fixed assets, property rights, and other assets in return for its 49% ownership in the STJMC. Pursuant to the STJMC JV agreement, the effectiveness of the agreement was subject to the fulfilment of certain conditions precedent, including satisfactory due diligence among others by TNRL.

On January 20, 2005, the TNRL changed its name from Terra Nostra Technology Ltd. to Terra Nostra Resources Corp.

On August 17, 2005, Terra Nostra reported all requirements had been fulfilled under the SQSS JV and STJMC JV, leading to the completion of the acquisition of 51% of two Sino-Foreign Joint Venture

F-6

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Companies (together the Joint Ventures). As a result of the transactions, Terra Nostra changed its fiscal year end from December 31 to May 31.

With respect to STJMC, on October 7, 2005, the parties to STJMC entered into an Amended and Restated Joint Venture Contract, whereby the combination of fixed assets contributed by
Sino Partner was modified to lessen the tax impact of the transaction on Sino Partner.

In further respect to STJMC, on December 16, 2005, the parties to STJMC entered into a Second Amended and Restated Joint Venture Contract to reflect the intent of the parties to
substitute other assets of the Sino Partner pursuant to the October 7, 2005 agreement and to clarify certain elements of the Amended and Restated Joint Venture Contract. Certain assets (the Existing Assets) contributed by Sino Partner to
STJMC prior to December 16, 2005 remained as previously disclosed. These Existing Assets included land use rights, equipment, property, among other assets located in Shandong Province, PRC, having operational production capacity of approximately
30,000 metric tonne (MT) of copper and additional production capacity of related products. In addition, the Existing Assets include a new 80,000 MT facility that has been constructed but is not yet operational, as discussed
below.

The fixed assets that Sino Partner had intended to contribute to STJMC that belonged to Zouping Jinwang and Zouping Regenerated Resources (the Replaced Assets) were
substituted with assets under construction as Dongying, Shandong Province, PRC (the New Assets). The Replaced Assets are used in the recycling of copper and metal scrap and the processing and fabrication of commodity copper and related
products. The New Assets are associated with the processing and fabrication of commodity copper. The New Assets have the potential to generate greater productive output and revenues than the Replaced Assets, are better documented, and represent a
better fit with STJMCs strategic goals of improving product quality, expanding production, developing new products, and gaining a greater position in world markets.

The required capital contribution by Terra Nostra to STJMC is unchanged at US$27,234,000. To date, Terra Nostra has contributed US$2,000,000 towards this obligation. Terra
Nostra holds a 51% shareholding in STJMC and has treated the transaction, for accounting purposes, as an acquisition. Moreover, under the terms of the Second Amended and Restated Joint Venture Contract, Sino Partners capital obligation to
STJMC remains as US$26,166,000 for a 49% shareholding in STJMC, and is expected to be satisfied through contributions of assets.

Terra Nostra and Sino Partner have closed the Second Amended and Restated Joint Venture Contract which took full force and effect on May 31, 2006.

STJMC is planning to phase-in approximately 140,000 MT of production capacity that has been newly constructed by Sino Partner. There are two parts to this production capacity: the New
Assets, which are located in Dongying, Shandong Province, having production capacity of 60,000 MT; and a new 80,000 MT capacity facility that is among the Existing Assets, but not yet operational. These facilities are intended to be contributed to
STJMC by Sino Partner as a component of the obligation under the STJMC JV, as amended. Although the construction of the plants is completed, Sino Partner has not yet conveyed the respective assets to STJMC as contemplated under the STJMC JV, as
revised and restated. The effective dates for conveying the assets under the STJMC JV is a function of the parties completing additional legal, accounting, and governmental obligations, which have commenced. Once these two plants are fully
operational and legally established within STJMC, STJMC will have 170,000 MT of production capacity of electrolytic copper output.

SQSS is an integrated stainless steel plant, operating out of Zibo City, Shandong Province, PRC and employs three electric-arc furnaces and two Argon Oxygen Decarburization
(AOD) refining furnaces in its casting mill that was built with an initial design capacity of 180,000 MT. SQSS is currently in the process of

F-7

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retrofitting the casting mill to expand its design capacity to up to 230,000 MT, potentially a more than 25% increase. The downstream strip rolling mill is to be phased-in over the
next fiscal year. The downstream strip rolling mill is to be phased in over the coming fiscal year and has a design capacity of 150,000 MT per annum. The Company also has advanced plans to develop a 30,000 MT capacity welded tube line and a 60,000
MT capacity rod line, both of which are under evaluation by management. Terra Nostra owns 51% of SQSS under the SQSS JV. Terra Nostra has fulfilled its registered capital funding obligation of US$13,566,000 with the final instalment contributed
in May, 2006, securing a certificate of completion from the requisite PRC regulatory bodies.

STJMC, also a subsidiary, is a producer, seller, and distributor of electrolytic copper, value-added copper products, and precious metals with production locations in Changshan Town
and Dongying City, Shandong Province, PRC. STJMC currently sells approximately 8,500 MT per annum of electrolytic copper, 6,000 MT per annum of low-oxygen rod, and 7,000 MT per annum of no-oxygen copper rod. The amount of gold and silver sold
various widely from year to year based on the mix of scrap and ore used in the production process and precious mineral content of the raw materials. Sales of precious metals make up less than 1% of total sales.



|Note 2
|------



|Interim Reporting
|-----------------

The accompanying unaudited interim financial statements have been prepared by the Company pursuant to the rules and regulations of the United States Securities and Exchange
Commission. Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. Such adjustments consist of normal recurring adjustments. These interim
financial statements should be read in conjunction with the Companys May 31, 2006 audited financial statements.

The statements of profit and loss and the statements of cash flows for the three months to August 31, 2006 include the results of operations from STJMC; however, the comparative
statements from the prior period do not.

The results of operations for the three months ended August 31, 2006 may not be indicative of the results that may be expected for the full year.



|Note 3Continuance of Operations
|-------------------------------

The financial statements have been prepared using generally accepted accounting principles in the United States of America applicable for a going concern which assumes that the
Company will realize its assets and discharge its liabilities in the ordinary course of business. The Company has not yet achieved profitable operations and has accumulated losses of $26.5 million through to the quarter ending August 31, 2006.
The Company has transitioned from a development stage company to an operating company with the completion of the stainless steel casting mill and strip mill, and the commencement of production, sales and distribution of stainless steel billets. Its
ability to continue as a going concern is dependent upon the ability of the Company to generate profitable operations in the future and/or to obtain the necessary financing to meet its obligations and pay its liabilities arising from normal business
operations when they come due. Realization values may be substantially different from carrying values as shown in these financial statements should the Company be unable to continue as a going concern. These financial statements do not include any
adjustments to the amounts and classifications of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. The Company anticipates that additional funding will be

F-8

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in the form of equity financing from the sale of common stock. The Company may also seek to obtain loans from various financial sources. There are no current arrangements in place for
loans.

Note 4Summaries of Significant Accounting Policies



|Basis of Presentation
|---------------------

The financial statements are prepared in accordance with generally accepted accounting principles used in the United States of America (US GAAP) and include the accounts
of Terra Nostra and its Subsidiaries for all periods presented. The Consolidated financial statements of Terra Nostra reflect the activities of the following Subsidiaries:

|Subsidiary                                           |  | Percentage of Ownership
|---------------------------------------------------- |  | -----------------------
|Shandong Quanxin Stainless Steel Co.                 |  | 51%                    
|Shandong Terra-Nostra Jinpeng Metallurgical Co. Ltd. |  | 51%                    

STJMC owns the 49% minority interest in SQSS. For accounting purposes, the investment follows the equity method. STJMCs share of SQSS net income or losses is treated as
investment income in the period earned.

Since the acquisition of STJMC was effective May 31, 2006, the balance sheet of STJMC as at that date will be included in the consolidated financial statements and the Statement of
Shareholders Equity for the Year Ended May 31, 2006. Furthermore, the accounts of STJMC will not be included in the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows.



|Other Receivables
|-----------------

The majority of this item reflects cash advances against which there are neither formal agreements nor contractual rates of interest. These amounts will be reduced as advances are
repaid, services are rendered, or supplies/equipment conveyed. In order to determine the fair value of other receivables, a provision for doubtful accounts is booked to cover estimated credit losses. Management will review and adjust this allowance
periodically based on historical experience and its evaluation of the collect-ability of outstanding other receivables.

|Analysis of Other Receivables         |  |                 |  |             
|------------------------------------- |  | --------------- |  | ------------
|(US$)                                 |  |                 |  |             
|                                      |  | August 31, 2006 |  | May 31, 2006
|Other Receivables                     |  | 16,743,497      |  | 7,884,020   
|Other Receivables - Related Party     |  | 24,082,416      |  | 25,707,370  
|Less: Allowance for doubtful accounts |  | (1,231,082)     |  | (747,417)   
|                                     
|Other Receivables, Net                |  | 39,594,831      |  | 32,843,973  



|Inventory
|---------

Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the moving average basis and includes all costs to acquire and other costs incurred in
bringing the inventories to their present location and condition. The net realizable value of its inventories will be evaluated on a regular basis and a provision for loss will be booked accordingly to reduce the computed moving-average cost if it
exceeds the net realizable value.

F-9

---

|Analysis of Inventories |  |                 |  |            
|----------------------- |  | --------------- |  | -----------
|(US$)                   |  |                 |  |            
|                        |  | August 31, 2006 |  | May 31 2006
|Raw Materials           |  | 7,862,262       |  | 9,482,043  
|Work in Progress        |  | 17,472,296      |  | 12,297,856 
|Finished Goods          |  | 7,019,451       |  | 2,327,356  
|Consignment Inventory   |  | 94,938          |  | 1,321,920  
|Sundry                  |  | 71,283          |  | 75,904     
|                        |  |                 |  |            
|Total Inventories       |  | 32,520,230      |  | 25,505,079 
|                        |  |                 |  |            



|Property, plant, and equipment
|------------------------------

Property, plant and equipment are carried at cost less accumulated depreciation. The cost of repairs and maintenance is expensed as incurred; major replacements and improvement are
capitalized.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The estimated useful lives are as follows:

|Asset Category:                  |  | Estimated Useful Life
|-------------------------------- |  | ---------------------
|Buildings                        |  | 30-40 years          
|Plant and machinery              |  | 5-20 years           
|Motor vehicles                   |  | 5-10 years           
|Office equipment and furnishings |  | 5 years              

Construction in progress represents buildings, machinery and other long-term assets under construction or installation, which is stated at costs less any impairment losses, and is not
depreciated. Cost comprises the direct costs of purchase, construction and installation. Construction in progress is reclassified to the appropriate category of long-term assets when completed and ready for use.

F-10

---

|Breakdown of Property, Plant, and Equipment |  |                 |  |             
|------------------------------------------- |  | --------------- |  | ------------
|(US$)                                       |  | August 31, 2006 |  | May 31, 2006
|Building                                    |  | 16,838,670      |  | 16,784,936  
|Machinery                                   |  | 28,388,887      |  | 28,106,271  
|Vehicles                                    |  | 933,270         |  | 917,273     
|Office Equipment                            |  | 274,355         |  | 272,941     
|Land Use Rights (net of amortization)       |  | 5,055,413       |  | 5,025,487   
|Construction Materials                      |  | 41,050          |  | 40,623      
|Construction in Progress                    |  | 18,370,903      |  | 17,192,511  
|                                           
|Cost                                        |  | 69,902,549      |  | 68,340,042  
|                                           
|Less: Accumulated Depreciation              |  |                 |  |             
|Building                                    |  | 1,022,287       |  | 911,566     
|Machinery                                   |  | 4,020,030       |  | 3,504,135   
|Vehicles                                    |  | 246,935         |  | 217,180     
|Office Equipment                            |  | 87,256          |  | 78,116      
|                                            |  |                 |  |             
|                                           
|Accumulated Depreciation                    |  | 5,376,509       |  | 4,710,997   
|                                           
|Net Book Value                              |  |                 |  |             
|Building                                    |  | 15,816,382      |  | 15,873,370  
|Machinery                                   |  | 24,368,857      |  | 24,602,136  
|Vehicles                                    |  | 686,334         |  | 700,093     
|Office Equipment                            |  | 187,099         |  | 194,825     
|Land Use Rights                             |  | 5,055,413       |  | 5,025,487   
|Construction Materials                      |  | 41,050          |  | 40,623      
|Construction in Progress                    |  | 18,370,903      |  | 17,192,511  
|Long-Term Assets - Net                      |  | 64,526,040      |  | 63,629,045  



|Impairment of long-term assets
|------------------------------

In accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Companys policy is to record an impairment loss against the balance of a long-lived asset in the period when it is determined that the carrying amount of the asset may not be recoverable. This determination is based on an evaluation of such factors as the occurrence of a significant event, a significant change in the environment in which the business assets operate or if the expected future non-discounted cash flows of the business was determined to be less than the carrying value of the assets. If impairment is deemed to exist, the assets will be written down to fair value. Management also evaluated events and circumstances to determine whether revised estimates of useful lives are warranted. Managements opinion is that no impairment loss is considered necessary as at August 31, 2006.



|Bank indebtedness and notes payable
|-----------------------------------

As of August 31, 2006 and May 31, 2006, the Subsidiaries had several outstanding bank loans, which were used primarily to fund working capital operating expenses. The loans carried interest rates ranging from 4.698% to 9.792% per annum, with maturity periods of 6-12 months.

F-11

---

|Summary of outstanding bank loans |  |                               |  |                          |  |           |  |           
|--------------------------------- |  | ----------------------------- |  | ------------------------ |  | --------- |  | ----------
|                                  |  | (US$)                         |  |                          |  |           |  | Annual    
|Bank                              |  |                               |  |                          |  | Period    |  | Int. Rate 
|Agricultural Bank                 |  | Jul 31, 2006  Jul 31, 2007   |  | 9,36%                    |  | 301,564   |  |           
|Agricultural Bank                 |  | Aug 30, 2006  Aug 30, 2007   |  | 9.792%                   |  | 314,130   |  |           
|CITIC Bank                        |  | July 14, 2006  Jan 14, 2007  |  | 4.86%                    |  | 402,086   |  |           
|CITIC Bank                        |  | Feb 23, 2006                  |  |  Oct 15, 2006           |  | 6.696%    |  | 1,256,518 
|CITIC Bank                        |  | June 2, 2006  Dec. 2, 2006   |  | 5.4%                     |  | 1,884,777 |  |           
|CITIC Bank                        |  | June 21, 2006  Dec. 10, 2006 |  | 5.94%                    |  | 1,256,518 |  |           
|Zibo Commercial Bank              |  | Aug. 3, 2006  Aug. 11, 2007  |  | 9.945%                   |  | 2,513,037 |  |           
|Heng Feng Bank                    |  | Apr. 5, 2006  Apr. 5, 2007   |  | 6.138%                   |  | 6,282,591 |  |           
|Huaxia Bank                       |  | Dec 1, 2005  Dec 1, 2006     |  | 5.58%                    |  | 5,654,332 |  | 5,611,812 
|Agricultural Bank                 |  | Jul 31, 2005  Jul 31, 2006   |  | 8.928%                   |  |           |  | 299,297   
|Agricultural Bank                 |  | Aug 29, 2005  Aug 29, 2006   |  | 8.928%                   |  |           |  | 311,767   
|Agricultural Bank                 |  | Nov 18, 2005  Nov 18, 2006   |  | 8.928%                   |  | 188,477   |  | 187,060   
|CITIC Bank                        |  | Jan 16, 2006                  |  |  Jul 13, 2006           |  | 4.698%    |  |           
|CITIC Bank                        |  | Jan 18, 2006                  |  |  Jul 17, 2006           |  | 4.698%    |  |           
|CITIC Bank                        |  | Feb 23, 2006                  |  |  Oct 15, 2006           |  | 6.696%    |  |           
|CITIC Bank                        |  | Oct.                          |  | 8, 2005  Jul. 15, 2006  |  | 6.138%    |  |           
|CITIC Bank                        |  | Oct.                          |  | 20, 2005  Jun. 19, 2006 |  | 6.138%    |  |           
|CITIC Bank                        |  | Apr. 5, 2006  Nov. 4, 2006   |  | 6.138%                   |  | 1,256,518 |  | 1,247,069 
|CITIC Bank                        |  | Apr. 13, 2006  Oct. 20, 2006 |  | 6.138%                   |  | 1,256,518 |  | 1,247,069 
|CITIC Bank                        |  | Apr. 20, 2006  Nov. 14, 2006 |  | 6.138%                   |  | 1,256,518 |  | 1,247,069 
|Zibo Commercial                   |  | Aug. 5, 2005  Jul. 24, 2006  |  | 8.37%                    |  |           |  | 2,494,139 
|Zibo Commercial                   |  | Sep. 30, 2005  Sep.          |  | 5, 2006                  |  | 5.58%     |  | 22,617,327
|Zibo Commercial                   |  | Jan. 17, 2006  Jan.          |  | 9, 2007                  |  | 8.37%     |  | 3,769,555 
|Heng Feng Bank                    |  | Apr. 5, 2006  Apr. 5, 2007   |  | 6.138%                   |  |           |  | 6,235,348 
|                                  |  |                               |  |                          |  |           |  |           
|Total Bank Loans Outstanding      |  |                               |  |                          |  |           |  | 50,210,466
|                                  |  |                               |  |                          |  |           |  |           

As of August 31, 2006 and May 31, 2006, the Subsidiaries had several outstanding notes payable. The notes bear no interest and all had maturity dates of close to 6 months. The
notes proceeds were used primarily by related parties whose obligations are booked in Other Receivables  Related Parties, which are unsecured and have no support from guarantees. These notes can generally be exchanged at a discount for
cash with financial institutions. Most of the notes were partially secured by the Cash  Restricted.



|Related parties
|---------------

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making
financial or operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

F-12

---

|Analysis of related party balances                             |  |               |  |             
|-------------------------------------------------------------- |  | ------------- |  | ------------
|Other Receivables - Related Party                              |  | Aug. 31, 2006 |  | May 31, 2006
|Zouping Regenerated Resources                                  |  | 10,896,986    |  | 8,032,868   
|Zouping Regenerated Resources                                  |  | 4,331577      |  | -           
|Shandong Jinwang                                               |  | 6,908,133     |  | 6,213,321   
|Zhang Ke                                                       |  | -             |  | 8,061,609   
|Zibo Jinpeng                                                   |  | -             |  | 2,202,449   
|Zibo Jinpeng                                                   |  | 1,043,171     |  | 419,149     
|Zouping Jinwang                                                |  | 328,200       |  | 325,733     
|Shandong Jiatai                                                |  | 88,723        |  | 149,912     
|Zouping Huatong                                                |  | 200,813       |  | 199,303     
|Zouping Huatong                                                |  | 40,209        |  |             
|Shengming Copper                                               |  | 86,097        |  | 48,037      
|Dongying Shengli Zhongya                                       |  | 70,428        |  | 47,451      
|Other                                                          |  | 88,079        |  | 7,538       
|Total Other Receivables - Related Party                        |  | 24,082,416    |  | 25,707,370  
|                                                              
|Other Liabilities - Related Party                              |  |               |  |             
|Ke Zhang                                                       |  | 21,754,960    |  | 21,754,960  
|Zouping Jinwang                                                |  | 5,569,308     |  | 5,438,739   
|Shandong Jinwang                                               |  | 1,875,541     |  | 1,286,815   
|Dongying Shengli                                               |  | -             |  | 1,012,558   
|Zibo Mingtai Regenerated                                       |  | -             |  | 760,907     
|Zibo Mingtai                                                   |  | 2,625,364     |  | 322,546     
|Shandong Jiatai                                                |  | 188,478       |  |             
|Zouping Jinwang                                                |  | -             |  | 127,516     
|Dongying Fangyuan Copper                                       |  | 468,575       |  | 121,382     
|Sun Liu James Po                                               |  | -             |  | 95,782      
|Other                                                          |  | 101,335       |  | 77,213      
|Total Other Liabilities - Related Party                        |  | 32,583,561    |  | 30,998,418  
|                                                              
|Prepaid Expenses - Related Party                               |  |               |  |             
|Zouping Reg. Purchase & Sale                                   |  | -             |  | 1,247,069   
|Zouping Regenerated Resources                                  |  | 188,477       |  | 162,119     
|Zouping Reg. YX                                                |  | 43,398        |  | 43,071      
|Total Prepaid - Related Party                                  |  | 231,875       |  | 1,452,259   
|                                                              
|Accounts Receivable - related party                            |  |               |  |             
|Dongying Fangyuan Nonferrous                                   |  | 9,824         |  | -           
|                                                              
|Accounts Payable - related party                               |  |               |  |             
|Zouping Regenerated Resources                                  |  | 59,136        |  | 74,467      
|                                                              
|Construction Costs Payable                                     |  |               |  |             
|Zibo Mingtai                                                   |  | 919,092       |  | 711,535     
|Zouping Reg. Purchase and Sale                                 |  | 486,580       |  | -           
|Shandong Jinpeng                                               |  | 69,534        |  | -           
|Zouping Jinwang                                                |  | 41,168        |  | -           
|Total Construction Costs Payable                               |  | 1,516,374     |  | 711,535     
|                                                              
|Related Party Transactions - Net Position, Asset / (Liability) |  | (9,844,780)   |  | (4,624,791) 
|                                                              
|                                                              
|F-13                                                           |  |               |  |             

---



|Foreign currency translation
|----------------------------

The Company maintains its books and accounting records in Renminbi (RMB), the PRCs currency and the functional currency. Translation of amounts from RMB to United
States dollars (US$) were made at the following exchange rates for the respective quarters:

|                |  | Balance Sheet Rates
|--------------- |  | -------------------
|August 31, 2006 |  | RMB 7.9585 to US$ 1
|August 31, 2005 |  | RMB 8.1111 to US$ 1

Foreign currency transactions into RMB are reflected using the temporal method. Under this method, all monetary items are translated into the function currency at the rate of exchange
prevailing at the balance sheet date. Non-monetary transactions are translated at historical rates. Income and expenses are translated at the rate in effect on the transaction dates. Transaction gains and losses, if any, are included in the
determination of net income for the period.

In translating the financial statements of the Company from its functional currency into its reporting currency in US$, balance sheet accounts are translated using the closing
exchange rate in effect at the balance sheet date and income and expense accounts are translated using the average exchange rate prevailing during the reporting period. Adjustments, if any, resulting from the translation are included in Accumulated
Other Comprehensive Income/Loss in stockholders equity.



|Financial Instruments
|---------------------

Statement of Financial Accounting Standards No. 107 (SFAS 107),Disclosures about Fair
Value of Financial Instrumentsrequires disclosure of the fair value of financial instruments held by the Company. SFAS 107 defines the fair value of financial instruments
as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying value of financial instruments including cash, receivables, prepaid expenses, accounts payable, bank loans and notes payable
approximates their fair value at the reporting balance sheet dates due to the relatively short-term nature of these instruments. The fair market value of long-term debt can not be determined due to a lack of comparability of similar market
instruments.



|Use of estimates
|----------------

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.



|Revenue recognition
|-------------------

The Company recognizes revenue when the significant risks and rewards of ownership have transferred pursuant to PRC law, including factors such as when persuasive evidence of an
arrangement exists, delivery has occurred, the sales price is fixed and determinable, sales and value-added tax laws have been complied with, and collect-ability is reasonably assured. The Company generally recognizes product sales when the product
is shipped. In the event goods are returned by a customer, revenue is reduced, and the returned goods are placed back to inventory during the period that the returned goods are received by the Company. The Company does not yet have a historical
basis for determining a rate of return on products sold, though

F-14

---

returns are expected to be minimal as the Company will be selling a commodity-type product with established international standards, and will follow rigorous internal quality control
systems and procedures.



|Contingency and Commitments
|---------------------------

STJMC had the following contingent liabilities as at August 31, 2006:

|i.)   |  | STJMC has granted bank guarantees equal to US$7,727,587 on behalf of third parties and            
|----- |  | --------------------------------------------------------------------------------------------------
|      |  | received no collateral or compensation for acting as guarantor;                                   
|ii.)  |  | STJMC has granted bank guarantees equal to US$27,643,400 on behalf of related parties and         
|      |  | received no collateral or compensation for acting as guarantor; and,                              
|iii.) |  | STJMC granted guarantees amounted to US$13,821,700 to banks against bank loans issued to 3        
|      |  | third parties who in return pledged their property to STJMC as collateral for acting as guarantor,
|      |  | the details are as follows:                                                                       
|     
|      |  |                                                                                                   
|      |  |                                                                                                   
|      |  |                                                                                                   
|      |  |                                                                                                   
|      |  | Total:                                                                                            

SQSS had the following contingent liabilities as at August 31, 2006:

|i.)   |  | SQSS has granted bank guarantees equal to US$16,648,865 on behalf of a related party by     
|----- |  | --------------------------------------------------------------------------------------------
|      |  | pledging its land and equipment to that limit and received no collateral or compensation for
|      |  | acting as guarantor;                                                                        
|ii.)  |  | SQSS has granted bank guarantees equal to US$4,071,119 on behalf of a related party and     
|      |  | received no collateral or compensation for acting as guarantor; and                         
|iii.) |  | SQSS has granted bank guarantees equal to US$100,521 on behalf of a third party and received
|      |  | no collateral or compensation for acting as guarantor.                                      

SQSS has commitments to various suppliers and contractors amounting to US$10,037,410 as at August 31, 2006. These outstanding commitments are contemplated to be funded by February
28, 2007. The fulfilment of these commitments will complete the funding of the strip line of the stainless steel mill.

F-15

---

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS



|Plan of Operation
|-----------------

The Stainless Steel Casting Line Has Been Completed and is Undergoing Production Trials

Terra Nostra has completed the construction of a casting mill comprising 180,000 to 230,000 MT production capacity of continuous casting billet stainless steel. Major equipment of the
casting mill includes three 17 MT electric arc furnaces, two AOD furnaces for further refinement of the stainless steel metal products and a continuous casting line with cut off torches. The casting mill began production trials in late January, 2006
and is in the process of increasing its production levels and generating trading revenues. The major raw materials include scrap stainless steel sourced through local distributors, including a Sino Partner affiliate, imported scrap steel imported
from North America and Europe, and imported nickel, chromium and other special metal alloys. A majority of the initial output has been outsourced to rolling mills for processing into stainless steel strip and then sold to downstream fabricators. In
other cases, billet stainless steel has been sold to rolling mills.

As mentioned previously, the production of billet stainless steel is at a low level of output. The reasons are a result of several factors:

- The technologies require time and a large number of trial operations and successive approximation in order to
be adjusted and settings fixed to meet stringent production standards;
- Employees need proper training to perform the many skilled functions that make up the production operation.
Functions include the proper handling and movement of material through the production steps; setting, reading and interpreting instrument readings; adding the correct
amount of nickel and other alloys at the correct time in the AOD furnaces;
- It is a learning process to maintain proper temperatures of the in-process stainless steel at the stages of
production;
- There is a need to improve the effectiveness of the quality controls at the critical stages to ensure minimum
defects and costly wastage; and,
- Improved working capital resources and management to ensure reliable, uninterrupted supply of feedstock
materials.

The Stainless Steel Strip Line has been Constructed, with Initial Production Tests Underway

The Company recently completed construction of a strip rolling line capable of producing up to 150,000 MT per annum. For the next several months, SQSS will perform testing and
production trials, and over time will ramp up to the terminal production utilization of 80%-100% of rated capacity. SQSS is currently in the process of hiring and training the requisite workforce.

Billet stainless steel produced in the casting mill is planned to supply the feed stock for the strip production. The strip rolling line is scheduled to be placed into operation in
the second quarter of fiscal 2006/2007 and is expected to be capable of reaching full capacity within seven months of operations, barring unforeseen technical difficulties and no limitations on the availability of stainless steel billet.

As stated above, SQSS is outsourcing the rolling of stainless steel strip and selling and marketing strip to downstream customers across PRC. The Company is selling through its
internal sales department and sales agents. As SQSS is able to increase output, it may be necessary for it to increase its internal sales and marketing department, the external sales network, or both.

3

---

The Company is Evaluating the Design Development of Other Stainless Steel Production Lines

The Company is also evaluating several options for other stainless steel production lines that will complement the existing casting mill and strip mill. The SQSS has already completed
construction of a production building with infrastructure and utilities in place. The strip line is using approximately a third of the available square footage within the building and expects to develop at least two additional production lines over
the next two years, or so, depending on the availability of financial capital and market conditions.

SQSS has developed advanced designs, engineering, and construction plans for a stainless steel rod line and a welded pipe line. A potential rod line would use billet for its raw
material, which would be sourced from the adjoining casting mill or, if necessary, purchased from outside vendors. The welded pipe production line would use stainless steel strip from the adjoining line and has the advantage of not creating a
potential competing interest for output from the casting mill. A third option would be to develop a seamless stainless steel pipe production line. A seamless line would rely on a source of stainless steel rod and would only be given further
consideration by management in the event that there is a final decision to proceed with the option to construct a rod line. Similar to the welded pipe line, there is an inherent advantage in that the seamless line would not compete with any other
production line for output from the casting mill.

The Existing Copper Operations will Continue Much as Before with Minor Changes

The foundation and platform for the Companys PRC operations is the STJMC Copper Processing Facility in Changshan Town, Zouping County, Shandong Province. As stated above, the
existing copper operation at Changshan has the capacity to process 30,000 MT of electrolytic copper, 15,000 MT of oxygen free copper rods, and 20,000 MT of low-oxygen copper rods. The difference between oxygen free and
low-oxygen is that oxygen free rods are extruded from melted electrolytic copper, while low-oxygen rods are produced from melted #1 copper scrap that has not been processed through the electrolysis plant. This plant is the flagship
copper processing and fabrication business led by Sino Partner, which he founded in 1994. The Company does not see material gains from altering the current operating formula.

140,000 MT of Additional Electrolytic Capacity Coming On-line in the Near-Term

STJMC is planning to phase-in approximately 140,000 MT of production capacity that has been newly constructed by Sino Partner. There are two parts: the New Assets, which are located
in Dongying, Shandong Province, having production capacity of 60,000 MT; and a new 80,000 MT capacity facility that is among the Existing Assets, but not yet operational. These facilities are intended to be contributed to STJMC by Sino Partner as a
component of the registered capital obligation under the STJMC JV, as amended. Although the construction of the plants is completed, these assets have not yet conveyed as contemplated under the STJMC JV, as revised and restated. The effective dates
for conveying the assets under the STJMC JV are a function of the parties completing additional legal, accounting and governmental obligations, which have commenced.

The operating plan for these un-utilized assets cannot be separated from the financing plan. The assets represent a near term potential for the Company to embark on a tremendous
growth phase. However, realizing this potential is largely a function of the Company raising sufficient capital to feed the plants with raw materials and support the start-up needs of these operations. The plant at Dongying has completed production
trials and is operating intermittently. The new 80,000 MT plant has undergone trials of the furnace and casting processes; however, the electrolytic plant is not anticipated to initiate production trials until the working capital sources are
secured.

4

---



|Results of Operations
|---------------------

For the three months ended August 31, 2006 and 2005, the Company incurred net losses of US$1,348,692 and US$2,601,558, respectively. The Company is reporting a loss of US$0.02 per share on a fully diluted basis.

For the current three month period, revenues were US$59,463,131. Of these revenues, US$53,533,822, or 90% of total revenues, were earned by STJMC from ongoing operations. The balances of US$5,929,309, or10% of total revenues, were earned by SQSS, which continues its production trials and has not reached a level of sales volume and economies of scale to generate positive earnings. Although STJMC recorded gross profit margins of 9.8% for the current three month period, the overall gross profit margin was 7.5%, reflecting the affects of negative gross profit margins by SQSS.

STJMC was acquired by the Company on May 31, 2006. For comparison purposes, STJMC recorded sales of US$22,135,727 for the same period of the prior year. The significant increase of approximately 240% is due primarily to the sharp increases in copper prices experienced in global markets over the past year. SQSS was a in a development stage and, accordingly, had nil sales for the three months ended August 31, 2005.

Selling, general, and administrative costs decreased from US$2,648,744 for the three months to August 31, 2005 to US$2,259,114 in the current three month period. The reduction is principally due to lower costs of management options.

Depreciation and amortization expenses increased to US$665,511 in the current period from US$121,223 in the three months to August 31, 2005. The increase is primarily due to SQSS emerging from a development stage, which brought fixed assets of SQSS on-line and the commencement of accruing depreciation against complete plant and equipment. Secondly, depreciation of STJMC was reflected in the current quarter, but not in the same period of the prior year.

Interest expenses for the three months to August 31, 2006 and 2005 were US$862,860 and US$432,693, respectively. The increase is due to higher bank debt at SQSS, an increase in market interest rates, and the inclusion of US$152,038 of bank interest accrued by STJMC.

There was no provision for income taxes in the three months to August 31, 2006 since the SQSS had not commenced full operations and, and has generated deficits. However, in the current quarter, STJMC recorded a provision of US$1,592,578 against net income before tax of US$1,275,542.



|Financing Activities
|--------------------

At present, based on current operations, the Company does not have sufficient cash and liquid assets to satisfy its cash requirements on a monthly basis. The operations of the Company are undertaken by the Subsidiaries, two Sino-Foreign Joint Venture Companies in which the Company holds a 51% interest, operating under the laws of the PRC. There can be no assurance that the Company will be able to raise the required funds to fulfil its capital contribution commitments under the respective STJMC JV. Should the Company be unable to provide the funds required according to a schedule as determined by the STJMC Board of Directors, the Company could potentially be subject to a diminished ownership percentage.

The Company has recently embarked on a new finance raising program. The intent of the program is to arrange up to $50 million in unregistered equity securities. In this regard, the Company has engaged the services of a New York-based investment bank that specializes in placing securities for small/micro cap companies and has a successful track record assisting companies that have their primary operations in PRC. If we are able to complete such financing, the proceeds will complete the Companys registered capital

5

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funding obligation under the STJMC JV and recapitalize both subsidiary joint ventures. The registered capital funding will be used by STJMC to finance its operating needs. None of the
funding that is downstreamed to the Subsidiaries will be used to acquire equity from the Sino Partner or otherwise be diverted from meeting the working capital and fixed asset needs of the Subsidiaries. The Companys investment bank has not
agreed to underwrite this financing and there are no assurances at this time that the Company will be able to complete an equity financing for $50 million or any other amount.

Compliance with Environmental Laws and Regulations

Based on the equipment, technologies and proactive measures adopted, the Company is not considered a high-pollution factory in PRC. The production processes use a small amount of
water and this renders minimal chemical pollution. The strip line will use a gas-fired reheat furnace, which is recommended by the State Environmental Protection Agency. The stainless steel casting mill uses state of the art air pollution systems to
extract smoke and gaseous emissions and draw it through multi-stage filtration units.

6

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|PART II  OTHER INFORMATION
|---------------------------



|ITEM 1. LEGAL PROCEEDINGS
|-------------------------



|Not Applicable
|--------------



|ITEM 2. CHANGES IN SECURITIES
|-----------------------------

The Company did not issue any securities during the quarter ended August 31, 2006.

On September 30, 2006, the Company sold 50,000 shares of its common stock to a private investor for total proceeds of $100,000, for a price of $2.00/share, accompanied by a
total of 50,000 purchase warrants entitling the holder to acquire an additional common share for a period of 2 years, with the exercise price during the first year set at $3.00 per share and $4.00per share during the second year.

The foregoing issuance of securities was exempt from registration due to the exemption found in Regulation S promulgated by the Securities and Exchange Commission under the Securities
Act of 1933. The sale was an offshore transaction since the offeree was not in the United States and the purchaser was outside the United States at the time of the purchase. Moreover, there were no directed selling efforts of any kind made in the
Untied States neither by us nor by any affiliate or any person acting on our behalf in connection with any of these offerings. All offering materials and documents used in connection with the offers and sales of the securities included statements to
the effect that the securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons unless the securities are registered under the Act or an exemption therefrom is available
and that hedging transactions involving those securities may not be conducted unless in compliance with the Act. The purchaser certified under Regulation S that he is not a U.S. person and is not acquiring the securities for the account or benefit
of any U.S. person and agreed to resell such securities only in accordance with the provisions of Regulation S, pursuant to registration under the Act or pursuant to an available exemption from registration. The shares sold are restricted securities
and the certificates representing these shares have been affixed with a standard restrictive legend, which states that the securities cannot be sold without registration under the Securities Act of 1933 or an exemption there from and we are required
to refuse to register any transfer that does not comply with such requirements.

ITEM 3. DEFAULT UPON SENIOR SECURITIES



|Not Applicable
|--------------

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



|Not applicable
|--------------



|ITEM 5. OTHER INFORMATION
|-------------------------



|Not applicable
|--------------

7

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ITEM 6. EXHIBITS

|3.3  | Articles of Incorporation                                                                     
|---- | ----------------------------------------------------------------------------------------------
|    
|3.4  | Amendment to Articles of Incorporation                                                        
|    
|3.5  | Certificate of Amendment                                                                      
|    
|3.6  | Bylaws                                                                                        
|    
|4.7  | Form of Common Stock Specimen                                                                 
|    
|10.1 | Amendment to the Share Exchange Agreement between the Corporation and 9126 2238 Quebec Inc.   
|    
|10.2 | Acquisition Agreement Between RTO Investments Ltd., a Bahamas company and the Corporation     
|    
|10.3 | Disposition Agreement between the Corporation, Quattro Investments Limited and Biointegra Inc.
|    
|10.4 | Shandong Terra Nostra  Jinpeng Metallurgical Co., Ltd.- Joint Venture Contract               
|    
|10.5 | Shandong Quanxin Stainless Steel Co.  Joint Venture Contract                                 
|    
|10.4 | Shandong Terra Nostra  Jinpeng Metallurgical Co., Ltd.- Joint Venture Contract               
|    
|10.5 | Shandong Quanxin Stainless Steel Co.  Joint Venture Contract                                 
|    

|10.6 |  | Shandong Terra Nostra  Jinpeng Metallurgical
|---- |  | ---------------------------------------------
|     |  | Co., Ltd.- Joint Venture Contract Amendment  

Incorporated by reference to the Exhibits attached to the Corporation's Registration Statement on Form 10-SB filed with the SEC on February 19, 2002, file number 000-49631.

Incorporated by reference to the Exhibits attached to the Corporation's Registration Statement on Form 10-SB filed with the SEC on February 19, 2002, file number 000-49631.

Incorporated by reference to the Exhibits attached to the Corporation's Registration Statement on Form 10-SB filed with the SEC on February 19, 2002, file number 000-49631.

Incorporated by reference to the Exhibits attached to the Corporation's Registration Statement on Form 10-SB filed with the SEC on February 19, 2002, file number 000-49631.

Incorporated by reference to the Exhibits attached to the Corporation's Registration Statement on Form 10-SB filed with the SEC on February 19, 2002, file number 000-49631.

Incorporated by reference to the Exhibits attached to the Corporations Form 10-QSB filed with the SEC on August 19, 2004.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on December 10, 2004.

Incorporated by reference to the Exhibits attached to the Corporations Form 10-QSB filed with the SEC on May 15, 2005

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17,

8

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|10.7  | Shandong Quanxin Stainless Steel Co.  Joint Venture Contract Amendment                                                                                       
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|10.8  | Shandong Terra-Nostra Jinpeng Metallurgical Co. Ltd  Amended and Restated Joint Venture Agreement                                                            
|     
|10.9  | Shandong Terra-Nostra Jinpeng Metallurgical Co. Ltd.  Amended and Restated Joint Venture Agreement, including Articles of Association dated December 16, 2005
|     
|10.10 | Shandong Quanxin Stainless Steel Co. Ltd.  Amended and Restated Joint Venture Agreement, including Articles of Association dated March 26, 2006              
|     
|31.1  | Section 302 Certification- Principal Executive Officer                                                                                                        
|     

31.2 Section 302 Certification- Principal Accounting Officer and Principal Financial Officer

32.1 Certification for CEO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2 Certification or CFO Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|2005.
|-----

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on August 17, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 8-K filed with the SEC on October 10, 2005.

Incorporated by reference to the Exhibits attached to the Corporations Form 10-QSB filed with the SEC on January 23, 2006.

Incorporated by reference to the Exhibits attached to the Corporations Form 10-QSB filed with the SEC on April 19, 2006.



|Filed herewith.
|---------------



|Filed herewith.
|---------------



|Filed herewith.
|---------------



|Filed herewith.
|---------------

9

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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.



|TERRA NOSTRA RESOURCES CORP.
|----------------------------



|Date: October 23, 2006
|----------------------

By:

Name: Donald Nicholson

Title: Chief Executive Officer and President and Principal Executive Officer

By:

Name: Jeff Reynolds

Title: Chief Financial Officer and Principal Accounting and Principal Financial Officer

10

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