Eternal Technologies (ETLT) 10QSB 2007 Q1 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

Washington, 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 March 31, 2007

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

For the transition period from __________ to __________.

Commission File No. 0-27929

ETERNAL TECHNOLOGIES GROUP, INC.

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(Exact name of registrant as specified in its charter)

Nevada	62-1655508
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

Sect D, 5/F, Block A, Innotec Tower, 235 Nanjing Road

Heping District, Tianjin, 300052

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(Address of principal executive offices)

011-86-22-2721-7020

-------------------------

(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

As of May 15, 2007, 47,073,279 shares of Common Stock of the issuer were outstanding.

1

ETERNAL TECHNOLOGIES GROUP, INC.
10-QSB FOR THE QUARTER ENDED MARCH 31, 2007
INDEX
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Unaudited Consolidated Condensed Balance Sheets at
	March 31, 2007 and December 31, 2006	3
	Unaudited Consolidated Condensed Statements of Income
	for the three months ended March 31, 2007 and 2006	4
	Unaudited Consolidated Condensed Statement of
	Stockholders' Equity for the three months ended March 31, 2007	5
	Unaudited Consolidated Condensed Statements of Cash
	Flows for the three months ended March 31, 2007 and 2006	6
	Notes to Unaudited Consolidated Condensed Financial
	Statements	7
Item 2.	Management Discussion and Analysis or Plan of Operations	9
Item 3.	Controls and Procedures	10
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	11
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	12
Item 3.	Defaults Upon Senior Securities	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 5.	Other Information	12
Item 6.	Exhibits	12
		12
	Signatures	12
	Certifications	13-16

2

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ETERNAL TECHNOLOGIES GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2007 and December 31, 2006
(Amounts in United States Dollars)
	March 31,		December 31,
	2007		2006
ASSETS
Current assets:
Cash and Cash equivalents	$	25,299,565	$	16,024,123
Short-term investments		15,502,073		15,350,176
Accounts receivable		3,408,518		6,790,534
Inventories		1,115,802		5,358,213
Prepayments and deposits		6,240		200,705
Total current assets		45,332,198		43,723,751
Advances to distributors		1,059,308		1,048,929
Investment in Changsha Hongyuan		3,918,701		-
Property and equipment, net of accumulated depreciation of $4,149,193
and $3,943,592 at March 31, 2007 and December 31, 2006, respectively		6,786,127		6,882,175
Land use rights, net of accumulated amortization of $1,760,854
and $1,647,961 at March 31, 2007 and December 31, 2006, respectively		4,702,507		4,722,362
Intangible assets		1,666,473		1,688,520
Total assets	$	63,465,314	$	58,065,737
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable and convertible debt	$	443,366	$	443,366
Accounts payable and accrued liabilities		2,305,060		532,037
Amounts due to related parties		215,218		216,175
Foreign income taxes payable		78,797		229,680
Derivative financial instrument liability		340,431		438,356
Total current liabilities		3,382,872		1,859,614
Commitments and contingencies
Stockholders' equity:
Preferred shares - $0.001 par value, 5,000,000 shares authorized, none
issued or outstanding		-		-
Common shares - $0.001 par value; 95,000,000 shares authorized;
47,073,579 and 43,567,300 shares issued and outstanding at March 31,
2007 and December 31, 2006, respectively		47,073		43,567
Additional paid - in capital		17,232,326		14,931,217
Subscription receivable		-		(10,176	)
Retained earnings		39,316,447		38,097,409
Accumulated other comprehensive income		3,486,596		3,144,106
Total stockholders' equity		60,082,442		56,206,123
Total liabilities and stockholders' equity	$	63,465,314	$	58,065,737
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements

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ETERNAL TECHNOLOGIES GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the Three Months Ended March 31, 2007 and 2006
(Amounts in United States Dollars)
	2007			2006
Revenue:
Agricultural and genetics sales	$	5,726,797		$	3,608,572
Medical devices sales and services		1,498,065			607,787
Land lease		297,245			-
Total revenue		7,522,107			4,216,359
Cost of sales and services:
Agricultural and genetics sales		5,258,904			2,644,403
Medical devices and services		602,687			277,244
Land lease		137,856			132,988
Total cost of sales and services		5,999,447			3,054,635
Gross profit		1,522,660			1,161,724
Selling, general and administrative expenses		669,031			400,649
Income from operations		853,629			761,075
Other income (expense)
Interest income		49,885			40,728
Earnings on short-term investments		347,430
Loss on sale of property and equipment		(844	)		-
Change in value of derivative		(38,880	)		(221,649	)
Equity in earnings on investment in Changsha Hongyuan		96,508			-
Other income (expense), net		454,099			(180,921	)
Income before provision for foreign income taxes		1,307,728			580,154
Provision for income taxes		88,690			39,355
Net income	$	1,219,038		$	540,799
Net income per common share
basic and diluted	$	0.03		$	0.01
Weighted average number of
common shares outstanding,
basic and diluted		47,073,579			40,567,300
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements

4

ETERNAL TECHNOLOGIES GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2007 and 2006
(Amounts in United States Dollars)
	2007			2006
Cash flows from operating activities
Net income	$	1,219,038		$	540,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings on investment in Changsha Hongyuan		(96,508	)		-
Depreciation and amortization		274,738			264,946
Common stock issued for service		264,000			-
Change in value of derivative financial instruments		38,879			221,649
Changes in operating assets and liabilities:
Inventories		4,295,433			(33,143	)
Accounts receivable		3,218,448			3,660,793
Prepayments and deposits		196,451			-
Accounts payable and accrued expenses		1,767,758			(60,703	)
Account payable to related parties		-			3,082
Foreign income taxes payable		(153,156	)		-
Net cash provided by operating activities		11,025,081			4,597,423
Cash flows from investing activities:
Investment in Changsha Hongyuan		(1,918,382	)		-
Net cash used by investing activities		(1,918,382	)		-
Cash flows from financing activities:
Collection of subscription receivable		10,176			-
Net cash provided by financing activities		10,176			-
Effect of exchange rate changes on cash		158,567			129,766
Net increase in cash and cash equivalents		9,275,442			4,727,189
Cash and cash equivalents, beginning of period		16,024,123			18,228,488
Cash and cash equivalents, end of period	$	25,299,565		$	22,955,677
Supplemental disclosure of cash flow information:
Interest Paid	$	-		$	-
Income taxes paid		141,836			39,355
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements

5

ETERNAL TECHNOLOGIES GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007 and 2006

(Amounts in United States Dollars)

1. REPORTING ENTITY

Pursuant to an exchange agreement, Eternal Technologies Group, Inc., ("Company") formerly known as Waterford Sterling Corporation, completed its acquisition of 100% interest of Eternal Group Limited and Subsidiaries on December 12, 2002. The Company has treated the transaction as a reverse merger for accounting purposes. Following the acquisition, the former shareholders of Eternal Technology Group Limited, a British Virgin Islands limited liability company, now owns approximately 85% of the issued and outstanding common shares of Eternal Technologies Group Inc.

Eternal - BVI was incorporated in the British Virgin Islands in March 2000. In May 2000, Eternal - BVI acquired 100% of Willsley Company Limited. Willsley is a holding company that owns 100% of Inner Mongolia Aershan Agriculture & Husbandry Technology Co., Ltd. ("Aershan Agriculture"). Aershan Agriculture owns a cattle herd, conducts breeding operations and owns a farm in Innner Mongolia which it leases to a Chinese company for approximately $572,000 per year.

As of the fourth quarter of 2005 we acquired certain assets, subject to certain liabilities of E-Sea Biomedical Engineering Co. International, Ltd. E-Sea's principal activities are the manufacture, sale and licensing of medical devices used to detect breast cancer.

2. CONDENSED FINANCIAL STATEMENTS AND FOOTNOTES

The interim consolidated financial statements presented herein have been prepared by the Company and include the unaudited accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in the consolidation.

These condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and The instructions to Form 10-QSB and Item 310 (b) Regulation S-B. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2006 and notes thereto included in the Company's Form 10-KSB.

In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2006, the results of operations for the three months ended March 31, 2006 and 2005, respectively. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations.

Significant Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term.

Principles of Consolidation

The unaudited consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all significant inter-company accounts and transactions.

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ETERNAL TECHNOLOGIES GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007 and 2006

(Amounts in United States Dollars)

3. CASH AND CASH EQUIVALENTS

At March 31, 2007, substantially all of the Company's cash is to be exclusively used for operations in the PRC.

4.PURCHASE OF INVESTMENT IN CHANGSHA HONGYUAN

During the three months ended March 31, 2007 the Company entered into an Exchange Agreement (“the Agreement”) by which it expended $14,850,000 RMB in cash and 2,719,730 shares of common stock valued at $.70 USD ($14,850,000 RMB) for a total investment of $29,700,000 RMB in exchange for a 22% interest in the common stock of Changsha Hong Yuan Aquatic Product, Inc. (“Hong Yuan”). Hong Yuan is a corporation duly organized, validly existing, and in good standing under the laws of the PRC and currently its operations focus on the breeding and sale of turtles. In accordance with the Agreement, Hong Yuan has committed to pay the Company a guaranteed return on its investment of $3,000,000 RMB per year either in cash or the equivalent in additional shares of its common stock.

5. INCOME TAXES

The Company operates in several jurisdictions and may be subject to taxation in those jurisdictions.

It is management's intention to reinvest all the income attributable to the Company earned by its operations outside of the United States of America. Accordingly, no United States corporate taxes have been provided in these consolidated financial statements. The Company has a U.S. net operating loss carry forward of $2,087,859 which will begin expiring in 2022. However a valuation allowance has been provided as management does not expect the tax benefits to be realized. No other significant deferred assets or liabilities existed at December 31, 2006. The Company's net operating loss carry forwards may be subject to annual limitations, which could reduce or defer the utilization of the losses as a result of an ownership change as defined in section 382 of the Internal Revenue Code.

Under current law of the British Virgin Islands (BVI), any dividends and capital gains arising from the Company's investments are not subject to income tax in the British Virgin Islands.

Companies with operations in the Peoples Republic of China may be subject to taxes for income therein. The Income Tax Law of the Peoples Republic of China for Enterprises with Foreign Investment and Foreign Enterprises provides certain exemptions from taxation.

Under current PRC law, all taxes on agriculture have been eliminated. Previously (from July, 2000 through 2005) Aershan enjoyed a tax holiday. Therefore, Aershan's business activities are not and have not been subject to tax.

The agricultural tax exemption resulted in tax savings of $221,641 and $190,882 for the three months ended March 31, 2007 and 2006 respectively. Net income per share did not change on either a basic or diluted basis for the three months ended March 31, 2007 or 2006, respectively, as a result of the tax holiday.

E-Sea is subject to Enterprise Income Tax at the PRC rate of 15% on net profits. The provisions for taxes on earnings of the PRC subsidiary for the periods ending March 31, 2007 and 2006 were $39,355 and $88,690, respectively.

A reconciliation of tax at the approximate U.S. statutory rates to the Company’s effective rate are as follows:

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ETERNAL TECHNOLOGIES GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2007 and 2006

(Amounts in United States Dollars)

5. INCOME TAXES, continued

	2007						2006
	Amount			Percent			Amount			Percent
Income taxes at federal statutory rate	$	384,318			34	%	$	170,491			34	%
Effect of United States and British Virgin Island losses		23,992			2	%		29,051			6	%
Income tax exemption in the Peoples Republic of China		(221,641	)		(20	)%		(190,882	)		(38	)%
Difference in United States and foreign rates		(97,979	)		(9)	%		30,695			6	%
Income tax expense	$	88,690			7	%	$	39,355			8	%

6.SEGMENT INFORMATION

The operating segments presented are the segments for which separate financial information is available and for which operating performance is evaluated regularly by management to decide how to allocate resources and in to assess performance. The Company evaluates the performance of the operating segments based on income from operations that is defined as total revenues less operating expenses.

The Company has identified two reportable segments; agricultural genetics and medical devices. The agricultural genetics segment activities include a breeding center, embryo-transplantation, and propagating quality sheep meat and other livestock breeds in Inner Mongolia, PRC. Medical devices' operations include the manufacture, development, sales, marketing and delivery of medical devices in the PRC. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments.

Information regarding our reportable segments for the three months ended March 31, 2007 and 2006 is as follows:

	Agricultural Genetics		Medical Devices		Corporate			Total
2006
Revenues	$	3,608,571	$	607,787	$	-		$	4,216,359
Income from operations		598,399		259,513		(96,837	)		761,075
Depreciation and amortization		197,021		67,925		-			264,946
Total assets		45,162,078		5,324,872		42,438			50,529,386
2007
Revenues		6,024,042		1,498,065					7,522,107
Income from operations		345,152		588,450		(79,974	)		853,629
Depreciation and amortization		204,233		70,505		-			274,738
Total assets		52,798,077		8,738,219		1,928,018			63,465,314

8

Item 2. Management Discussion and Analysis or Plan of Operation

The Company's business is highly seasonal, with most of the Company's revenue and income being earned during the second half of the calendar year. Accordingly, the results of operations for the calendar quarter ended March 31, 2007 are not indicative of the results for any other quarter or for the fiscal year. All items of income and expense have been converted into US$ at an average exchange rate of 7.77136 for the three months ended March 31, 2007 and 8.05582 for the three months ended March 31, 2006.

Three Months Ended March 31, 2007 compared to the Three Months Ended March 31, 2006

Revenues

Revenues for the three months ended March 31, 2007 increased by $3,305,748 or 78.4% to $7,522,107 from $4,216,359 for the corresponding period of the prior year. The following schedule summarizes the sale for each period by category.

	Three Months Ended
Category	March 31, 2007		March 31, 2006
Lamb Meat	$	1,724,923	$	3,608,572
Embryo’s		4,001,874		-
Land Lease		297,245		-
E-Sea		1,498,065		607,787
Total sales	$	7,522,107	$	4,216,359

Cost of Sales

Cost of sales for the three months ended March 31, 2007 increased by $2,944,812 or 96.4% to $5,999,447 from $3,054,635 from the corresponding period of the prior year. Our gross margins decreased from 28% to 20% principally because of low profit margin (2%) on the sale of embryo’s. The following schedule summarizes the cost of sales for each period by category.

	Three Months Ended
Category	March 31, 2007		March 31, 2006
Lamb Meat	$	1,321,369		2,644,403
Embryos		3,937,535		-
Land Lease		137,856		132,988
E-Sea		602,687		277,244
Total Cost of Sales	$	5,999,447	$	3,054,635

Gross Profits

The gross profit by category for each of the reporting periods is as follows:

	Three Months Ended
Category	March 31, 2007			March 31, 2006
Lamb Meat		23	%		27	%
Embryos		2	%		-
Land Lease		54	%
E-Sea		40	%		54	%
Overall		20	%		28	%

Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2006 increased by $9,792 or 3.7% to $274,738 from $264,946 for the corresponding period of the prior year. This increase is attributable to increased depreciation on E-Sea assets.

9

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended March 31, 2006 increased by $268,382 or 67% to $669,031 from $400,649 for the corresponding period of the prior year. The increase in the selling, general and administrative expenses is principally attributable to an increase in salaries of $117,601 or 49%, as additional personnel were added, an increase in marketing expense of $72,166 principally from E-Sea; an increase of $23,223 in professional fees principally because of the pending litigation and an increase in other miscellaneous expenses principally office overloaded.

Other Income (Expense)

Other income increased by $635,020 to $454,099 for the three months ended March 31, 2006 from $(180,921) for the corresponding period of the prior year. The increase resulted from an increase in interest income of $9,157, an increase in investment income of $347,430 from short-term investments, an increase in equity earnings of $96,508 on investment in Changsha Hongyuan and a reduced loss on changes in the value of derivative financial instruments of $182,769 which was partially offset by a loss on the sale of assets of $844.

Income Taxes

The Company incurred income taxes of $88,690 for the three months ended March 31, 2007, an increase of $49,335 from the $39,355 of income tax expense for the corresponding period of the prior year. This increase resulted because of the increased earnings of E-Sea.

Net Income

As a result of the foregoing, the Company reported net income of $1,219,038 for the three months ended March 31, 2007 compared to income of $540,799 for the three months ended March 31, 2006.

Liquidity and Capital Resources

As of March 31, 2007, the Company had cash and cash equivalents of $25,299,565 and working capital of $41,949,326. This compares with cash and cash equivalents of $16,024,123 and working capital of $41,864,137 at December 31, 2006.

Cash provided by operating activities totaled $11,025,081 for the three months ended March 31, 2007. This compares with cash flows provided by operating activities of $4,597,423 for the three months ended March 31, 2006. The principal reason for this increase are increased earnings of $678,239, increased depreciation of $9,792, a reduction in inventories of $4,328,576 a reduction in prepaid expenses and deposits of $196,451 and an increase in accounts payable of $1,828,461 which were partially offset by a decrease in accounts payable to related parties of $3,082, a decrease in accounts received of $442,345 a decrease in fixed assets of $5,247, a decrease in the value of derivative financial instruments of $182,770 and an increase in stock issued for service of $264,000.

For the three months ended March 31, 2007 the Company received net proceeds of $2,311,285 from financing activities, of $2,301,119 from capital contributions and $10,176 from common stock receivables. There was no financing activity for the three months ended March 31, 2006.

The Company believes that it has sufficient working capital to carry out its business plan for the next twelve months.

Item 3. Controls and Procedures

We strive to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designated and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls.

10

Our independent registered public accounting firm, Ham Langston & Brezina, L.L.P. ("HLB") conducted an audit of our financial statements for 2006 and 2005. In connection with the issuance of its report to the Board of Directors, HLB reported two material weaknesses under standards established by the Public Company Accounting Oversight Board regarding some elements of our system of internal controls. They noted the following specific material deficiencies.

(i) We lacked the required expertise needed to properly account for non-routine transactions, (such as the acquisition of other businesses and preparation of its required financial statement disclosure in accordance with U.S. GAAP. and SEC rules and regulations.

(ii) Accounting for derivative instruments under FASB 133

To address the weaknesses, we have hired an independent accounting firm to assist with accounting for derivatives and will seek outside accounting assistance on any further acquisition.

Other than the foregoing initiatives, there were no significant changes in our internal controls or to our knowledge, in other factors that could significantly affect such internal controls subsequent to the date of their evaluation.

As required by SEC rule 13a-15(b) we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, President and Vice President of Finance, the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer, President and Vice President of Finance concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our subsidiaries) required to be included in our periodic SEC filings.

While we have taken or are in the process of taking the foregoing steps in order to address the adequacy of our disclosure controls and procedures, and, in addition, to develop and implement a formal set of internal controls and procedures for financial reporting in accordance with SEC's proposed rules to adopt the internal control report requirements included in Section 404 of the Sarbanes-Oxley Act of 2002, the efficiency of the steps we have taken to date and the steps we are still in the process of completing is subject to continued management review supported by confirmation and testing by our internal and external auditors. As a result, it is likely that additional changes will be made to our internal controls.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

As of May 16, 2007, we were a party to two legal proceeding. The first proceeding involves a lawsuit brought by Western Securities Corporation seeking payment of $500,942 on two outstanding promissory notes, one to Market Management, Inc. and one to Thomas L. Tedrow plus accrued interest since July 11, 2004, attorney's fees, cost of collection and other court costs. This cause of action was initially filed in Federal District Court in the Eastern District of Louisiana. The Company filed a Motion to Dismiss for lack of personal jurisdiction or alternatively a Motion to Dismiss for lack of venue.

In October 2005, the Court granted the Company's motion for a change of venue and the case was moved to the Southern District Court of Texas in Houston, Texas. The Company believes that the case is without merit and the basis of the promissory note involves expenditures not made on the Company's behalf. Furthermore, the Company has significant counterclaims that it plans to assert against Mr. Tedrow and Market Management, Inc. This matter is scheduled for trial on May 23, 2007.

The State Court in New York dismissed a cause of action, filed by Bristol Investments Limited against the Company, on February 14, 2006. On March 30, 2006 without stating a new cause of action, Bristol Investments Limited re-filed the cause of action against the Company. The case is currently pending in the Supreme Court of the State of New York.

As of May 15, 2006, there are no other causes of action pending against the Company.

11

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2006, the Company issued 2,719,730 shares of its common stock as a portion of the purchase price for the acquisition of a 22% interest in Hong Yuan Aquatic Products, Inc., a company engaged in commercial turtle farming in Changsha, Hunan Province China.

The Company also issued 600,000 shares to Yulang Zhang to compensate her for the 600,000 shares she had sold to pay the various Company obligations in the United States. In addition, the Company issued 186,549 shares of its common stock to four Warrant holders for the cashless conversions of 330,578 warrants.

Item. 3. Defaults Upon Senior Securities

None

Item 4. Submissions of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

EXHIBIT NO.	IDENTIFICATION OF EXHIBIT
31.1	Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized.

	ETERNAL TECHNOLOGIES GROUP, INC.
Date: May 15, 2007	By:	/s/ Jiansheng Wei
		Jiansheng Wei
		Chief Executive Officer
Date: May 15, 2007
		/s/ Zheng ShenZheng Shen
		Chief Financial Officer

12

CERTIFICATIONS

EXHIBIT 31.1

CERTIFICATION BY JIANSHENG WEI PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(A)

I, Jiansheng Wei, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Eternal Technologies Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 15, 2007

/s/ JIANSHENG WEI

-----------------------

Jiansheng Wei

Chief Executive Officer

13

EXHIBIT 31.2

CERTIFICATION

BY ZHENG SHEN PURSUANT TO SECURITIES EXCHANGE ACT RULE 13A-14(A)

I, Zheng Shen, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Eternal Technologies Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 15, 2007

/s/ ZHENG SHEN

-----------------------

Zheng Shen

Chief Financial Officer

14

EXHIBIT 32.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO 18 U.S.C. SECTION 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jiansheng Wei, the chief executive officer of Eternal Technologies Group, Inc. (the "Company"), hereby certifies that, to his knowledge:

(i) the Quarterly Report on Form 10-QSB of the Company for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2007

/s/ JIANSHENG WEI

-----------------------

Jiansheng Wei

Chief Executive Officer

15

EXHIBIT 32.2

CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO 18 U.S.C. SECTION 1350

For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Zheng Shen, the chief financial officer of Eternal Technologies Group, Inc. (the "Company"), hereby certifies that, to his knowledge:

(i) the Quarterly Report on Form 10-QSB of the Company for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 15, 2007

/s/ Zheng Shen

-----------------------

Zheng Shen

Chief Financial Officer