Eternal Technologies (ETLT) 10-Q 2008 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(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, 2008

[  ] 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.)

Suite 2007, Main Block

Jinzhonghuan Commercial Tower

3037th Jintian Rd. Futian Dist.

Shenzhen, Guangdong Province, China 518048

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(Address of principal executive offices)

011-86-22-2721-7020

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(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 large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company.

Large Accelerated Filer ___                                           Accelerated Filer ____                                           Non-Accelerated Filer ___                                                      Small Reporting Company _X_

As of May 10, 2008, 52,138,034 shares of Common Stock of the issuer were outstanding.

1

ETERNAL TECHNOLOGIES GROUP, INC.
10-QSB FOR THE QUARTER ENDED MARCH 31, 2008
INDEX
PART I - FINANCIAL STATEMENTS
Item 1.	Consolidated Financial Statements
	Unaudited Consolidated Condensed Balance Sheets at
	March 31, 2008 and December 31, 2007	3
	Unaudited Consolidated Condensed Statements of Income
	for the three months ended March 31, 2008 and 2007	5
	Unaudited Consolidated Condensed Statements of Cash
	Flows for the three months ended March 31, 2008 and 2007	7
	Notes to Unaudited Consolidated Condensed Financial Statements	8
Item 2.	Management Discussion and Analysis of Financial Condition and Result of Operations	11
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	12
Item 4.	Controls and Procedures	13
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	14
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	14
Item 3.	Defaults Upon Senior Securities	14
Item 4.	Submission of Matters to a Vote of Security Holders	14
Item 5.	Other Information	14
Item 6.	Exhibits	15
	Signatures	15
	Certifications	16

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PART I - FINANCIAL INFORMATION

Item 1.                      Consolidated Financial Statements

ETERNAL TECHNOLOGIES GROUP, INC.
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 2008 and December 31, 2007
(Amounts in United States Dollars)
	March 31,			December 31,
	2008			2007
ASSETS
Current assets:
Cash and cash equivalents	$	23,524,291		$	12,692,479
Short-term investments		14,644,034			13,827,174
Accounts receivable		4,884,509			6,274,866
Inventories		1,048,876			6,312,236
Prepayments and deposits		14,668			14,082
Total current assets		44,116,378			39,120,837
Property and equipment, net of accumulated depreciation
of $4,699,958 and $4,296,083 at March 31, 2008 and
December 31, 2007, respectively		7,232,485			7,161,773
Land use rights, net of accumulated amortization
of $2,201,601 and $2,043,266 at March 31, 2008 and
December 31, 2007, respectively		4,890,194			4,765,501
Intangible assets		1,404,474			6,571,098
Accounts receivable-Long Term		3,132,921			-
Patent held for lease, net of accumulated amortization
of $105,617 at March 31, 2008		2,429,201			-
Other Assets		18,563,947			17,433,0887
Total assets	$	81,769,600		$	75,052,297
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable	$	443,366		$	443,366
Accounts payable and accrued liabilities		1,328,181			1,294,310
Amounts due to related parties		215,732			215,295
Payable due to Income Taxes		174,667			167,764
Deferred lease revenue		712,028			-
Deferred gain – sale of patents  Derivative financial instrument liability		1,079,544  53,180			-
					109,300
Total current liabilities		4,006,698			2,230,035
Stockholders' equity:
Preferred shares - $0.001 par value, 5,000,000
authorized, none issued or outstanding		-			-
Common shares - $0.001 par value; 95,000,000
authorized; 52,138,034 shares issued and
Outstanding		52,138			52,138
Additional paid - in capital		21,303,505			21,303,505
Retained earnings		46,865,282			44,848,766
Treasury shares at cost 1,509,703 shares		(882,090	)		(882,090	)
Accumulated other comprehensive income		10,424,067			7,499,943
Total stockholders' equity		77,762,902			72,822,262
Total liabilities and stockholders' equity	$	81,769,600		$	75,052,297
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, 2008 and 2007
(Amounts in United States Dollars)
			March 31,
			2008		2007
Revenue:			$		$
	Agricultural and genetics sales			7,753,969		5,726,797
								Medical device sales and services	1,844,022	1,498,065
	Land lease			160,960		297,245
		Total revenue		9,758,951		7,522,107
Cost of sales and services
	Agricultural and genetics sales			6,976,900		5,192,527
	Medical device sales and services			585,880		532,182
	Land lease			149,300		137,855
		Total cost of sales and services		7,712,080		5,862,564
Gross profit				2,046,871		1,659,543
Depreciation Expense		330,360	136,883
Selling, general and administrative expenses				781,804		669,031
Income from operations				934,707		853,629
Other income (expense)
	Interest income			46,196		49,885
	Gain on Sale of Assets			266,302		(844)
	Investment Income			860,546		443,938
	Change in value of derivative
		financial instruments		56,120		(38,880)
	Other income (expense), net			1,229,164		454,099
Income before provision for
	income taxes			2,163,871		1,307,728
Provision for income taxes				147,354		88,690
Net income			$	2,016,517	$	1,219,038
Net income per common share
	Basic and diluted		$	0.04	$	0.03
Weighted average number of
	Common shares outstanding, basic and diluted			52,138,034		47,073,579
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 CASH FLOWS For the Three Months Ended March 31, 2008 and 2007 (Amounts in United States Dollars)
	2008			2007
Cash from operating activities
Net income	$	2,016,517		$	1,219,038
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization		479,660			274,738
Gain from sales of intangible assets		(266,301	)		-
Equity in earnings  long term investment		(623,634	)		(96,508	)
Earnings of short term investment		(236,911	)		-
Change in value of derivative financial instruments		(56,120	)		38,880
Compensatory stock issuances		-			264,000
Changes in operating assets and liabilities:
Inventories		5,525,748			4,295,433
Accounts receivable		1,739,485			3,218,448
Prepayments and deposits		706,207			196,451
Accounts payable and accrued expenses		(20,002	)		1,614,602
Net cash provided by operating activities		9,264,649			11,025,082
Cash flows from investing  activities:
Proceeds from sales of intangible assets		1,039,560			-
Investment in Changsha Hong Yuan		-			(1,918,382	)
Net cash provided/(used) by investing activities		1,039,560			(1,918,382	)
Cash flows from financing activities:
Capital contributed		-			10,176
Net cash provided by financing activities		-			10,176
Effect of exchange rate changes on cash		527,603			158,566
Net increase in cash and cash equivalents		10,831,812			9,275,442
Cash and cash equivalents, beginning of period		12,692,479			16,024,123
Cash and cash equivalents, end of period	$	23,524,291		$	25,299,565
Supplemental disclosure of cash flow information:
Interest paid	$	-		$	-
Tax paid	$	147,354		$	88,690
Non-cash investing  and financing activities
Amounts receivable from sale of intangible assets	$	4,172,482		$	-
Deferred gain from sale of intangible assets	$	1,351,666		$	-

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements

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ETERNAL TECHNOLOGIES GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

For the Three Months Ended March 31, 2008 and 2007

(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 Inner Mongolia which it leases to a Chinese company for approximately $579,000 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  condensed 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  consolidated condensed  financial  statements  have been prepared in  accordance  with generally accepted accounting  principles for interim financial  information and the  instructions  to Form  10-Q  and Rule 10-01 of Regulation S-X.  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, 2007 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, 2008, and the results of operations and cash flows for the three months ended March 31, 2008 and 2007, 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, 2008 and 2007

(Amounts in United States Dollars)

3. CASH AND CASH EQUIVALENTS

At March 31, 2008, substantially all of the Company's cash is to be exclusively used for operations in the PRC.

4. OTHER ASSETS

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.

On October 15, 2007, the Company acquired a 30% equity interest, respectively, in Hainan Futian Green Agriculture Ltd. ("Hainan") a mango farm, and Maoming Huatang Orchard Trading Co., Ltd. ("Maoming") a Lychee farm. For the acquisition of the interest in Hainan, the Company paid $33,000,000 RMB in cash, approximately US$4,400,000, and issued 2,133,333 shares of its common stock valued at $.84 USD based on the closing price of the stock.  For the acquisition of the interest in Maoming, the Company paid $36,000,000 RMB in cash, approximately US$4,800,000 and issued 2,444,444 shares of its common stock valued at $.84 USD based on the closing price of the stock.. Both companies are incorporated under the laws of the PRC. The Mango farm has a guaranteed minimum annual return on investment of $6,800,000 RMB and will increase by a minimum of 1% for ten years. The Lychee farm has a guaranteed minimum annual return on investment of $7,800,000 RMB and will increase by 1% for five years.  If the farms are unable to meet the guaranteed minimum annual returns on investment with cash flows from their operation, they must meet the obligations by returning an equivalent amount of the Company's shares originally issued to them as part of the investment purchase.

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  condensed financial  statements.  The Company has a U.S. net operating loss carry  forward  of  $3,089,704  which will begin  expiring  in 2017.  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, 2007.  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.

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The agricultural tax exemption resulted in tax savings of $410,423 and $221,641 for the three months ended March 31, 2008 and 2007 respectively.  Net income per share did not change on either a basic or diluted  basis for the three months ended March 31, 2008 or 2007, 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, 2008 and 2007 were $147,354 and $88,690, respectively.

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

5. INCOME TAXES, continued

	2008		2007
	Amount	Percent	Amount	Percent
Income taxes at federal statutory rate	$648,733	34%	$384,318	34%
Effect of United States and British Virgin Island losses	31,123	2%	23,992	2%
Income tax exemption in the Peoples Republic of China	(410,423)	(22%)	(221,641)	(20)%
Difference in United States and foreign rates	(122,079)	(6%)	(97,979)	(9)%
Income tax expense	147,354	8%	$88,690	7%

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 three reportable segments; agricultural genetics, medical devices, and leasing. 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.  Leasing includes the land lease of the farm and the leasing of certain patents.  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, 2008 and 2007 is as follows:

2007	Agricultural Genetics	Leasing	Medical Devices	Other	Total
Revenues	5,726,797	297,245	1,498,065	-	7,522,107
Income from operations	185,763	159,390	588,450	(79,974)	853,629
Depreciation and amortization	66,378	137,855	70,505	-	274,738
Total assets	42,610,522	10,187,555	8,738,219	1,928,018	63,465,314
2008
Revenues	7,753,969	160,960	1,844,022	-	9,758,951
Income from operations	456,464	11,660	626,446	(159,863)	934,707
Depreciation and amortization	-	149,300	330,360	-	479,660
Total assets	50,283,984	10,619,967	15,275,813	5,589,836	81,769,600

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7.           Leases

The Company’s lease activity consists of a land lease and the lease of a patent.  The land lease is for the lease of approximately 104 square kilometers of the company’s farm in Inner Mongolia and the facilities located on the land.  The lease began on May 1, 2006 and ends on April 30, 2026.  The lessee pays the Company an annual rate of 4,620,000 RMB (or approximately $578,810 USD) on April 1 and October 1 of each year.

On March 20, 2008 E-Sea leased its patent in its SSB Dissemination to an unrelated Chinese entity for five years.  The Chinese entity will develop goods under the patent and manufacture and market them during this period.  For the use of the patent, the Company will receive $18,000,000 RMB, of which $5,000,000 RMB was received upon the execution of the lease.  The remaining $13,000,000 RMB will be paid in four installments; $3,000,000 RMB in October 2009, 2010 and 2011 and $4,000,000 RMB in October 2012.

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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, although with its recent acquisition, the seasonality should be less pronounced.  Accordingly, the results of operations for the calendar quarter ended March 31, 2008 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  7.17568 for the three months ended March 31, 2008 and 7.77136 for the three months ended March 31, 2007.

Three Months Ended March 31, 2008 compared to the Three Months Ended March 31, 2007

Revenues

Revenues for the three months ended March 31, 2008 increased by $2,236,844 or 29.7% to $9,758,951 from $7,522,107 for the corresponding period of the prior year.  The following schedule summarizes the revenues for each period by category.

	Three Months Ended
Category	March 31, 2008	March 31, 2007
Lamb Meat	$2,653,407	$1,724,923
Embryo’s	5,100,562	4,001,874
Land Lease	160,960	297,245
E-Sea	1,844,022	1,498,065
Total sales	$9,758,951	$7,522,107

The increase in the sale of lamb meat resulted from an increase in volume of approximately 100 tons from 700 tons to 800 tons or approximately a 14.2% increase and an increase in the price of approximately 24%.  The increase in the sale of embryo’s resulted from an approximate 17.7% increase in volume while the sale price remained constant.  E-Sea’s sales increase was the result of the sale of 14 additional units (48 units sold during the three months ended March 31, 2007 and 62 units sold during the comparable  period in 2008).  The sales price per unit declined by approximately 12% as the Company is gearing up for its next generation machine which should begin shipping in the late second or early third quarter of 2008.

Cost of Sales

Cost of sales for the three months ended March 31, 2008 increased by $1,849,516 or 31.5% to $7,712,080 from $5,862,564 from the corresponding period of the prior year.  Our gross margins as a percentage decreased from 22% to 21% principally because of a larger percentage of our sales were in agricultural sales which carry a lower margin.  The following schedule summarizes the cost of sales for each period by category.

	Three Months Ended
Category	March 31, 2008	March 31, 2007
Lamb Meat	$1,959,954	$1,254,992
Embryos	5,016,946	3,937,535
Land Lease	149,300	137,855
E-Sea	585,880	532,182
Total Cost of Sales	$7,712,080	$5,862,564

Gross Profits

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

	Three Months Ended
Category	March 31, 2008	March 31,,2007
Lamb Meat	26%	27%
Embryos	2%	2%
Land Lease	7%	54%
E-Sea	68%	40%
Overall	21.0%	22%

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Depreciation and Amortization

Depreciation and amortization expense for the three months ended March 31, 2008 increased by $204,922 or 75% to $479,660 from $274,738 for the corresponding period of the prior year.  This increase is attributable to increased depreciation on E-Sea assets.

Selling, General and Administrative Expenses

Selling, general and  administrative  expenses for the three months ended March 31,  2008  increased  by  $112,773  or 17% to  $781,804 from $669,031 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 $75,328 or 20%, as additional personnel were added, an increase in marketing  expense of $36,956 principally from E-Sea; an increase of $32,524 in professional  fees principally because of the pending litigation and an increase in other miscellaneous expenses principally office expenses.

Other Income (Expense)

Other income increased by $775,064 to $1,229,163 for the three months ended March 31, 2008 from $454,099 for the corresponding period of the prior year. The increase resulted from a decrease in interest income of $3,689, an increase in investment income of $416,608 from short-term investments, an increase in the gain recognized on the sale of assets of $267,146 and changes in the value of derivative financial instruments of $95,000.

Income Taxes

The Company incurred income taxes of $147,354 for the three months ended March 31, 2008, an increase of $58,664 from the $88,690 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 $2,016,517 for the three months ended March 31, 2008 compared to income of $1,219,038 for the three months ended March 31, 2007.

Liquidity and Capital Resources

As of March 31, 2008, the Company had cash and cash equivalents of $23,524,291 and working capital of $40,109,680. This compares with cash and cash equivalents of $12,692,479 and working capital of $36,890,802 at December 31, 2007.  The increase in working capital is attributable to increases in cash and short-term investments which were partially offset by decreases in accounts receivable, inventories prepaids and deposits and an increase in current liabilities.

Cash provided by operating activities totaled $9,264,649 for the three months ended March 31, 2008.  This compares with cash flows provided by operating activities of $11,025,082 for the three months ended March 31, 2007.  The principal reasons for this decrease are a gain on the sale of intangible assets of $266,301, a reduction in the equity of long-term investments of $527,126, a decrease in the equity of short-term investments of $236,911, a change in the value of the derivative liability of $95,000, the absence of compensatory stock issuance in the current year $264,000 and net changes in the current accounts of $1,373,496 which were partially offset by an increase in earnings of $797,479 and an increase in depreciation of $204,922.

Cash flows from investing activities totaled $1,039,560 for the three months ended March 31, 2008, all from the sale of intangible assets.  This compares with $1,918,382 used in investing activities for the three months ended March 31, 2007 all from the cash portion expended by the Company for the purchase of its investment in Changsha Hong Yuan Aquatic Product, Inc..

There were no financing activities for the three months ended March 31, 2008.

For the three months ended March 31, 2007 the Company received net proceeds of $10,176 from the collection of a common stock receivable.

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

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Item 3.                        Quantitative and Qualititative Disclosures About Market Risk

In the ordinary course of business, we are exposed to various market risk factors, including  changes in general  economic conditions, domestic competition  and foreign currency  exchange rates.

Because we operate in the People’s Republic of China, but report the results of our operations in U.S. dollars and pay certain of our obligations in US dollars we are exposed to foreign  currency exchange rate gains and losses.  Volatility in these markets could impact our net income.

Item 4.    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.

Our  independent  registered  public  accounting  firm,  Ham Langston & Brezina, L.L.P. ("HLB") conducted an audit of our financial statements for 2007 and 2006.  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, regarding 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 the 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.

13

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. On August 23, 2007, the Court awarded Western Securities Corporation the sum of $636,757 plus accrued interest since May 22, 2007 and attorney fees in an amount to be determined which totaled $771,689 as of March 31,2008.  This judgment became final on October 31, 2007.  In April, 2008 this case was appealed to the 5th Circuit Court of Appeals in New Orleans.

On the 4th of September 2007, the Company was served with a suit from International Capital Advisors LLC, as assignee of Market Management, Inc. seeking repayment of the sum of $250,000 alleged paid by Market Management, Inc. on behalf of the Company on the 26th of October, the Plaintiff amended their petition, adding several additional causes of action and are now seeking $960,000 plus accrued interest and attorney’s fees.  On September 18, 2007, the Company filed a general denial to this claim and the case is currently in discovery.  It has been scheduled for trial in July, 2008.

The third cause of action involves one of the convertible promissory notes owned by Bristol Investments Limited.  This cause of action was filed in State Court in New York and three times was dismissed.  On March 30, 2006 without stating a new cause of action, Bristol Investments Limited re-filed the same cause of action against the Company and on December 27, 2007, the Court rendered a decision in favor of Bristol Investments Limited.  The parties have since reached a settlement of $64,000.  The company anticipates paying this during the second quarter of 2008.

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

During the three months ended March 31, 2007, 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.

During this same period, 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.

There were no shares issued during the three months ended March 31, 2008.

Item. 3. Defaults Upon Senior Securities

     None

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

     None

Item 5.  Other Information

     None

14

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 13, 2008	By:	/s/ Jiansheng Wei
		Jiansheng Wei
		Chief Executive Officer

Date: May 13, 2008	By:	/s/ Zheng Shen
		Zheng Shen
		Chief Financial Officer

15

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-Q  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 13, 2008

/s/ JIANSHENG WEI

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

Jiansheng Wei

Chief Executive Officer

16

                                                                           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-Q  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 13, 2008

/s/ ZHENG SHEN

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

Zheng Shen

Chief Financial Officer

17

                                                                           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-Q of the  Company  for the quarterly period ended March 31, 2008, 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 13, 2008

/s/ JIANSHENG WEI

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

Jiansheng Wei

Chief Executive Officer

18

                                                                           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-Q of the  Company  for the quarterly period ended March 31, 2008, 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 13, 2008

/s/ Zheng Shen

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

Zheng Shen

Chief Financial Officer