As filed with the Securities and Exchange Commission on October 22 , 2003
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------

FORM SB-2

REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------

Eternal Technologies Group, Inc.
---------------------------------------------
(Name of small business issuer in its charter)

Nevada 0291 62-1655508
------ ---- ----------
(State or jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number Identification No.)

Suite 04-06, 28/F, Block A, Innotec Tower, 235 Nanjing Road
Heping District, Tianjin, PRC 300100
011-86-22-2750-1802
(Address and telephone number of principal executive offices)

Hank Vanderkam, Esq.
1301 Travis, Suite 1200
Houston, Texas 77002
(713) 547-8900
(Name, address and telephone number of agent for service)

with a copy to:

Hank Vanderkam, Esquire
Vanderkam & Associates
1301 Travis, Suite 1200
Houston, Texas 77002
(713) 547-8900

Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this registration statement.

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

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [X]

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ______________

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ] ______________

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ] ______________

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: [ ] ______________

CALCULATION OF REGISTRATION FEE

====================================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to be Amount to be Offering Price Per Aggregate Offering Price Registration Fee
Registered Registered Share (1) (1)
- --------------------------------------------------------------------------------------------------------------------

Common Stock, $.001 par
value 2,798,863 $ 1.12 $ 3,134,726.56 $ 253.60
====================================================================================================================

(1) Estimated pursuant to Rule 457(c) for the purpose of calculating the
registration fee. Based on the average of the bid and asked prices per
share of Common Stock on October 20, 2003 as reported on the OTC
Electronic Bulletin Board.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================

The Information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION OCTOBER 22, 2003

ETERNAL TECHNOLOGIES GROUP, INC.
-------------------

2,798,863 Shares of Common Stock
-------------------

The selling security holders, identified as "Selling Shareholders" in this
Prospectus, may offer and sell, from time to time, up to 2,798,863 shares of
Common Stock of Eternal Technologies Group, Inc., including 1,049,575 shares of
Common Stock underlying warrants held by the Selling Shareholders. The Selling
Shareholders may sell all or a portion of their shares through public or private
transactions at prevailing market prices or at privately negotiated prices. We
will not receive any part of the proceeds from the sale of these shares by the
Selling Shareholders.

Our Common Stock is traded on the OTC Electronic Bulletin Board under
the symbol "ETLT". The last reported sale price of our Common Stock on the OTC
Electronic Bulletin Board on October 17, 2003 was $1.11 per share.
--------------------

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------

Prospectus dated , 2003

TABLE OF CONTENTS

Page

About this Prospectus.......................................................2
Prospectus Summary..........................................................3
Risk Factors................................................................4
Caution about Forward-Looking Statements....................................13
Use of Proceeds.............................................................14
Market for Registrant's Common Equity and Related Stockholder Matters.......14
Dividend Policy.............................................................14
Management's Discussion and Analysis of Financial Condition and Results
of Operations...............................................................15
Business....................................................................21
Management..................................................................28
Certain Relationships and Related Transactions..............................31
Security Ownership of Certain Beneficial Owners and Management..............32
Selling Shareholders........................................................33
Plan of Distribution........................................................34
Description of Securities...................................................36
Legal Matters...............................................................37
Experts.....................................................................37
Where You Can Find More Information.........................................38
Index to Consolidated Financial Statements..................................39

ABOUT THIS PROSPECTUS

You should only rely on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The Selling Shareholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in the
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.

We operate through various affiliates, all of which are located
outside of the United States. Unless otherwise indicated or the context
otherwise requires, the term Company, we or us refers collectively to Eternal
Technologies Group, Inc., where appropriate, and its subsidiaries or its
affiliates. All references to China or the PRC are to the Peoples' Republic of
China.

Our functional currency is Renminbi ("RMB"). For the convenience of
readers, unless otherwise indicated, all financial information contained herein
is presented in United States Dollars ("US$"). Translation of amounts from RMB
into US$ has been made at the unified exchange rate established by the PRC
government as quoted by the People's Bank of China of US$1.00 = RMB8.3. No
representation is made that the RMB amounts could have been, or could be,
converted into US$ at that rate or at any other rate.

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering appearing elsewhere in this prospectus and in our Financial Statements
and related notes and other documents incorporated herein by reference.

Our Company

Eternal Technologies Group, Inc. is an agricultural genetics and
bio-pharmaceutical company operating in China and focused on the development and
application of advanced animal husbandry and pharmaceutical techniques to
produce improved and novel food and pharmaceutical products.

Our agricultural genetics/animal husbandry operations are focused on the
application of advanced embryonic biotechnology research to shorten growing time
for animals resulting in increased output and profitability and reduced use of
animal feed and animal waste. Since 2000, we have utilized our advanced breeding
techniques, and have marketed genetically engineered animal embryos, to develop
larger, stronger and healthier sheep. In the fourth quarter of 2003, we
anticipate the production and sale of lamb meat. Also, in the fourth quarter of
2003, we began application of our advanced breeding techniques to the breeding
of higher-yielding purebred Holstein dairy cattle. We expect to commence the
production and sale of dairy products in the fourth quarter of 2003 or the first
quarter of 2004.

Our pharmaceutical operations are focused on the application of our gene
engineering capabilities in the research, development and production of
biological drugs. Our initial efforts are focused on potential drugs for the
treatment of thrombosis and cancer. Research and development of our initial
pharmaceutical products is ongoing. Introduction of our pharmaceutical products
to the market is expected to require at least two years of additional product
research and testing. Assuming our testing and research results in commercial
products, we anticipate that our pharmaceutical products will be initially
marketed exclusively in China.

Our principal executive offices are located at Suite 04-06, 28/F, Block
A, Innotec Tower, 235 Nanjing Road Heping District, Tianjin, PRC 300100 and our
telephone number is 011-86-22-2750-1802.

The Offering

Common stock offered by the
selling shareholders 2,798,863, including 1,049,575 shares
underlying warrants

Common stock to be outstanding
after this offering 29,124,471 shares (1)

Use of proceeds We will not receive any proceeds from the
sale of common stock by the selling
shareholders

OTCBB symbol ETLT

Risk Factors Purchase of the common stock offered hereby
involves substantial risk. See "Risk Factors."
- ---------------
(1) The number of shares of common stock outstanding after this offering is
based on shares outstanding as of October 17, 2003, adjusted to reflect
the exercise of 1,049,575 warrants outstanding at that date.

RISK FACTORS

An investment in our common stock involves certain risks. Prospective
investors should carefully review the following factors, together with the other
information contained in this prospectus, prior to making a decision to invest
in our common stock. The future trading price of shares of our common stock will
be affected by the performance of our business relative to, among other things,
competition, market conditions and general economic and industry conditions.

Risks Related to Our Financial Condition and Our Business

Need for additional financing

Implementation of our business plan and growth of our business will
require substantial additional funding. If we are unable to raise additional
capital, our ability to implement our business plan, to grow our business and to
operate profitably could be impaired. As we expand our operations into
additional product lines, we will have substantial future cash capital
requirements. Obtaining additional funding will be subject to a number of
factors including market conditions, operational performance and investor
sentiment. These factors may make the timing, amount, terms and conditions of
additional funding unattractive, or unavailable, to us.

We have a limited operating history

Our principal operating business was incorporated in July of 2000. We
face all of the risks inherent in a new business and those risks specifically
inherent in the business of research, development and marketing of genetically
engineered agricultural products as well as the business of research,
development, manufacturing, introducing and selling a new drug or new product to
the market with all of the unforeseen costs, expenses, problems, and
difficulties to which such ventures are subject. If our agricultural or
pharmaceutical products do not provide the benefits anticipated in terms of
effectiveness, cost or otherwise or do not attain significant market acceptance,
we may be unable to operate profitably.

Our success depends on our management team and other key personnel, the loss of
any of whom could disrupt our business operations

Our future success will depend in substantial part on the continual
service of our senior management including Mr. Jia Jun Wu, our President and
Chief Executive Officer, Mr. Jian Sheng Wei, our Chief Operations Officer, Dr.
Wenli Yu, Chief Technology Officer, Ms. Shumei Pang, our Chief Veterinarian and
Mr. Rutian Xhang, our Chief Market Inspector. The loss of the services of one or
more of our key personnel could impede implementation of our business plan and
result in reduced profitability. We do not carry key person life insurance on
any of our officers or employees. Our future success will also depend on the
continued ability to attract, retain and motivate highly qualified technical
sales and marketing customer support, financial, accounting and managerial
personnel. Competition for personnel is intense. We cannot assure you that we
will be able to retain our key personnel or that we will be able to attract,
assimilate or retain qualified personnel in the future.

Our management owns a significant amount of our common stock, giving them
influence or control in corporate transactions and other matters, and their
interests could differ from those of other shareholders

Our principal executive officers along with our founding shareholder
own approximately 55.8 percent of our outstanding common stock. As a result,
they are in a position to significantly influence or control the outcome of
matters requiring a shareholder vote, including the election of directors, the
adoption of any amendment to our certificate of incorporation or bylaws, and the
approval of mergers and other significant corporate transactions. Their control
may delay or prevent a change of control on terms favorable to our other
shareholders and may adversely affect the voting and other rights of our other
shareholders.

Our Products are in Various Stages of Development and May Not Satisfy Regulatory
Requirements or Become Commercially Viable.

Our genetically engineered sheep embryo, and sheep meat from those
embryo, have only been marketed for a short time, and we only recently began
development and marketing of genetically engineered dairy cattle embryo and we
have not, as yet, completed development of our pharmaceutical products. In
particular, our pharmaceutical products will require extensive additional
development, testing, and investment in order to establish the safety and
efficacy of those products as well as to satisfy regulatory requirements for
introduction of the products in China. We cannot be sure that our product
research and development efforts will be successful, that candidates will enter
pre-clinical or clinical studies as anticipated, that we will satisfy regulatory
requirements for introduction of our products or that any products, if
introduced, will be commercially successful. We have conducted anecdotal and
pre-clinical trials only, and have not applied for nor received any Chinese FDA
drug approvals to date. The results of these pre-clinical and anecdotal trials
on products under development are not necessarily predictive of results that
will be obtained from large scale clinical testing. We cannot be sure that
clinical trials of the products under development will demonstrate the safety
and efficacy of such products or will result in a marketable product. In
addition, the administration alone or in combination with drugs of any product
developed by us may produce undesirable side effects in humans. The failure to
demonstrate adequately the safety and efficacy of pharmaceutical products under
development could delay or prevent regulatory approval, where required, and
delay or prevent commercial sale of the product, any of which could have a
material adverse effect on our operations and profitability. Commercial
formulation and manufacturing processes have yet to be developed for our
pharmaceutical products. We may encounter difficulties in manufacturing process
development and formulation activities that could result in delays in clinical
trials, regulatory submissions, regulatory approvals, and commercialization of
its product, or cause negative financial and competitive consequences.

The Validity of Patents Covering Biotechnological Inventions and the Scope of
Claims Made Under Such Patents is Uncertain; Failure to Secure Necessary Patents
Could Impair Our Ability to Produce and Market Our Products.

Patent and other intellectual property protections in China are in
their early stages and, historically, have been of suspect value. Accordingly,
the scope of protection provided by Chinese patents is uncertain. In addition,
patents may have been granted, or may be granted, to others covering products or
processes we need for developing our product. If our products or processes
infringe upon the patents, or otherwise impermissibly utilize the intellectual
property of others, we might be unable to develop, manufacture, or sell our
products. In such event, we may be required to obtain licenses from third
parties. We cannot be sure that it will be able to obtain such licenses on
acceptable terms, or at all.

We Have Limited Experience in Sales and Marketing; Failure to Assemble or
Contract with an Adequate Sales Organization Could Result in a Lack of Future
Revenues.

We have limited experience in marketing our genetically engineered
agricultural products and no experience in pharmaceutical marketing, or
distribution. Our senior management presently carries on substantially all of
our sales and marketing activities. We may have to develop a substantial
marketing and sales force to support future sales. Alternatively, we may, for
certain products, attempt to obtain the assistance of companies with established
distributions systems and direct sales forces. We do not know if we will be able
to establish sales and distribution capabilities or if we will be able to enter
into licensing or other agreements with established companies to sell our
products.

We Own No Pharmaceutical Manufacturing Facilities, May Need to Expand or Acquire
Manufacturing Facilities and May Be Dependent on Third Parties to Make Some of
Our Products.

We own certain agricultural facilities but do not presently own
pharmaceutical manufacturing facilities or equipment. In order to support
potential growth in our agricultural products manufacturing we may be required
to expand our existing facilities, acquire additional manufacturing facilities
or contract with third parties to provide manufacturing capabilities. In order
to commence manufacturing of pharmaceutical products, we will be required to
either acquire facilities or contract with third parties to manufacture our
products. We may not be able to finance, or otherwise carry out, the acquisition
or expansion of manufacturing facilities to support manufacturing of our
products, or to obtain contract-manufacturing services on reasonable terms or at
all. If we are not able to make suitable manufacturing arrangements, we may not
be able to make some of our products.

We Have Not Established the Safety or Efficacy of Our Initial Pharmaceutical
Products and We May Not Obtain Regulatory Approval for Our Products on a Timely
Basis, or at All.

Our pharmaceutical development, and future marketing, activities are
subject to extensive regulation by the Chinese State Food and Drug
Administration "CSFDA" and health authorities in other countries where we may
attempt to market our products. The CSFDA has been recently formed to
restructure the drug approval and regulation process in a manner similar to the
regulatory structure employed by the U.S. FDA. While the regulatory scheme in
China is not yet well defined, it is expected that the adoption of a regulatory
structure similar to that employed in the U.S. will result in a time consuming
and costly process to obtain CSFDA approval of drugs as a prerequisite of
introduction into the Chinese market. That regulatory structure will likely
require extensive clinical trials designed to provide evidence of the safety and
efficacy of products. We have not, as yet, completed clinical trials designed to
satisfy CSFDA requirements for establishing safety and efficacy. Establishing
product safety and efficacy and obtaining regulatory authorization involves,
among other things, lengthy and detailed laboratory and clinical testing,
manufacturing validation, and other complex procedures. The approval process is
costly, time-consuming, and subject to unexpected delays. We cannot assure that
we will establish the safety and efficacy of our products or that we will
ultimately obtain drug regulatory approval. Any failure to obtain, or any
material delay in obtaining, approval from the CSFDA would materially and
adversely affect our ability to generate product sales. Even if we obtain
regulatory approval, we may not have enough statistically significant data to
come to market. Also, a marketed product is subject to continuing regulatory
review and later discovery of previously unknown problems with a product or
manufacturers, or failure to comply with manufacturing or labeling requirements,
may result in restrictions on such product or enforcement action against the
manufacturer, including withdrawal of the product from the market.

Potential Failure of Planned Clinical Trials to Produce Statistically
Significant Data Could Impair the Ability to Successfully Market Our Products.

Even if we are successful in securing required regulatory approval for
marketing our pharmaceutical products, there still is substantial risk that the
extensive clinical trials that we are planning will not yield sufficient
statistically significant data to make strong marketing claims. This could
adversely affect marketing efforts to the medical community, which is
traditionally resistant to new treatments even if approved by regulatory
agencies unless also supported by statistically significant data before
recommending it to patients. This could severely limit our ability to
successfully market our products.

Potential Side Effects of Our Products Could Impair the Ability to Market the
Products.

Although no side effects of our products have been reported, it is
possible that any time during use of our agricultural products or during
clinical trials or patient usage of our pharmaceutical products, side effects
may be encountered. If they are common enough or significant enough this could
result in our products being withdrawn from the market.

Our Products May Not Be Accepted By End Users, Physicians, Insurers, or Patients

In order for our products to be successful, they must be determined to
be useful and cost-effective by end-users. End-users of our agricultural
products will include agricultural purchasers of embryos and buyers of meat
products, among others. End-users of our pharmaceutical products are patients,
and their doctors and insurers. Market acceptance will require substantial
education about the benefits of our products. We cannot assure that end-users
will accept our products, even if approved for marketing, on a timely basis. If
end-users do not accept our products or acceptance takes longer than anticipated
profits would be reduced.

We May Lose Any Technological Advantage Because Biotechnology Changes Rapidly.

The biotechnology field, including both agricultural and pharmaceutical
products, is characterized by rapid technological progress and intense
competition. As a result, we may not realize the expected benefits of our
strategy. Businesses, academic institutions, governmental agencies, and other
public and private research organizations are conducting research to develop
technologies that may compete with our existing agricultural products and our
proposed pharmaceutical products. It is possible that competitors could acquire
or develop technologies that would render our technologies obsolete or
noncompetitive. We cannot be certain that we will be able to access the same
technologies at an acceptable price, or at all.

There May be Product Liability Losses and Adverse Product Publicity.

We, like any other wholesaler, retailer or distributor of products that
are designed for ultimate consumption as a food product or ingestion as a
pharmaceutical, face an inherent risk of exposure to product liability claims
and negative publicity in the event that the use of our product results in
injury or harm to users. We face the risk that materials used in the manufacture
of our pharmaceutical products may be contaminated with substances that may
cause sickness or injury to persons who have used the products, or that sickness
or injury to persons may occur if the products we distribute are ingested in
dosages which exceed the dosage recommended on the product label. In the event
that insurance coverage or contractual indemnification is not adequate, product
liability claims could have a material adverse effect on our business. To date,
we have not obtained any insurance coverage. The successful assertion or
settlement of any uninsured claim, a significant number of insured claims, or a
claim exceeding any future insurance coverage, could have a material adverse
effect on our business and financial condition. Additionally, we are highly
dependent upon consumers' perception of the safety and quality of our products
as well as similar products distributed by other companies. Thus, the mere
publication of reports and negative publicity asserting that such products may
be harmful could have a material adverse effect on our business, regardless of
whether such reports are scientifically supported, regardless of whether the
harmful effects would be present at the dosages recommended for such products,
and regardless if such adverse effects resulted from failure to consume the
product as directed.

Intense Competition May Result in an Inability to Generate Sufficient Revenues
to Operate Profitably.

The agricultural genetics and pharmaceutical industries are highly
competitive. Numerous companies, many of which are significantly larger than us,
which have greater financial, personnel, distribution and other resources and
may be better able to withstand volatile market conditions, compete with us in
the development, manufacture and marketing of genetically engineered
agricultural products and pharmaceuticals. Our principal competition in the
agricultural genetics field comes from domestic and foreign wholesale and retail
food distribution companies. In the pharmaceutical field, our principal
competition comes from domestic and foreign pharmaceutical and biotechnology
companies. There can be no assurance that additional national or international
companies will not seek to enter, or increase their presence in our industries,
or seek to expand their existing markets into China. Increased competition could
have a material adverse effect on our business, as our competitors may have far
greater financial and other resources available to them and possess extensive
manufacturing, distribution and marketing capabilities far greater than ours.

Uncertainty Regarding Our Ability to Make Certain Acquisitions and Integrate
Acquired Businesses

We have entered into discussions with respect to the potential acquisition
of an existing business in order to accelerate our penetration in the
genetically engineered agricultural products market. We may evaluate additional
acquisitions in the future to accelerate our market penetration, enter new
markets or expand capabilities. There is no assurance that we will be successful
in consummating our currently pending acquisition or any future acquisition that
we may pursue. In the event that we do consummate our pending acquisition or
future acquisitions, there is no assurance that we will be able to successfully
integrate the acquired businesses with our existing operations. Any efforts
undertaken to make acquisitions, and any failure in the integration of such
acquisitions, could result in the incurrence of substantial costs on our part
and distraction of our management from our core operations.

We are Dependent on New Products and Continued Innovation.

The agricultural genetics and pharmaceutical industries, in general,
are characterized by rapid innovation and advances. These advances result in
frequent product introductions and short product life cycles, requiring a high
level of expenditures for research and development and the timely introduction
of new products. We believe our ability to grow and succeed is partially
dependent upon our ability to introduce new and innovative products into such
markets. We are evaluating, and expect to continue to evaluate, the development
and introduction of additional products in our existing markets and related
markets. However, there can be no assurance that we will be successful in our
plans to introduce additional products to the market.

Intellectual Property Rights May Not Protect Our Business.

Our policy is to aggressively pursue patent protection on current and
future products. We use a combination of patents, trademarks and trade secrets
to protect our proprietary positions. As of October 17, 2003, we had filed three
Chinese patent applications. We expect to file additional patent applications in
the future and may file patent applications outside of China, as appropriate, to
protect our proprietary technologies.

There can be no assurance that our pending or future applications will
result in issued patents and trademarks, or that, if issued, our applications
will be upheld if challenged. Further, even if granted, there can be no
assurance that these patents and trademarks will provide us with any protection
from competitors, or, that if they do provide any meaningful level of
protection, that we will have the financial resources necessary to enforce our
patent and trademark rights. In addition, there can be no assurance that others
will not independently develop technologies similar to our pending patents and
trademarks, or design around the pending patents. If others are able to design
around the patents, our results of operations could be materially adversely
affected. Further, we will have very limited, if any, protection of our
proprietary rights in those jurisdictions where we have not affected any filings
or where we fail to obtain protection through our filings.

There can be no assurance that third parties will not assert
intellectual property infringement claims against us in the future with respect
to current or future products. We are responsible for defending against charges
of infringement of third party intellectual property rights by our actions and
products and such assertion may require us to refrain from the sale of our
products, enter into royalty arrangements or undertake costly litigation.
Further, challenges may be instituted by third parties as to the validity,
enforceability and infringement of our patents.

Risks Related to Operations in China

Substantially all of our assets are located in China and substantially
all of our revenue is derived from our operations in China. Accordingly, our
results of operations and prospects are subject, to a significant extent, to the
economic, political and legal developments in China.

China's Economic, Political and Social Conditions, as Well as Government
Policies, could Affect our Business.

Substantially all of our business, assets and operations are located in
China. The economy of China differs from the economies of most developed
countries in many respects, including:

o government involvement;

o level of development;

o growth rate;

o control of foreign exchange; and

o allocation of resources.

While China's economy has experienced significant growth in the past
twenty years, growth has been uneven, both geographically and among various
sectors of the economy. The Chinese government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of China, but may also have a
negative effect on us. For example, our operating results and financial
condition may be adversely affected by government control over capital
investments or changes in tax regulations applicable to us.

The economy of China has been transitioning from a planned economy to a
more market-oriented economy. Although in recent years the Chinese government
has implemented measures emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of productive assets in China is still owned by the Chinese
government. In addition, the Chinese government continues to play a significant
role in regulating industry development by imposing industrial policies. It also
exercises significant control over China's economic growth through the
allocation of resources, controlling payment of foreign currency-denominated
obligations, setting monetary policy and providing preferential treatment to
particular industries or companies.

Government Control of Currency Conversion may Adversely Affect our Operations
and Financial Results.

We receive substantially all of our revenues in Renminbi, which
currently is not a freely convertible currency. A portion of these revenues must
be converted into other currencies to meet our foreign currency obligations.
These foreign currency-denominated obligations include:

o payment of interest and principal on foreign currency-denominated debt;

o payment for equipment and materials purchased offshore; and

o payment of dividends declared, if any.

Under China's existing foreign exchange regulations, we will be able to
pay dividends in foreign currencies without prior approval from the State
Administration of Foreign Exchange by complying with certain procedural
requirements. However, the Chinese government may take measures at its
discretion in the future to restrict access to foreign currencies for both
current account transactions and capital account transactions if foreign
currencies become scarce in China. We may not be able to pay dividends in
foreign currencies to our shareholders if the Chinese government restricts
access to foreign currencies for current account transactions.

Foreign exchange transactions under our capital account, including
foreign currency-denominated borrowings from Chinese or foreign banks and
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require the
approval of the State Administration of Foreign Exchange. These limitations
could affect our ability to obtain foreign exchange through debt or equity
financing, or to obtain foreign exchange for capital expenditures.

Fluctuation of the Renminbi Could Materially Affect our Financial Condition and
Results of Operations.

The value of the Renminbi fluctuates and is subject to changes in
China's political and economic conditions. Since 1994, the conversion of
Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been
based on rates set by the People's Bank of China, which are set daily based on
the previous day's interbank foreign exchange market rates and current exchange
rates on the world financial markets. Since 1994, the official exchange rate for
the conversion of Renminbi to U.S. dollars has generally been stable. Any
devaluation of the Renminbi, however, may adversely affect the value of, and
dividends, if any, payable on, our shares in foreign currency terms, since we
will receive substantially all of our revenues, and express our profits, in
Renminbi. Our financial condition and results of operations may also be affected
by changes in the value of certain currencies other than the Renminbi, in which
our obligations are denominated. In particular, a devaluation of the Renminbi is
likely to increase the portion of our cash flow required to satisfy our foreign
currency-denominated obligations.

The PRC Legal System has Inherent Uncertainties that Could Limit the Legal
Protections Available to You.

Substantially all of our assets and operations are in China and our
principal operating subsidiaries are organized under the laws of China. The
Chinese legal system is based on written statutes. Prior court decisions may be
cited for reference but have limited precedential value. Since 1979, the Chinese
government has promulgated laws and regulations dealing with economic matters
such as foreign investment, corporate organization and governance, commerce,
taxation and trade. However, because these laws and regulations are relatively
new, and because of the limited volume of published cases and their non-binding
nature, interpretation and enforcement of these laws and regulations involve
uncertainties.

The direct enforcement by our shareholders of any rights of
shareholders in respect of violations of corporate governance procedures may be
limited. Unlike in the United States, under applicable laws of China,
shareholders do not have the right to sue the directors, supervisors, officers
or other shareholders on behalf of the corporation to enforce a claim against
such party or parties that the corporation has failed to enforce itself. Our
shareholders may have to rely on other means to enforce directly their rights,
such as through administrative proceedings. Chinese laws and regulations do not
distinguish among minority, affiliated and unaffiliated shareholders in terms of
their rights and protections. In addition, our minority shareholders may not
have the same protections afforded to them by companies incorporated under the
laws of the United States.

Uncertainty Relating to Chinese Regulation of Pharmaceuticals Could Impair
Introduction of Products in China.

In 2003, the Chinese government created a new Food and Drug Administration,
modeled after the U.S. government body, in an attempt to streamline unnecessary
bureaucratic functions and restructure and position the Chinese pharmaceutical
industry for entry into the World Trade Organization ("WTO"), growth and
increased competitiveness. The implementation of the new regulatory scheme is
expected to impose substantial new regulation on the approval and manufacture of
pharmaceuticals for sale in China. Because of the newness of the pharmaceutical
regulatory scheme, there is uncertainty as to the manner in which regulations
will be implemented and interpreted. Such uncertainty may result in delays in
obtaining regulatory clearance of products and introduction of products to the
Chinese market as well as potentially liability and costs associated with
compliance, or lack of compliance, with regulations.

The admission of China into the World Trade Organization could lead to increased
foreign competition.

As a result of China becoming a member of the WTO, import restrictions on
both agricultural products and pharmaceuticals are expected to be gradually
reduced. The WTO also requires China to lower its import tariffs as a condition
for membership. Reduced import restrictions and/or lower tariffs may lead to
increased imports of foreign products and therefore lead to increased
competition in the domestic agricultural products and pharmaceuticals markets.

Risks Related to this Offering

Our stock price has been, and is likely to continue to be, highly volatile and
could drop unexpectedly.

The trading price of our common stock has been highly volatile and may
continue to be volatile in response to the following factors:

- quarterly variations in our operating results;
- limited trading volume;
- announcements of results of product development efforts,
acquisitions and disposals of properties;
- investor perception of us, the agricultural genetics industry,
the pharmaceutical industry or operations in China
in general;
- changes in financial estimates by securities analysts; and
- general economic and market conditions.

Declines in the market price of our common stock could also materially
adversely affect employee morale and retention, our access to capital and other
aspects of our business.

Shares of our common stock may be "penny stocks"

If the market price per share of our common stock is less than $5.00,
the shares of our common stock will be "penny stocks" as defined in the Exchange
Act. As a result, an investor may find it more difficult to dispose of or obtain
accurate quotations as to the price of the shares of our common stock being
registered under this prospectus. In addition, the "penny stock" rules adopted
by the SEC under the Exchange Act subject the sale of shares of our common stock
to regulations which impose sales practice requirements on broker-dealers. For
example, broker-dealers selling penny stocks must, prior to effecting the
transaction, provide their customers with a document that discloses the risks of
investing in penny stocks.

Furthermore, if the person purchasing the securities is someone other
than an accredited investor or an established customer of the broker-dealer, the
broker-dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the transaction is suitable for the customer and whether the customer
has sufficient knowledge and experience in financial matters to be reasonably
expected to be capable of evaluating the risk of transactions in penny stocks.
Accordingly, the SEC's rules may limit the number of potential purchasers of
shares of our common stock. Moreover, various state securities laws impose
restrictions on transferring "penny stocks," and, as a result, investors in our
common stock may have their ability to sell their shares impaired.

If our stock price remains volatile, we may become subject to securities
litigation, which is expensive and could divert our resources.

In the past, following periods of market volatility in the price of a
company's securities, security holders have instituted class action litigation.
Many technology-based companies have been subject to this type of litigation. If
the market value of our stock experiences adverse fluctuations, and we become
involved in this type of litigation, regardless of the outcome, we could incur
substantial legal costs and our management's attention could be diverted,
causing our business to suffer.

The sale of a substantial number of shares of our common stock after this
offering may affect our stock price.

The market price of our common stock could decline as a result of sales
of substantial amounts of common stock in the public market after the closing of
this offering or the perception that substantial sales could occur. These sales
also might make it difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.

Our certificate of incorporation and bylaws and the Nevada corporation law
contain provisions that could discourage an acquisition or change of control of
Eternal Technologies

Our certificate of incorporation authorizes our board of directors to
issue preferred stock and common stock without shareholder approval. If our
board of directors elects to issue preferred stock, it could be more difficult
for a third party to acquire control of us. In addition, provisions of our
certificate of incorporation and bylaws could also make it more difficult for a
third party to acquire control of us. These provisions include a denial of
cumulative voting rights, limitations on shareholder proposals at meetings of
shareholders, and restrictions on the ability of our shareholders to call
special meetings. In addition, the Nevada Revised Statutes imposes restrictions
on certain mergers and other business combinations.

These provisions of Nevada law and our certificate of incorporation and
bylaws may delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in his best interest, including attempts that might
result in a premium over the market price for the common stock.

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Business" and elsewhere in this prospectus are
"forward-looking statements." These forward-looking statements include, but are
not limited to, statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. When used in this prospectus, the words "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "seeks," "should" or "will" or the negative of these terms or similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements, including our
plans, objectives, expectations and intentions and other factors discussed under
"Risk Factors."

USE OF PROCEEDS

We will not receive any proceeds from the sales, if any, of the shares
being offered by the selling shareholders. The purpose of this offering is to
register our common stock for resale by the selling shareholders.

MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

Since the acquisition of Eternal Technologies Group Ltd. and
Subsidiaries and adoption of our current business plan in December 2002, our
Common Stock has been listed on the over-the-counter electronic bulletin board
("OTCBB") under the symbol "ETLT". Previously, our Common Stock was listed on
the OTCBB under the symbol "WTFD". The following table sets forth the range of
high and low bid prices for each quarter during the past two fiscal years.

High Low

Calendar Year 2003

Third Quarter.................. $1.85 $0.91
Second Quarter................. 1.25 0.90
First Quarter.................. 1.17 0.75

Calendar Year 2002

Fourth Quarter................. $ 1.40 $ 0.08
Third Quarter.................. 0.20 0.07
Second Quarter................. 0.35 0.08
First Quarter.................. 0.12 0.09

The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions. The
quotations give effect to a one-for-six reverse stock split effective December
12, 2002.

At October 17, 2003, the closing bid price of the Common Stock was
$1.11.

As of October 17, 2003, we estimate that there were approximately 1,950
beneficial holders of our Common Stock.

DIVIDEND POLICY

We have not paid dividends in the past and we intend to retain
earnings, if any, and will not pay cash dividends in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
board of directors and will be dependent upon our financial condition, results
of operations, capital requirements, general business conditions and such other
factors as the board of directors may deem relevant.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

History and Development of the Company

Our current operations are conducted through our wholly-owned
subsidiary, Eternal Technologies Group Ltd. ("Eternal Technologies - BVI"), a
British Virgin Islands company, and its subsidiaries.

We acquired Eternal Technologies - BVI in December 2002 (the
"Reorganization") pursuant to the terms of an Exchange Agreement. Under the
terms of the Exchange Agreement, we issued 22,050,000 shares of our common stock
to the shareholders of Eternal Technologies - BVI in exchange for all of the
issued and outstanding shares of Eternal Technologies - BVI. In conjunction with
the Reorganization, we carried out a 1-for-6 reverse split of our common stock,
changed our name from Waterford Sterling Corporation to Eternal Technologies
Group, Inc., ceased our prior operations and caused to officers and directors of
Eternal Technologies - BVI to be appointed as officers and directors in place of
the pre-Reorganization officers and directors. As a result of the
Reorganization, we adopted as our primary business operations the operations of
Eternal Technologies - BVI and the shareholders of Eternal Technologies - BVI
acquired approximately 85% of our post-Reorganization outstanding shares.

Prior to the Reorganization, we pursued a number of acquisitions of
operating businesses, each of which proved unsuccessful. We operated under the
name Waterford Sterling Corporation, from January 2001 to December 2002. During
that time, our operations were principally focused on the sourcing and marketing
of furniture and accessories to the hospitality and fine store markets. From
March 1999 to January 2001, we operated under the name Skreem.com Corporation
developing and marketing computer and internet related software. We were
originally incorporated in the State of Delaware under the name Commerce Centers
Corporation. In 2000, we reincorporated in the State of Nevada.

Eternal Technologies - BVI was incorporated in the British Virgin
Islands in March 2000. In May 2000, Eternal Technologies - 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 operates a farm and breeding center focused
on the propagation of superior breeds of sheep and livestock in the Inner
Mongolia region of China.

In January, 2003, we supplemented our research and development embryo
transfer capabilities by establishing a relationship with Beijing AnBo Embryo
Biotech Center ("AnBo Biotech Center"), a biotech research and development and
embryo transfer center located in Beijing.

Operations of the Company

Our operations are focused on developing superior livestock breeds in
order to improve the quality and yield of livestock in China and the
profitability of livestock operations. We initially imported embryos from
Australia and the United States. We are utilizing our facilities and expertise
to develop a herd of "carrier animals" in order to produce a domestic supply of
embryos, eliminating our dependence on third party foreign embryo suppliers and
reducing our cost of embryos. Under that program, we (1) breed, own and manage a
herd of sheep on our farm and (2) purchase dairy cattle, inject our
bio-engineered embryo into the "host animals", and, after birth, retain the
offspring to serve as breeder stock and sell the "host animal" back to the
original owner.

We utilize our genetically engineered livestock embryos and our
breeding and biotech expertise to offer a range of livestock breeding services
and products, including sale of embryos, artificial insemination and embryo
transplant services, both at our facilities and on-site, and related products
and services designed to improve production, quality and profitability of
Chinese livestock operators.

Our initial operations focused on the production and sale of
bio-engineered embryo and services targeted to sheep growers. In 2003, we
expanded our operations to include the dairy cattle market.

In late 2003, we began implementation of a mutton production and sale
program focused on the processing and sale of mutton from our higher yielding,
higher quality genetically-engineered stock. In implementing our mutton
production and sales strategy, we utilize our farm in Inner Mongolia to raise a
heard of sheep for ultimate processing and sale. Because of changes in
government policy relating to plowing in Inner Mongolia, we have determined that
we may have impediments to the ongoing economic use of our farm for grazing.
Pending a final determination with respect to the economic viability of using
our farm for grazing, we continue to carry out our mutton production and sale
strategy supplemented through purchases from our clients of sheep raised from
our genetically-engineered embryo, with meat processing contracted to slaughter
houses and sale of processed meat to wholesale purchasers in and around Beijing.
Depending on the outcome of our evaluation of the economic viability of our
farm, we may attempt to sell the farm and rely on purchases of sheep from
clients to support mutton production or evaluate other best-economic uses of the
farm.

Historically, our business has been highly seasonal with nearly all of
our revenues being generated in the fourth quarter. While our business will
remain seasonal because embryo sales occur during the fourth quarter, other
periods should benefit in the future from the sale of milk and lamb meat,
thereby making our overall business less seasonal.

Critical Accounting Policies

The process of preparing financial statements requires the use of
estimates on the part of management. The estimates used by management are based
on the company's historical experiences combined with management's understanding
of current facts and circumstances. Certain of the company's accounting policies
are considered critical as they are both important to the portrayal of the
company's financial condition and results and require significant or complex
judgment on the part of management.

Critical accounting policies are defined as those that are reflective
of significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe the
following criteria accounting policies affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements:

Allowance for Doubtful Accounts - Our financial statements reflect no
allowance for doubtful accounts. Allowance for doubtful accounts reflects
reserves for customer receivables to reduce receivables to amounts expected to
be collected. Management uses significant judgment in estimating uncollectible
amounts. In estimating uncollectible amounts, management considers factors such
as current overall economic conditions, industry-specific economic conditions,
historical customer performance, and anticipated customer performance. While
management believes the company's processes effectively address its exposure for
doubtful accounts, changes in the economy, industry, or specific customer
conditions may require adjustment to the allowance for doubtful accounts
recorded by the company.

Inventory Valuation - Management reviews our inventory balances to
determine if inventories can be sold at amounts equal to or greater than their
carrying amounts. The review includes identification of slow moving inventories,
obsolete inventories, and discontinued products or lines of products. The
identification process includes historical performance of the inventory, current
operational plans for the inventory, as well as industry and customer specific
trends. If our actual results differ from management expectations with respect
to the selling of our inventories at amounts equal to or greater than their
carrying amounts, we would be required to adjust our inventory balances
accordingly.

Impairment of Long-Lived Assets (including property, plant and
equipment), Goodwill and Identifiable Intangible Assets - In accordance with
applicable accounting literature, we reduce the carrying amounts of long-lived
assets, goodwill and identifiable intangible assets to their fair values when
the fair value of such assets is determined to be less than their carrying
amounts (i.e., assets are deemed to be impaired). Fair value is typically
estimated using a discounted cash flow analysis, which requires us to estimate
the future cash flows anticipated to be generated by the particular asset(s)
being tested for impairment as well as select a discount rate to measure the
present value of the anticipated cash flows. When determining future cash flow
estimates, we consider historical results adjusted to reflect current and
anticipated operating conditions. Estimating future cash flows requires
significant judgment by us in such areas as future economic conditions,
industry-specific conditions, product pricing and necessary capital
expenditures. The use of different assumptions or estimates for future cash
flows could produce different impairment amounts (or none at all) for long-lived
assets, goodwill and identifiable intangible assets.

Among our long-lived assets subject to review for impairment are our
land lease rights in Mainland China that are stated at cost less accumulated
amortization. Amortization of land lease rights was calculated on the
straight-line basis over the lesser of its estimated useful life or the lease
term. The principal annual rate used for amortization is 2%.

Results of Operations

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

For the six months ended June 30, 2003, we reported a net loss of
$602,635 compared to a net loss of $1,458,674 for the six months ended June 30,
2002.

Revenues.

Our recurring revenues are generated principally from sales of
genetically-engineered embryo's and related breeding services. Additionally, we
have received revenues from the sales of forage grasses. Revenue decreased by
$723,913, or 86%, to $119,460 for the six months ended June 30, 2003 from
$843,373 for the six months ended June 30, 2002. This decrease was due to a
one-time sale of forage grass made in 2001 but delivery of which did not occur
until 2002. This sale accounted for approximately $725,000 of the Company's
revenues during the six months ended June 30, 2002. Without this delayed
shipment, revenues for the six months ended June 30, 2003 would have been
slightly higher than those for the six months ended June 30, 2002. Our embryo
transfer and related services continued in the early stage of development during
the 2003, producing minimal revenues, while we build our inventory of embryos.

Cost of Sales.

Cost of goods sold represents the costs of planting and harvesting
forage grasses, the purchase of embryo's and the direct costs of embryo
transplants and related services. For the six months ended June 30, 2003, there
were no costs of goods sold as the costs on the nominal amounts of grass sold
had been previously expensed. Cost of goods sold for the six months ended June
30, 2002 was attributable to costs associated with the forage grasses,
principally the sale that was made in 2001, but delivery of which did not occur
until 2002.

Depreciation and Amortization Expense.

Depreciation expense is recorded with respect to capital assets such as
buildings, fencing and equipment. Amortization is charged on land use rights
granted by the Chinese government, ratably over the life of the lease of 50
years. Depreciation and amortization totaled $426,938 for the six months ended
June 30, 2003, a decrease of $9,669, or 2%, from the $436,607 for the six months
ended June 30, 2002. The decrease is attributable to a decrease in depreciation
on a slightly lower capital asset base.

Research and Development Costs.

We had no research and development expenditures during the six months
ended June 30, 2003. This compares with research and development expenditures of
$1,000,000 for the six months ended June 30, 2002. The research is ongoing and
it is anticipated that we will have research and development expenditures during
the second half of 2003. We do not conduct research, but contract with two
outside parties who perform research on our behalf. The first contract is with
Towering International Trade Corp., an entity controlled by JiaJi Shang, one of
our principal shareholders, and the second contract is with the Chinese Science
Bureau Shen-Yang Ecology Research Center. The research is being conducted in
genetic cloning and recombinant protein production of thrombin like enzyme from
snake venom and targeting anti-turnover drug and other gene engineering
medicine. During 2002, $400,000 was paid to Towering International for their
research, and $600,000 was paid to the Chinese Science Bureau. The contracts
with each of these parties are for twenty-four months.

Selling and Administrative Expense.

Selling and administrative expenses are the costs we incur in marketing
products and services and administering our normal day-to-day functions. Selling
and administrative expenses totaled $295,157 for the six months ended June 30,
2003, a decrease of $133,816, or 31%, from $428,973 for the six months ended
June 30, 2002. This decrease resulted from reduced professional fees and lower
public relations expenditures.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

We reported net income of $6,812,484 for the year ended December 31,
2002 compared to net income of $5,810,288 for the year ended December 31, 2001.

Revenues.

Revenues increased by $1,194,603, or 10.4%, from $11,446,361 for the
year ended December 31, 2001 to $12,640,964 for the year ended December 31,
2002. The increase in revenues is attributable to a $3,538,555 increase in the
sale of embryos that was partially offset by a $1,855,422 decline in the sale of
forage grasses. The decline in the sale of forage grasses resulted from a poor
crop that was caused by drought conditions in Inner Mongolia.

Cost of Sales.

Cost of sales decreased by $1,099,575, or 28.5%, to $2,752,811 for the
year ended December 31, 2002 from $3,852,386 for the year ended December 31,
2001. Gross profit as a percent of sales increased to 78.2% for the year ended
December 31, 2002 from 66.3% for the year ended December 31, 2001. The decrease
in the cost of sales and the increase in the gross profit margins are
attributable to an increased percentage of embryo sales that have a higher
profit margin and a decrease in the sale of forage grasses that have a lower
profit margin.

Depreciation and Amortization.

Depreciation and amortization expense increased by $16,336, or 1.9%,
from $845,716 for the year ended December 31, 2001 to $862,052 for the year
ended December 31, 2002. This increase resulted from the depreciation of
additional assets that were placed in service during 2002 as part of a general
improvement of the farm.

Selling and Administrative Expenses.

Selling and administrative expenses increased by $275,646, or 29.4%,
from $937,971 for the year ended December 31, 2001 to $1,213,617 for the year
ended December 31, 2002. The increase in selling and administrative expenses
resulted from an increase in consulting fees, legal and accounting expenses,
office expenditures, rent, public relations and expenses that were partially
offset by reduced travel expenses. For the year ended December 31, 2002
approximately $304,000 was expended on financial advisors and $209,000 on public
relations.

Research and Development Costs.

For the year ended December 31, 2002, we incurred $1,000,000 of costs
in our research and development program. This compares with $0 for the year
ended December 31, 2001. We do not conduct research, but contract with two
outside parties who perform research on our behalf. During 2002, $400,000 was
paid to Towering International for research, and $600,000 was paid to the
Chinese Science Bureau.

Liquidity and Capital Resources

Since inception, we have funded operations and met our capital
requirements through the sale of shares and loans from both related and third
parties. At June 30, 2003, we had working capital of $9,238,325 and a cash
balance of $11,727,651. This compares to working capital of $9,266,786 and a
cash balance of $7,135,559 at December 31, 2002.

Cash provided by operating activities totaled $4,404,856 for the six
months ended June 30, 2003 compared to $3,263,726 of cash used in operating
activities during the six months ended June 30, 2002. Cash provided by operating
activities totaled $1,275,472 for the year ended December 31, 2002 compared to
$8,956,212 for the year ended December 31, 2001. Despite our reported operating
loss for the six months ended June 30, 2003, operating cash flows during that
period were favorably impacted by collections of accounts receivable relating to
sales during the fourth quarter of 2002. Cash flows used in operations during
the six months ended June 30, 2002 were adversely impacted by substantial
payments with respect to construction expenses and reductions in related party
payables. Although our earnings were higher for the year ended December 31, 2002
than the year ended December 31, 2001, this was more than offset by large change
in the current accounts, principally in the reduction of accounts payable.

Cash used in investing activities, totaled $0 during the six months
ended June 30, 2003 compared to $1,545,175 during the six months ended June 30,
2002 and $1,893,365 for the year ended December 31, 2001 compared to $1,330,659
used in investing activities for the year ended December 31, 2001. The use of
cash in each period was for the purchase of fixed assets and expenditure for
construction in process on our farm and our breeding center.

During the six months ended June 30, 2003, financing activities
provided $187,236 from the sale of 645,730 shares of common stock. There were
no financing activities during either the year ended December 31, 2002 or 2001.

At June 30, 2003, we had commitments relating to ongoing construction
projects payable over the following twelve months of approximately $1 million.

Subsequent to June 30, 2003, through October 15, 2003, we received
$1,452,565 of net proceeds from the sale of 2,083,063 shares of our common
stock. 1,049,575 five year warrants to purchase shares of our common stock at
$1.34 per share were issued in connection with placement of our common stock.
Proceeds from the sale of shares during 2003 are being used to fund our entry
into mutton processing as well as support of our ongoing operations.

To fully implement our business plan, including supporting our ongoing
pharmaceutical research and development efforts, we estimate that we will
require approximately $2,000,000 over the period from October 1, 2003 to October
1, 2004. Accordingly, unless we are able to generate sufficient funds from
operations to supplement our current cash balances, we will be required to seek
additional financing, either from the sale of equity, debt or other sources in
order to fully carry out our planned operations over the next twelve months.

BUSINESS

General

Our agricultural genetics/animal husbandry operations are focused on
the application of advanced embryonic biotechnology research to shorten growing
time for animals resulting in increased output and profitability and reduced use
of animal feed and animal waste. Since 2000, we have utilized our advanced
breeding techniques, and have marketed genetically engineered animal embryos,
breeding stock and breeding services to develop larger, stronger and healthier
sheep. In the fourth quarter of 2003, we began production and sale of lamb meat.
Also, in the fourth quarter of 2003, we began application of our advanced
breeding techniques to the breeding of higher-yielding purebred Holstein dairy
cattle. We expect to commence the production and sale of dairy products in the
fourth quarter of 2003 or the first quarter of 2004.

Our pharmaceutical operations are focused on the application of our
gene engineering capabilities in the research, development and production of
biological drugs. Our initial efforts have produced potential drug breakthroughs
for the treatment of thrombosis and cancer. Research and development of our
initial pharmaceutical products is ongoing. Introduction of our pharmaceutical
products to the market is expected to require at least two years of additional
product research and testing. Assuming our testing and research results in
commercial products, we anticipate that our pharmaceutical products will be
initially marketed exclusively in China.

Our principal executive offices are located at Suite 04-06, 28/F, Block
A, Innotec Tower, 235 Nanjing Road Heping District, Tianjin, PRC 300100 and our
telephone number is 011-86-22-2750-1802.

History and Development of the Company

Our current operations are conducted through our wholly-owned
subsidiary, Eternal Technologies Group Ltd. ("Eternal Technologies - BVI"), a
British Virgin Islands company, and its subsidiaries.

Eternal Technologies - BVI was incorporated in the British Virgin
Islands in March 2000. In May 2000, Eternal Technologies - 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 operates a breeding center focused on the
propagation of superior breeds of sheep and livestock in the Inner Mongolia
region of China.

In January, 2003, we supplemented oru research and development and embryo
transfer capabilities by establishing a relationship with Beijing AnBo Embryo
Biotech Center ("AnBo Biotech Center"), a biotech research and development and
embryo transfer center located in Beijing.

Our initial operations focused on the production and sale of
bio-engineered embryo and services targeted to sheep growers. In 2003, we
expanded our operations to include the dairy cattle market.

Agricultural Genetics / Animal Husbandry Operations

Our core operations are focused in the agricultural genetics / animal
husbandry fields. Our principal objectives in our animal husbandry operations
are to utilize genetic engineering to produce improved breeds of sheep and
livestock with a goal of increasing food yield and reducing growing time, waste
by-product and cost associated with herd management.

Animal Husbandry in China. Spurred in part by China's entry into the
World Trade Organization, the Chinese government has identified improved animal
husbandry as a key to meeting the nutritional needs of its population -- the
worlds' largest, minimizing the potential adverse environmental impact of its
domestic agricultural industry and improving China's position in the
import/export of agricultural products.

The Chinese agricultural industry has historically lagged behind
Western countries in the adoption of advanced breeding techniques. As a result,
by world standards, Chinese breeding rates, size, health and meat yield have all
been low and growing periods have been high. These factors have made quality
meat difficult to supply within China without relying on imports, resulted in
higher feed costs and waste production as a result of longer growing cycles and
adversely impacted the competitive position of Chinese producers.

By encouraging the adoption of advanced animal husbandry techniques, in
particular the transplant of genetically engineered animal embryo, the Chinese
government is positioning Chinese agricultural businesses to bring the quality
and yield of meat production in line with world standards, improving the living
standards of the Chinese people, while minimizing the environmental impact of
operations and improving the industry's competitive position in world markets.

Key markets that we have targeted in China are mutton and dairy
production. China ranks first in the world in both production and consumption of
mutton with 2001 production of approximately 2.55 million tons. With China's
entry into the WTO and the adoption of advanced animal husbandry techniques, we
believe that China can be positioned as a world leader in the production and
export of high quality low-cost mutton while meeting its growing internal
demand.

Chinese dairy production and consumption has lagged substantially
behind levels in Western countries. With an improving standard of living and a
growing emphasis on health, milk consumption is rising in China and we expect
the increase in milk consumption to accelerate. In order to meet the expected
growth in demand for dairy products without relying disproportionately on
imports, dairy production must be increased in China. Historical yields from
China's dairy herd are believed to be approximately 50% of the yields produced
by U.S. dairy herds. With the adoption of advanced animal husbandry techniques,
we believe that the quality and yield of the Chinese dairy herd can be increased
to Western standards allowing the Chinese dairy industry to meet the growing
internal demand for dairy products while reducing the cost of production.

Embryo Transfer and Breeding Services. Our initial commercial efforts
were focused on the development and sale of embryo genetically engineered to
produce stronger, larger, healthier and more nutritious sheep, and associated
breeding services. In 2000, we imported 10,000 bread animal embryos out of a
total of 13,000 embryos permitted to be imported by the Chinese government. We
have utilized our initial embryo supply to develop a herd of high-quality
breeding sheep as well as a supply of embryo for sale to clients.

We supply our clients, consisting primarily of large commercial and
government farms in China, with superior breeding stock, embryos, semen and
related technology and consulting services, all designed to increase production
yield and quality, reduce growing costs and increase income.

In the fourth quarter of 2003, we expanded our embryo transfer and
breeding services to include, in addition to sheep, high-yielding pure-bread
dairy cattle. In our dairy cattle breeding and embryo transfer operations, we
purchase dairy cattle, inject our bio-engineered embryo into the "host animals",
and, after birth, retain the offspring to serve as breeder stock and sell the
"host animal" back to the original owner.

Food Production. In the fourth quarter of 2003, we commenced the
production and sale of mutton. We selectively cull a portion of our genetically
engineered sheep for sale to slaughterhouses for processing and sale of mutton.
Animals processed for mutton sale are generally those that are not candidates
for future breeding. We supplement our stock of sheep, as needed, with
genetically engineered sheep purchased from our clients. We continuously
evaluate our farm operations and supplies of sheep for mutton production to
assure the economic viability of our meat supplies in light of changing land use
regulations in China. We do not presently own slaughterhouse or processing
facilities but intend to purchase such facilities in the future.

We plan, during the fourth quarter of 2003 or the first quarter of
2004,to commence dairy production and sale from our genetically engineered herd
of dairy cattle.

Genetic Technologies. We utilize a variety of technologies for
industrial embryo production and transfer, all design to produce superior
breeding stock. The primary techniques we presently employ are (1) peritoneal
endoscope technique, (2) vitrification freezing technique, (3) embryo splitting
and cleavage ball techniques, and (4) external fertilization technique.

-- Peritoneal Endoscope Technique. Peritoneal endoscope technique
involves the collection of sheep embryo by means of peritoneal endoscopes
without surgical operations. Traditional embryo collection and transfer
techniques, using surgical procedures, have generally limited to four operations
after which the provider is rendered useless as a result of adhesions left by
the surgical procedures. We believe that the peritoneal endoscope technique, a
less invasive procedure, may be used ten or more times, increasing the
utilization of providers. Additionally, we believe that use of endoscopic
techniques combined with deep semen deposition and frozen semen mating can
markedly increase conception rates.

-- Vitrification Freezing Technique. Vitrification is a process by
which a concentrated anti-freeze solution is transformed into a transparent
colloidal solid through rapid freezing. We have developed an anti-freezing
protectant that enables the freezing process to be carried out at room
temperature without a cooling system, increasing the efficiency of the process.
Livestock implanted with a frozen fertilized ovum have been shown to produce
increased pregnancy and farrowing rates.

-- Embryo Splitting and Cleavage Ball Techniques. Embryo splitting and
cleavage ball techniques involve the splitting of embryos by microsurgery or the
separation of embryo cleavage balls in early cultivation before the half-embryos
or separate cleavage balls develop into individuals. Newly split half-embryos
have shown an average transfer rate of above 50% -- the equivalent of a 100%
transfer pregnancy rate -- exceeding the average transfer rate of half-embryos
of between 35% and 40%. Embryo splitting, combined with embryo sex
identification, allows for better management of the male/female population of a
herd.

-- External Fertilization Technique. External fertilization technique
involves the collection of ova from live farm animals, fertilization of the ova
and cultivation of the fertilized ova until the ova reaches a transferable stage
at which time fertilized ova is transferred to a host animal. External
fertilization has been shown to increase pregnancy rates at a lower cost than
internal fertilization. While pregnancy rates of externally fertilized embryo in
China has been only approximately 20%, our fertilized embryo transfer pregnancy
rate has been above 40%, approximately the world standard.

Breeding Facilities. Our breeding operations are conducted on land and
in facilities consisting, generally, of approximately 2.8 million acres of
farmland, an embryo transfer center and a reception center and at the AnBo
Biotech Center in Beijing.

Land use rights with respect to our farm were purchased from the
Chinese government for $6,000,000. Such rights extend through 2025. The farm is
located in Wulagai Development Area in Inner Mongolia. The farm, one of the few
naturally preserved grassland areas in China, is organized into various breeding
sub-pastures. Each sub-pasture includes haciendas, stables and farm equipment
such as wells, mowing machines and tractors. A supply of forage grass is
reserved for winter and for snowstorms.

The farm is equipped with a 60-kilovolt electric transmission line,
telephone and transportation facilities, including a 200 kilometer road system
connecting all sub-pastures. A railway station is located 80 kilometers south of
the farm, facilitating distribution of products throughout China.

Also located on the farm is a 35,000 square foot embryo transfer center
including operating rooms, equipment rooms, offices, conference rooms, lecture
halls and guest rooms. Substantially all research and embryo transfer operations
occur in our embryo transfer center.

A 30,000 square foot reception center at the farm serves to host
customers, scientists and other guests.

Our farm and associated facilities are believed to be adequate to meet
our operating needs for the foreseeable future.

Because of recent changes in Chinese land use regulation, we are
evaluating the economic viability of the continued operations of the farm and
may, if determined to be in our best economic interests, consider selling some
or all of the grazing land on our farm.

The AnBo Biotech Center is a 6,450 square foot facility located in
Beijing and housing laboratory, operating and relating facilities to support
advanced biotech and embryo research and development activities.

Marketing. Sales and marketing for our animal husbandry products and
services is handled by our senior management team. Our management team maintains
regular communications with farm operators, meat processors and governmental
agriculture officials to assure that potential clients are aware of our
capabilities and services. We may evaluate the adoption of more formal
marketing, advertising and sales programs as necessary in the future.

Pharmaceutical Operations

As an adjunct to our ongoing genetic engineering research and development
activities, we are undertaking efforts to develop pharmaceutical drugs for use
in the treatment of thrombosis and cancer.

Our initial proposed pharmaceutical product, known as Thrombreaker, was
developed using gene-cloning techniques based on thrombin-like enzymes from
adder venom. Thrombreaker is believed to have potential as an effective
treatment for thrombosis, a leading cause of death.

A second proposed pharmaceutical product under development is an
anti-cancer drug utilizing enterotoxins. Using genetic recombination techniques,
this product has shown potential for targeting and tumors without harming
surrounding normal cells. We have filed an initial patent application in China
covering anti-cancer drug.

We do not presently have pharmaceutical manufacturing or marketing
capabilities. In order for us to begin commercial pharmaceutical operations, we
must, in addition to securing manufacturing and marketing capabilities, secure
approval from the Chinese government to market our products as pharmaceutical
drugs. China's pharmaceutical industry, and regulation thereof, is in its
infancy compared to Western standards. China has substantially restructured its
regulation of pharmaceuticals with the creation of a State Food and Drug
Administration modeled after the U.S. FDA. Assuming adoption of a regulatory
scheme similar to that of the U.S. FDA, we anticipate that introduction of any
of our proposed pharmaceutical products will require exhaustive clinical trials
and review by the Chinese authority, which process could take a number of years
and cost millions of dollars to complete.

In order to accelerate our entry into the pharmaceuticals market, we
have conducted discussions with established pharmaceutical companies in the
China with a view to a possible acquisition or alliance with one or more
companies.

Potential Acquisitions

We intend to evaluate various potential acquisitions of companies and
facilities in order to expand the scope of our operations and accelerate our
growth. Specifically, in addition to the potential acquisition of an established
pharmaceutical company, we intend to evaluate the acquisition of companies or
facilities to provide feedlot, dairy processing, slaughterhouse and meet
processing, animal fattening and similar capabilities.

We have no definitive agreements with respect to potential acquisitions
and there is no assurance that we will be successful in our efforts to make any
such acquisitions.

Competition

The agriculture and pharmaceutical industries are highly
competitive. While animal genetics is a relatively new field in China without
any established industry leaders, with the opening of the Chinese market
following admittance to the WTO, numerous companies, many of which may be
significantly larger than us, and have greater financial, personnel,
distribution and other resources, may enter the market and compete with us in
the development and delivery of advanced animal husbandry products and services.

In the pharmaceuticals market, numerous companies, many of which are
significantly larger than us, which have greater financial, personnel,
distribution and other resources than us, are more established than us and may
be better able to withstand volatile market conditions, compete in the
development, manufacture and marketing of thrombosis and anti-cancer and other
drugs. Large internationally known companies (such as Bristol-Myers, Squibb,
Novataris and Glaxo-Wellcome) are in competition with us in this industry.

Increased competition in either or both of the agriculture and the
pharmaceutical industries could have a material adverse effect on us, as our
competitors may have far greater financial and other resources available to them
and possess extensive manufacturing, distribution and marketing capabilities far
greater than those we possess.

Intellectual Property

We currently rely on a combination of patents, trademark, trade
secret laws and contractual provisions to protect our proprietary rights in our
product. As of October 17, 2003, we had applied for three Chinese patents. There
can be no assurance that our applications will result in issued patents and
trademarks, or that, if issued, our applications will be upheld if challenged.
Further, even if granted, there can be no assurance that these patents and
trademarks will provide us with any protection from competitors, or, that if
they do provide any meaningful level of protection, that we will have the
financial resources necessary to enforce our patent and trademark rights. In
addition, there can be no assurance that others will not independently develop
technologies similar to our pending patents and trademarks, or design around the
pending patents. If others are able to design around the patents, our results of
operations could be materially adversely affected. Further, we will have very
limited, if any, protection of our proprietary rights in those jurisdictions
where we have not affected any filings or where we fail to obtain protection
through our filings.

There can be no assurance that third parties will not assert
intellectual property infringement claims against us in the future with respect
to current or future products and technologies. We are responsible for defending
against charges of infringement of third party intellectual property rights by
our actions and products and such assertion may require us to refrain from the
sale of our products, enter into royalty arrangements or undertake costly
litigation. Further, challenges may be instituted by third parties as to the
validity, enforceability and infringement of our patents.

Our adherence to industry standards with respect to our products
limits our opportunities to provide proprietary features that may be protected.
In addition, the laws of various countries in which our products may be sold may
not protect our products and intellectual property rights to the same extent as
the laws of the United States.

Governmental Regulation

Our business and the agriculture and pharmaceutical industries in
general are subject to extensive laws and regulations, including environmental
laws and regulations. As such, we may be required to make large expenditures to
comply with environmental and other governmental regulations.

Under these laws and regulations, we could be liable for personal
injuries, property damage, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages. Failure to comply with these
laws and regulations also may result in the suspension or termination of our
operations and subject us to administrative, civil and criminal penalties.
Moreover, these laws and regulations could change in ways that substantially
increase our operating costs.

The Chinese regulatory scheme, in general, and the regulation of the
agriculture and pharmaceutical industries in particular, is not well defined and
is subject to substantial uncertainty. With China's entry in the WTO, China has
implemented numerous changes to its existing laws and regulations.

Chinese laws impacting our animal husbandry operations relate primarily
to health and safety regulations covering food products and environmental
regulations covering waste products and other land use regulations. Food product
regulations generally govern the safety of products in the food chain and the
handling of those products. We believe that we are in compliance with all
existing food and environmental regulations applicable to our animal husbandry
operations. Because many of those regulations are new and evolving, we must
continually monitor the interpretation, enforcement and modification to those
regulations to assure ongoing compliance.

Our proposed pharmaceutical operations are subject to extensive and new
regulation by the Chinese government and, to the extent that we may market our
pharmaceutical products outside of China, other governments. Chinese
pharmaceutical regulation is evolving and subject to much uncertainty. In recent
years, the Chinese government has restructured the regulation of pharmaceuticals
using the U.S. FDA as a model. Under those regulations, the Chinese FDA is
responsible for monitoring, and promulgating regulations with respect to, the
review of clinical safety and efficacy trials, market approval of
pharmaceuticals and pharmaceutical claims, good manufacturing practices,
prescriptions, and similar matters. Failure to comply with any of those
regulations could result in products being barred from introduction to, or
removed from, the market, fines, penalties or other adverse consequences.

Employees

As of October 17, 2003, we had 35 full-time employees, including
employees performing administrative functions, animal husbandry services and
farming functions. Bioscience research and related services (including
pharmaceutical research and development) are performed by third parties on a
contract basis. The employees are not covered by a collective bargaining
agreement, and we do not anticipate that any of our future employees will be
covered by such agreement.

MANAGEMENT

The following table sets forth the names, ages and offices of the
present executive officers and directors of the Company. The periods during
which such persons have served in such capacities are indicated in the
description of business experience of such persons below.

Name Age Position

Jijun Wu 67 Chairman of the Board and President
Jiansheng Wei 51 Chief Operation Officer and Director
XingJian Ma 57 Chief Financial Officer
Dr. Wenli Yu 39 Chief Technology Officer
Shumei Pang 48 Chief Veterinarian
Garfield W. Hu 29 Secretary
Dr. Thomas E. Wagner 63 Director
Shien Zhu 48 Director
James Q. Wang 34 Director

The following is a biographical summary of the business experience of
the present directors and executive officers of the Company:

Jijun Wu has served as our Chairman of the Board and President
since the acquisition of Eternal Technologies Group Ltd. and Subsidiaries (the
"Reorganization") in December 2002. Mr. Wu was a founder and, from March 2000 to
the Reorganization, served as Chairman and President of Eternal Technologies
Group Ltd. Previously, Mr. Wu served as Accountant - General of a PRC
state-owned electronics company with revenues in excess of $1.5 billion and as a
consultant to various multinational corporations entering the PRC market. Mr. Wu
is a graduate of China Central Finance & Economics University and holds the
designation of CPA in China.

Jiansheng Wei has served as our Chief Operation Officer and a
Director since the Reorganization. From March 2000 to the Reorganization, Mr.
Wei served as Chief Operation Officer of Eternal Technologies Group Ltd. He has
been engaged in animal husbandry practices and management for over 30 years and
has been responsible for operations of several large farms in Inner Mongolia and
Hebei Province. Mr. Wei holds an MBA from Tianjin Finance & Economics College.

Xiangjian Ma has served as our Chief Financial Officer since the
Reorganization. From 2000 to the Reorganization, Mr. Ma served as Chief
Financial Officer of Eternal Technologies Group, Ltd. For two years prior to
joining Eternal Technologies Group, Ltd., Mr. Ma served as Secretary of the
Financial Department of Tianjin Electronic Instrument Corporation.

Dr. Wenli Yu has served as our Chief Technology Officer since the
Reorganization. From 2000 to the Reorganization, Dr. Yu served as Chief
Technology Officer of Eternal Technologies Group Ltd. Previously, Dr. Yu served
as a lead research scientist for various Chinese government agriculture projects
presiding over key projects in China including: "Development and Application of
Bovine/Ovine Embryo Transfer Technology", "Setting up Breeding and Production
System of Purebred Beef by Embryo Biotechnology," "Establishing a State Center
for Beef Breeding," and "Research on Ovine Artificial Insemination and Embryo
Transfer with the Application of Endoscope." Dr. Yu has published over 20 papers
in renowned professional journals, such as China Animal Husbandry, China
Veterinarian Journal, and Animal Husbandry Veterinarian Journal. Dr. Yu received
her Ph.D from China Agriculture University, Biology Department, and is a
Research Fellow.

Shumei Pang has served as our Chief Veterinarian since the
Reorganization. From 2000 to the Reorganization, Ms. Pang served as Chief
Veterinarian of Eternal Technologies Group Ltd. Previously, for 12 years, Ms.
Pang was engaged in livestock epidemic prevention, nutrition control and feeding
management projects of the Chinese government. She has participated in academic
exchanges in Australia and New Zealand and has published over 10 theses in
professional journals. Ms. Pang holds an M.A. from Tianjin Agriculture College,
Veterinarian Department.

Garfield W. Hu has served as our Secretary since the
Reorganization. From 2000 to the Reorganization, Mr. Hu was employed by Eternal
Technologies Group, Ltd. in various capacities and was appointed Secretary in
2001. Mr. Hu is responsible for coordination of our internal affairs and
external contacts. Prior to joining Eternal Technologies Group, Mr. Hu was an
instructor at Nankai University and a translator and advisor for the largest
Chinese professional IT web site, yesky.com.

Dr. Thomas E. Wagner has served as a Director since the
Reorganization. Dr. Wagner is currently the Director of Oncology Research
Institute at the Greenville Hospital System and Distinguished Professor of
Molecular & Cellular Biology at Clemson University. He was trained in both the
physical biochemistry of DNA and microbiology at Princeton and Northwestern
University, where he received his PhD. He carried out research on the
conformational changes in DNA associated with gene expression since the early
1970s. His lab performs studies of early development including embryonic
microsurgery and contemporary molecular biology including complex RT/PCR
cloning. This has led to contributions including the development of the means of
producing transgenic animals in 1979, the isolation and maintenance in culture
of embryo derived stem cell populations useful in transplantation biology and
medicine, as well as vehicles for cell-based gene therapy in 1987 and the
development of a highly efficient cytoplasmic T7 gene therapy vector in 1993.
Since 1998 he has focused his efforts as Director of the Oncology Research
Institute on the application of modern molecular and cellular biology to the
development of new therapies for the treatment of cancer. His work has been
presented in 203 publications and has produced over 30 patent applications,
resulting, to date, in the issuance of eight patents on his work. Dr. Wagner is
also currently Senior Examiner and Consultant, Research Grants Council, Hong
Kong; Advisor and Honorary Professor of Molecular Biology, Tsing Hua University,
Beijing; and Honorary Professor of Biology, National Hydrobiology Institute,
Chinese Academy of Sciences, Wuhan, China.

Shien Zhu has served as a Director since the Reorganization. Mr.
Zhu, a citizen of China, is Associate Professor and Master Director, involved in
post doctorate studies at Kochi University and Ehime University in Japan, he
majored in the area of early embryo vitrification freezing and transfer and of
mammal adoscuolation in embryo biotechnology. He invented a system of freezing
and preservation, not aided by a cooling frigorimeter, which is characterized by
low cost, simple operation and a high embryo survival rate. In recent years, he
has written more than 40 articles that were published in international and
domestic periodicals. Currently, he is undertaking vital "863" projects for
China and scientific research projects under the "Ninth Five-Year Plan" period.

James Q. Wang has served as a Director since the Reorganization.
Mr. Wang founded, and serves as President of, DNS Technologies Group Inc.
(Canada), an Internet technologies company involved in outsourcing between North
America and Asia. Mr. Wang began his professional career as an engineer with NEC
where he published a technical innovation proposal and was honored Awards of
Excellence at NEC's headquarters in Tokyo. Mr. Wang was transferred to the
marketing department of NEC where he was in charge of marketing and sales in
eastern region of Mainland China. Mr. Wang is a Canadian citizen and received
his Master of Applied Science from the University of Ottawa.

Executive Compensation

During the three years ended December 31, 2002, no executive officer
was paid compensation in excess of $100,000. Mr. Jijun Wu, who is the functional
equivalent of our Chief Executive Officer, was paid compensation totaling $7,299
during 2002.

Director Compensation

We reimburse our directors for expenses incurred in connection with
attending board meetings but do not otherwise compensate our directors for
serving in such capacity.

Board Committees

We do not presently maintain an audit committee or any other committee
of our board of directors. Because we do not presently maintain an audit
committee, we have no audit committee financial expert.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We, as well as our predecessor Eternal Technologies Group Ltd., have
periodically entered into transactions with various persons and/or entities that
may be deemed to be affiliates. In particular, our predecessor, Eternal
Technologies Group Ltd., entered into a number of transactions with Shang Jiaji,
or entities controlled by Shang Jiaji. Shang Jiaji is one of our principal
shareholders. All amounts that are due to or from officers, directors or
affiliated parties are unsecured, interest-free and are payable on demand.

In December 2000, Eternal Technologies Group sold 2,000 goat
embryos, and related services, to China Continental, Inc. for $425,000. China
Continental, in turn, implanted the embryos in 2,000 goats and, in March 2001,
sold the goats for approximately $1,687,000. In 2001, China Continental sold to
Eternal Technologies Group forage grass for $1,735,000. We, in turn, sold the
forage grass to a third party for $1,855,000. During 2002, Eternal Technologies
Group sold 3,000 goat embryos, and related services, to a subsidiary of China
Continental for approximately $600,000. All sales of products to and from China
Continental are believed to have been at prevailing market prices and on terms
substantially identical to the terms available to, or from, third parties. Shang
Jiaji is a principal shareholder of China Continental.

In July 2000, Eternal Technologies Group acquired from Shang Jiaji a
100% interest in Willsley Company Limited ("Willsley"), including its
wholly-owned subsidiary Inner Mongolia Aershan Agriculture & Husbandry
Technology Co., Ltd. ("Aershan"), the operator of a sheep and livestock breeding
center. The purchase price of Willsley consisted of $6,000,000 in cash. Shang
Jiaji's cost basis in Willsley was $6,000,000.

In 2002, Eternal Technologies Group entered into a series of
construction contracts with companies controlled by Shang Jiaji. Payments to
those companies totaled $985,530. No amounts were owing on those contracts at
December 31, 2002.

In 2001, Eternal Technologies Group entered into a contract with
Towering International Trade (US) Corp, an entity controlled by Shang Jiaji,
pursuant to which Towering International Trade would conduct a research and
development project on behalf of Eternal Technologies Group for payments
totaling $1,400,000. Payments totaling $400,000 relating to the research and
development project were made to Towering International Trade during 2002. At
December 31, 2002, $1,000,000 was owed to Towering International Trade and
services were ongoing under the contract.

In June 2002, we entered into an investor relations agreement with
Stoneside Development Limited pursuant to which investor relations services were
to be provided to us over a 24 month period. Payments for those services total
$10,000 per month. Stoneside Development is controlled by Thomas L. Tedrow, one
of our then principal shareholders and a former officer. In addition to the
monthly payments to Stoneside Development, we paid Mr. Tedrow a one time fee of
$90,000 for services in connection with the Reorganization. Total payments to
Mr. Tedrow and Stoneside Development during 2002 were $160,000.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of October 17, 2003,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock held by (i) each
person known by the Company to be the owner of more than 5% of the outstanding
shares of the Company's Common Stock, (ii) each director, (iii) each named
executive officer, and (iv) all executive officers and directors as a group:

Name and Address Number of Shares Percentage
of Beneficial Owner (1) Beneficially Owned (2) of Class
- ----------------------- ---------------------- ----------

Shang Jiaji (3) 9,190,190 32.7%

Jijun Wu (3) 2,205,000 7.9%

James Q. Wang (3) 2,182,950 7.8%

Jiansheng Wei 1,102,500 3.9%

Dr. Thomas E. Wagner 132,000 *

Dr. Wenli Yu 15,000 *

Shien Zhu 9,000 *

XingJian Ma 100 *

Garfield W. Hu 0 --

Shumei Pang 0 --

All executive officers and directors
as a group (10 persons) 8,039,716 28.6%
- ---------
* Less than 1%.
(1) Unless otherwise indicated, each beneficial owner has both sole voting
and sole investment power with respect to the shares beneficially owned
by such person, entity or group. The number of shares shown as
beneficially owned include all options, warrants and convertible
securities held by such person, entity or group that are exercisable or
convertible within 60 days of October 17, 2003.
(2) The percentages of beneficial ownership as to each person, entity or
group assume the exercise or conversion of all options, warrants and
convertible securities held by such person, entity or group which are
exercisable or convertible within 60 days, but not the exercise or
conversion of options, warrants and convertible securities held by
others shown in the table.
(3) Address is Suite 04-06, 28/F, Block A Innotec Tower, 235 Nanjing Road,
Heping District, Tianjin, PRC 300100.

SELLING SHAREHOLDERS

The selling shareholders are the holders of 1,749,288 shares of common
stock and 1,049,575 warrants purchased in September and October 2003 for
$1,530,625. Pursuant to the terms of the sale of those shares and warrants, we
entered into a Subscription Agreements with each of the selling shareholders
wherein we agreed to register for resale the shares purchased, including the
shares underlying the warrants.

The following table sets forth the number of shares owned by each of
the selling shareholders. Other than their purchase and ownership of the shares
offered herein, none of the selling shareholders has had any material
relationship with us within the past three years. We cannot give an estimate as
to the amount of shares that will be held by the selling shareholders after
completion of this offering because the selling shareholders may offer all or
some of the shares and because, to our knowledge, there currently are no
agreements, arrangements or understandings with respect to the sale of any of
the shares. The shares offered by this prospectus may be offered from time to
time by the selling shareholders named below.

Number of
Shares
Name and Relationship Number of Shares Registered for
of Selling Shareholder Beneficially Owned (1) Sale Hereby
- ---------------------- ---------------------- -----------

Alpha Capital Aktiengesellschaft 1,028,573 1,028,573
Greenwich Growth Fund Limited 392,500 392,500
Bristol Investment Fund Ltd. 428,573 428,573
Stonestreet LP 260,000 260,000
Platinum Partners Value Arbitrage Fund LP 257,144 257,144
Goldplate Investment Partners Ltd. 171,429 171,429
Congregation Mishkan Sholom 85,715 85,715
Max Povolotsky 59,038 59,038
Ernest Pellegrino 54,039 54,039
First Montauk Financial Corp. 43,589 43,589
Edward Craig Pitlake 13,263 13,263
Shrirang Jeurkar 5,000 5,000

- ---------------
(1) Shares indicated as beneficially owned include all warrants held by
such person, entity or group that are exercisable or convertible within
60 days of October 17, 2003. Warrants are held by each of the Selling
Shareholders to purchase the following shares of common stock, which
shares are included in the shares registered for sale hereby: Alpha
Capital Aktiengesellschaft - 342,858; Greenwich Growth Fund Limited -
42,500; Bristol Investment Fund Limited - 142,858; Platinum Partners
Value Arbitrage Fund LP - 85,715; Goldplate Investment Partners Ltd. -
57,143; Stonestreet LP - 175,000; Congregation Mishkan Sholom - 28,572;
Max Povolotsky - 59,038; Ernest Pellegrino - 54,039; First Montauk
Financial Corp. - 43,589; Edward Craig Pitlake - 13,263; and Shrirang
Jeukar - 5,000.

PLAN OF DISTRIBUTION

We are registering shares of our common stock on behalf of certain
selling shareholders. We will receive no proceeds from this offering. The
selling shareholders named in this prospectus or pledgees, donees, transferees
or other successors-in-interest selling shares received from a named selling
shareholder as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus may sell some or all of the shares
from time to time. REGISTRATION OF THE SHARES DOES NOT MEAN, HOWEVER, THAT THE
SHARES NECESSARILY WILL BE OFFERED OR SOLD. The selling shareholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The sales may be made on one or more exchanges or in the
over-the-counter market or otherwise, at prices and at terms then prevailing or
at prices related to the then current market price, or in negotiated
transactions. The selling shareholders may effect such transactions by selling
the shares to or through broker-dealers. The shares may be sold by one or more
of, or a combination of, the following:

- a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction,

- purchases by a broker-dealer as principal and resale by such
broker-dealer for its account pursuant to this prospectus,

- an exchange distribution in accordance with the rules of such exchange,

- ordinary brokerage transactions and transactions in which the broker
solicits purchasers, and

- in privately negotiated transactions.

To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In effecting
sales, broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate in the resales.

The selling shareholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
such transactions, broker-dealers may engage in short sales of the shares in the
course of hedging the positions they assume with selling shareholders. The
selling shareholders also may sell shares short and redeliver the shares to
close out such short positions. The selling shareholders may enter into option
or other transactions with broker-dealers that require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer such shares pursuant to this prospectus. The selling shareholders also
may loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may sell the pledged
shares pursuant to this prospectus.

Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling shareholders. Broker-dealers
or agents may also receive compensation from the purchasers of the shares for
whom they act as agents or to whom they sell as principals, or both.
Compensation as to a particular broker-dealer might be in excess of customary
commissions and will be in amounts to be negotiated in connection with the sale.
Broker-dealers or agents and any other participating broker-dealers or the
selling shareholders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933 in connection with sales of the
shares. Accordingly, any such commission, discount or concession received by
them and any profit on the resale of the shares purchased by them may be deemed
to be underwriting discounts or commissions under the Securities Act. Because
selling shareholders may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, the selling shareholders will be subject to
the prospectus delivery requirements of the Securities Act. In addition, any
securities covered by this prospectus that qualify for sale pursuant to Rule 144
promulgated under the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus. To our knowledge, the selling shareholders have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities.

The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Securities and
Exchange Act of 1934, any person engaged in the distribution of the shares may
not simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of such
distribution. In addition, each selling shareholder will be subject to
applicable provisions of the Exchange Act and the associated rules and
regulations under the Exchange Act, including Regulation M, which provisions may
limit the timing of purchases and sales of shares of our common stock by the
selling shareholders. We will make copies of this prospectus available to the
selling shareholders and we have informed them of the need for delivery of
copies of this prospectus to purchasers at or prior to the time of any sale of
the shares.

We will file a supplement to this prospectus, if required, pursuant to
Rule 424(b) under the Securities Act upon being notified by a selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer. Such supplement will disclose:

- the name of each such selling shareholder and of the participating
broker-dealer(s),

- the number of shares involved,

- the price at which such shares were sold,

- the commissions paid or discounts or concessions allowed to such broker-
dealer(s), where applicable,

- that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this prospectus,
and

- other facts material to the transaction.

We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling shareholders will bear all commissions
and discounts, if any, attributable to the sales of the shares. The selling
shareholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.

DESCRIPTION OF SECURITIES

General

Our authorized capital stock consists of 95,000,000 shares of common
stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par
value $0.001 per share. The following summary of the material matters relating
to our common stock is qualified in its entirety by reference to our certificate
of incorporation and bylaws.

Common Stock

As of October 17, 2003, there were 28,074,891 shares of our common
stock outstanding.

The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of our shareholders, including
the election of directors, and do not have cumulative voting rights. Holders of
our common stock are entitled to receive ratably such dividends, if any, as may
be declared by our board of directors out of legally available funds. Upon our
liquidation, dissolution or winding up, the holders of our common stock will be
entitled to share ratably in the net assets legally available for distribution
to our shareholders after the payment of all our debts and other liabilities.
The holders of our common stock have no preemptive or conversion rights or other
subscription rights and there are no redemption or sinking fund provisions
applicable to our common stock. All outstanding shares of our common stock are
fully paid and nonassessable.

Preferred Stock

Our board of directors has the authority, without further action by our
shareholders, to provide for the issuance of our preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers and
relative, participating, optional or other special rights and the qualifications
or restrictions on such rights. The preferences, powers, rights and restrictions
of different series of our preferred stock may differ with respect to dividend
rates, amounts payable on liquidation, voting rights, conversion rights,
redemption provisions, sinking fund provisions and purchase funds and other
matters. The issuance of a series of our preferred stock could decrease the
amount of earnings and assets available for distribution to holders of our
common stock or affect adversely the rights and powers, including voting rights,
of the holders of our common stock, and may have the effect of delaying,
deferring or preventing a change in control of us.

As of October 17, 2003, no shares of our preferred stock were
outstanding.

Warrants

As of October 17, 2003, we had outstanding 1,049,575 warrants to
purchase shares of our Common Stock. Each of the warrants is exercisable to
purchase one share of Common Stock at a price of $1.34 per share. The warrants
are exercisable for a period of five years with expiration dates ranging from
September 4, 2008 to October 8, 2008. The warrants include certain registration
rights and cashless exercise provisions.

Provisions Having Possible Anti-Takeover Effects

Our articles of incorporation and the bylaws contain provisions that
could have an anti-takeover effect. These provisions may discourage certain
types of transactions that may involve an actual or threatened change of control
of Eternal Technologies Group, Inc.

Our board of directors has broad powers to fix by resolution the
powers, preferences and rights of any new series of preferred stock. This power
could be used to create a class of preferred stock that, because of its rights,
could discourage a potential takeover. Additionally, our bylaws give the board
of directors power to fill vacancies on the board, other than vacancies created
by removal without cause, without shareholder approval. As a result, an
incumbent board, not a potential bidder, would have control over board positions
in the period between annual meetings of shareholders.

Transfer Agent

The transfer agent for our common stock is OTC Stock Transfer, Inc., of
Salt Lake City, Utah.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
us by Vanderkam & Associates, Houston, Texas. Hank Vanderkam, a principal of
Vanderkam & Associates owns, directly or indirectly, 707,000 shares of our
common stock.

EXPERTS

Our audited consolidated financial statements included in this
prospectus and elsewhere in the registration statement to the extent and for the
periods indicated in their reports have been audited by Thomas Leger & Co.,
L.L.P., independent public accountants, and are included herein in reliance upon
the authority of said firm as experts giving said reports.

On January 10, 2003, our auditors, Andersen Andersen & Strong, LC
advised us that they would be unable to continue to act as our independent
accounting firm.

Andersen Andersen & Strong's audit report on our financial
statements as of December 31, 2001, and for the two years ended December 31,
2001, contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles
although it did contain a going concern qualification.

During our two most recent fiscal years and any subsequent interim
period preceding the resignation of Andersen Andersen & Strong, there were no
disagreements with Andersen Andersen & Strong on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s) if not resolved to the satisfaction of Andersen
Andersen & Strong, would have caused Andersen Andersen & Strong to make
reference to the subject matter of the disagreement(s) in connection with its
report.

During our two most recent fiscal years and any subsequent interim
period preceding the resignation of Andersen Andersen & Strong, there have been
no reportable events of the type required to be disclosed by Item 304(a)(1)(v)
of Regulation S-K.

On January 10, 2003, we engaged Thomas Leger & Co. L.L.P. as our new
independent accountants. Prior to the engagement of Thomas Leger, we did not
consult with such firm regarding the application of accounting principles to a
specific completed or contemplated transaction, or any matter that was either
the subject of a disagreement or a reportable event. Further, we did not consult
with Thomas Leger regarding the type of audit opinion that might be rendered on
our financial statements and no oral or written report was provided by Thomas
Leger.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form SB-2. This
prospectus, which forms a part of the registration statement, does not contain
all the information included in the registration statement. Certain information
is omitted and you should refer to the registration statement and its exhibits.
With respect to references made in this prospectus to any of our contracts or
other documents, such references are not necessarily complete and you should
refer to the exhibits attached to the registration statement for copies of the
actual contract or document. We are required to file annual, quarterly and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's public reference facilities in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants, such as us, that file electronically with the SEC.

We intend to furnish each holder of our common stock annual reports
containing audited financial statements and a report thereon by independent
certified accountants. We will also furnish to each holder of our common stock
such other reports as may be required by law.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

As permitted by the Nevada Revised Statutes, our articles of
incorporation include, subject to the limitations described below, a provision
that would limit or eliminate our directors' liability for monetary damages for
breaches of their fiduciary duties. A director's liability cannot be limited or
eliminated for:

o breaches of the duty of loyalty;

o acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;

o the payment of unlawful dividends or expenditure of funds
for unlawful stock purchases or redemptions; or

o transactions from which the director derived an improper
personal benefit.

In addition, the limitation of liability provisions may not restrict a
director's liability for violation of, or otherwise relieve the corporation or
its directors from, the necessity of complying with federal or state securities
laws or affect the availability of nonmonetary remedies such as injunctive
relief or rescission.

Our articles of incorporation provide that we shall, to the extent
legally permissible, indemnify each of our former or present directors or
officers against all liabilities and expenses imposed upon or incurred by any of
them in connection with, or arising out of, the defense or disposition of any
action, suit or other proceeding, civil or criminal, in which he may be
threatened or involved, by reason of his having been a director or officer, if
it is determined that he acted in good faith and reasonably believed:

o in the case of conduct in his official capacity on our
behalf that his conduct was in our best interests;

o in all other cases, that his conduct was not opposed to
our best interests; and

o with respect to any proceeding which is a criminal action,
that he had no reasonable cause to believe his conduct was
unlawful.

The termination of any proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself be determinative of whether the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to our best
interests, and, with respect to any proceeding which is a criminal action, had
no reasonable cause to believe that his conduct was unlawful.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Eternal
Technologies Group pursuant to the foregoing provisions, or otherwise, we are
aware that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable

Item 25. Other Expenses of Issuance and Distribution.

The following is a list of the estimated expenses to be incurred, all
of which will be paid by the Registrant, in connection with the preparation and
filing of this Registration Statement.

SEC Registration Fee $ 253.60
Printing and Engraving 1,000.00
Accountants' Fees and Expenses 10,000.00
Legal Fees and Expenses 40,000.00
Other Offering Expenses 746.40
-----------

TOTAL $ 52,000.00
===========
Item 26. Recent Sales of Unregistered Securities.

The Registrant has sold the following securities within the past three
years that were not registered under the Securities Act of 1933:

In January 2001, we issued 7,000,000 shares of common stock to Thomas
Tedrow as consideration for the acquisition of Waterford Florida, Inc.

In December 2002, we issued an aggregate of 22,050,000 shares of common
stock to the 38 shareholders of Eternal Technologies Group, Ltd. as
consideration for the acquisition of Eternal Technologies Group, Ltd.

Between March 2003 and August 2003, we issued 979,505 shares of common
stock to various non-U.S. investors for $277,304.84.

In September and October 2003, we issued 1,749,288 shares of common
stock and 874,644 warrants to seven accredited investors for $1,316,643.75.

The issuances of shares between March 2003 and August 2003 were made
exclusively to foreign persons with no U.S. selling efforts pursuant to the
provisions of Regulation S.

The issuance of all other shares of our common stock described above
was pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended and related state private offering
exemptions. All of the investors were Accredited Investors as defined in the
Securities Act who took their shares for investment purposes without a view to
distribution and had access to information concerning the Company and its
business prospects, as required by the Securities Act.

In addition, there was no general solicitation or advertising for the
purchase of our shares. All certificates for our shares issued pursuant to
Section 4(2) contain a restrictive legend. Finally, our stock transfer agent has
been instructed not to transfer any of such shares, unless such shares are
registered for resale or there is an exemption with respect to their transfer.

Commissions in the amount of $198,981 were paid, and warrants to
purchase 174,931 shares of our common stock were issued, to First Montauk
Securities Corp. in connection with the issuances described above.

Item 27. Exhibits.

Number Description of Exhibit

2.1* Exchange Agreement by and between Waterford Sterling
Corporation and Eternal Technology Group Ltd. dated
December 12, 2002 (incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K dated
December 12, 2002, filed with the SEC on December 18,
2002).

3.1** Articles of Incorporation.

3.2* Articles of Amendment, dated December 31, 2002, to the
Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K
dated December 12, 2002, filed with the SEC on December
18, 2002).

3.3** Bylaws of Eternal Technologies Group, Inc. adopted
December 12, 2002.

5.1** Form of Opinion and Consent of Vanderkam & Associates,
regarding legality of shares issued.

10.1* Research Contract with Shen Yang Institute of Applied
Ecology of the Chinese Academy of Science. (incorporated
by reference to Exhibit 10.1 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2002)

10.2* Research Contract with Tower International Trade Corp.
(incorporated by reference to Exhibit 10.2 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 2002)

10.3* Purchase Agreement wtih Shang Jai Ji dated July 15, 2000
for the purchase of the Shares of Willsley Company Limited
(incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 2002)

10.4* Amendment to the Purchase Agreement with Shang Jai Ji
dated July 15, 2000 for the Purchase of the Shares of
Willsley Company Limited (incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2002)

10.5** Form of Subscription Agreement relating to 2003 Placement of
Common Stock.

10.6 Form of Placement Agreement with First Montauk Securities Corp.

10.7** Form of Warrant Agreement.

23.1** Consent of Thomas Leger & Co., LLP

23.2** Consent of Vanderkam & Associates (included in Exhibit 5.1)
- -----------------
* Previously filed
** Filed herewith

Item 28. Undertakings.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:

(i) Include any prospectus required by Section
10(a)(3) of the Act;

(ii) Reflect in the prospectus any facts or
events arising after the effective date of
the registration statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the registration
statement; and

(iii) Include any material information with
respect to the plan of distribution not
previously disclosed in the registration
statement or any material change to such
information in the registration statement.

(2) That, for the purpose of determining any liability under
the Act, each post-effective amendment to the registration
statement shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and

(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Tianjin, China, on the
22nd day of October, 2003.

ETERNAL TECHNOLOGIES GROUP, INC.

By: /s/ JIJUN WU
-------------------------
JIJUN WU, President

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

Signatures Title Date

/s/ Jijun Wu Chairman of the Board and October 22, 2003
- -------------------- President (Principal Executive
Jijun Wu Officer)

/s/ Jiansheng Wei Chief Operation Officer and October 22, 2003
- -------------------- Director
Jiansheng Wei

/s/ XingJian Ma Chief Financial Officer (Principal October 22, 2003
- --------------------
XingJian Ma Financial and Accounting Officer)

/s/ Thomas E. Wayne Director October 22, 2003
- --------------------
Thomas E. Wayne

/s/ Shien Zhu Director October 22, 2003
- --------------------
Shien Zhu

/s/ James Q. Wang Director October 22, 2003
- --------------------
James Q. Wang

ETERNAL TECHNOLOGIES GROUP, INC.
Index to Financial Statements

Independent Auditors Report.......................................... F-1
Balance Sheet as of December 31, 2002 and 2001....................... F-2
Statements of Operations For the Years ended December 31, 2002
and 2001............................................................ F-3
Statements of Shareholders' Equity For the Years Ended
December 31, 2002 and 2001.......................................... F-4
Statements of Cash Flows For the Years Ended December 31,
2002 and 2001....................................................... F-5
Notes to Financial Statements........................................ F-6

Balance Sheet as of June 30, 2003 (Unaudited)........................ F-18
Statements of Loss For the Six Months Ended
June 30, 2003 and 2002 (Unaudited).................................. F-19
Statements of Cash Flows For the Six Months Ended
June 30, 2003 and 2002 (Unaudited).................................. F-20
Notes to Unaudited Financial Statements.............................. F-21

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders
of Eternal Technologies Group, Inc.

We have audited the accompanying consolidated balance sheets of Eternal
Technologies Group Inc. (a British Virgin Islands corporation) and subsidiaries
as of December 31, 2002 and 2001, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the years ended
December 31, 2002 and 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards required that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of Eternal Technology
Group, LTD. and subsidiaries as of December 31, 2002 and 2001, and the results
of their operations and their cash flows for the years ended December 31, 2002
and 2001 in conformity with accounting principles generally accepted in the
United States of American.

/s/ Thomas Leger and Co., LLP

Thomas Leger and Co., LLP
Houston, Texas

April 24, 2003

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)

ASSETS

2002 2001
------------- -------------

CURRENT ASSETS
Cash and bank balances $ 7,135,559 $ 7,753,452
Inventories 232,401 285,576
Accounts receivable 4,483,855 2,712,506
Receivable due from related company 518,212 -
Receivable due from
related parties - 456,052
Prepayments and deposits 146,715 164,841
-------------- --------------

TOTAL CURRENT ASSETS 12,516,742 11,372,427

FIXED ASSETS (net of accumulated depreciation) 4,226,603 3,971,773
CONSTRUCTION IN PROGRESS 4,658,697 3,619,652
ESTIMATED FUTURE CONSTRUCTION COST UNDER CONTRACT 1,000,000 1,000,000
LAND USE RIGHTS
(net of accumulated amortization of $558,620
in 2002 and $310,345 in 2001) 5,441,380 5,689,655
-------------- --------------

TOTAL ASSETS $ 27,843,423 $ 25,653,507
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable for construction $ 348,193 $ 2,557,616
Notes payable 782,733 -
Estimated payable for construction contracts
not invoiced 1,000,000 1,000,000
Accounts payable and accrued expenses 711,572 273,695
Payable to related company 156,265 1,715,663
Amounts due to related parties 291,193 1,571,745
-------------- --------------

TOTAL CURRENT LIABILITIES 3,289,956 7,118,719
-------------- --------------

SHAREHOLDERS' EQUITY
Preferred shares - 5,000,000 authorized $.001 par -
none issued - -
Common shares - 95,000,000 and 50,000 shares
authorized at $.001 and $1.00 par - 25,531,316 and
1,000 shares issued and outstanding at December
31, 2002 and 2001 respectively 25,531 1,000
Paid - in capital 5,825,735 6,644,071
Retained earnings 18,702,201 11,889,717
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 24,553,467 18,534,788
-------------- --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 27,843,423 $25,653,507
============== ==============

F-2

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)

2002 2001
------------ -------------

SALES $ 12,640,964 $ 11,446,361

COST OF SALES 2,752,811 3,852,386
------------- --------------

GROSS PROFIT 9,888,153 7,593,975

DEPRECIATION AND AMORTIZATION 862,052 845,716

SELLING AND ADMINISTRATIVE EXPENSES 1,213,617 937,971

RESEARCH AND DEVELOPMENT COST 1,000,000 -
------------- --------------

NET INCOME BEFORE INCOME TAXES 6,812,484 5,810,288

INCOME TAXES - -

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

NET INCOME $ 6,812,484 $ 5,810,288
============= ===============

EARNINGS PER SHARE
Basic and diluted
Net income $ 0.27 $ 0.23
============= ===============

Weighted average number of common
shares outstanding
Basic and diluted 25,289,600 25,531,316
============= ===============

Note
* Number of shares outstanding the date of the merger for comparison only.

F-3

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)

Common Common
Stock Stock Paid - in Retained
Share Amount Capital Earnings Total
-------------- ------------- ------------- -------------- -------------

Balance, December 31, 2000 13,887,815 $ 138,878 $1,159,967 $ (745,762) $ 553,083

Issuance of common stock
during 2001:
Debts settled and expenses
paid at $.04 7,000,000 70,000 193,082 - 263,082
Non-temporary loss on
securities - - - (630,500) (630,500)
Net change in unrealized
gain (loss) on securities - - - 200,000 200,000
Net loss year ended
December 31, 2001 - - - (784,070) (784,070)
-------------- ------------- ------------- -------------- -------------
*Balance, December 31, 2001 20,887,815 208,878 1,353,049 $ (1,960,332) $ (398,405)

Reverse split 1:6 par $.001
December 12, 2002 (17,406,499) (205,397) 205,397 -
Capitalization for merger
December 12, 2002 22,050,000 22,050 4,267,289 13,850,049 18,139,388
Net income year ended
December 12, 2002 - - - 6,812,484 6,812,484
-------------- ------------- ------------- -------------- -------------
Balance December 31, 2002 25,531,316 $ 25,531 $5,825,735 $18,702,201 $24,553,467
============== ============= ============= ============== =============

* See note 1. Organization and Principal Activities Waterford Sterling
Corporation prior to merger.

F-4

FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
(UNITED STATES DOLLARS)

2002 2001
------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,812,484 $ 5,810,288
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 862,052 845,716
(Increase) decrease in assets:
Inventories 53,175 630,087
Accounts receivable (1,771,349) (2,043,136)
Receivable due from related company (518,212) -
Receivable due from related parties 456,052 231,987
Prepayments and deposits 18,126 (137,251)
Increase (decrease) in liabilities:
Accounts payable for construction work (2,209,423) 197,760
Accounts payable and accrued expenses 412,517 122,875
Deposit for future delivery - (385,542)
Amounts advanced by related parties (1,280,552) 967,765
Account payable to related company (1,559,398) 1,715,663
Estimated payable for construction - 1,000,000
------------- ---------------

Net cash provided by operating activities 1,275,472 8,956,212
------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (854,320) (247,260)
Construction in progress (1,039,045) (83,399)
Estimated future construction costs - (1,000,000)
------------- ---------------

Notes payable (1,893,365) (1,330,659)
------------- ---------------

NET INCREASE IN CASH AND
BANK BALANCES (617,893) 7,625,553

Cash and bank balances, beginning of period 7,753,452 127,899
------------- ---------------

Cash and bank balances, at end of period $7,135,559 $ 7,753,452
============= ===============

SUPPLEMENTARY CASH FLOWS DISCLOSURES

1. Interest paid - -
Taxes paid - -

2. During 2002 stock was issued pursuant to an exchange agreement. The following
amounts represent the non-cash portion of the transaction:

Accrued expenses $ (25,360)
Notes payable (782,733)
----------------
$ (808,093)
================
F-5

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
- --------------------------------------------------------------------------------

NOTES

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

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 own approximately 85% of the issued and
outstanding common shares of Eternal Technologies Group Inc.

Eternal Phoenix Company Limited was incorporated in the British
Virgin Islands with limited liability on March 3, 2000. Pursuant
to a resolution passed on June 17, 2000 Eternal Phoenix Company
Limited changed its name to ETERNAL TECHNOLOGY GROUP LTD.,
("Eternal"). Eternal is a holding company for investments in
operating companies.

Eternal acquired a 100% equity interest in Willsley Company
Limited ("Willsley"), a company incorporated in the British Virgin
Island with limited liability on May 16, 2000.

Willsley's principal activity is investments and owns 100%
interest in Inner Mongolia Aershan Agriculture & Husbandry
Technology Co., Ltd ("Aershan").

Aershan was incorporated in the People's Republic of China ("the
PRC") with limited liability on July 11, 2000 and its principal
activities are to run a breeding center, transplant embryos, and
to propagate quality meat sheep and other livestock breeds in
Inner Mongolia.
F-6

2. BASIS OF PRESENTATION

The consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the
United States of America. This basis of accounting differs from
that used in the statutory financial statements of the
subsidiaries which are prepared in accordance with the accounting
principles generally accepted in the relevant country. There were
no material adjustments.

Certain amounts in 2001 have been reclassified to permit
comparison to 2002 amounts.

3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Basis of consolidation
The consolidated financial statements of the Company include the
Company and its wholly owned subsidiaries. All material
Intercompany balances and transactions have been eliminated.

Economic and political risks
The Company faces a number of risks and challenges since its main
operations are in the PRC.

Cash and cash equivalents
The Company considers cash and cash equivalents to include cash on
hand and demand deposits with banks with an original maturity of
three months or less.

The Company maintains no accounts in the United States of America.
All cash and cash equivalents, approximately $7,135,559, was
restricted by the Company for operations in the PRC.
F-7

Accounts receivable
No allowance for doubtful accounts has been established, as
management believes all amounts are collectible.

Inventory
Inventories are measured at lower of cost and net realizable value
using the first-in first-out ("FIFO") or weighted average cost
formulas.

Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation.
Depreciation of fixed assets is calculated on the straight-line
basis to write off the cost less estimated residual value of each
asset over its estimated useful life. The principal annual rates
used for this purpose are as follows:

Buildings 2%-4%
Furniture and fixtures 20%
Office equipment 20%
Motor vehicles 20%

In accordance with the Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of ", the Company
examines the possibility of decreases in the value of fixed assets
when events or changes in circumstances reflect the fact that
their recorded value may not be recoverable.

Land lease rights and amortization
Land lease rights in Mainland China were stated at cost less
accumulated amortization. Amortization of land lease rights was
calculated on the straight-line basis over the lesser of its
estimated useful life or the lease term. The principal annual rate
used for amortization is 2%.
F-8

Income taxes
Income taxes are determined under the liability method as required
by Statement by Statement of Financial Accounting Standard No.109,
"Accounting for Income Taxes". The Company's current operations
are currently exempt from taxation.

Foreign currency translation
The Company maintains no accounts in currency of the United States
of America.

One of the subsidiaries maintains their books and accounts in
Peoples Republic of China currency, which is called Renminbi
("RMB"). Translation of all assets and liabilities of amounts from
RMB into US$ has been made at the single rate of exchange on
December 31, 2002 and 2001 of US 1.00: RMB 8.30. No representation
is made the RMB amounts could have been, or could be, converted
into US$ at that rate on December 31, 2002 or 2001 or at any other
date.

On January 1, 1994, the PRC government introduced a single rate of
exchange as quoted daily by the People's Bank of China (the
"Unified Exchange Rate").

The quotation of the exchange rates does not imply free
convertibility of RMB to other foreign currencies. All foreign
exchange transactions continue to take place either through the
Bank of China or other banks authorized to buy and sell foreign
currencies at the exchange rates quoted by the People's Bank of
China. Approval of foreign currency payments by the Bank of China
or other institutions requires submitting a payment application
form together with invoices, shipping documents and signed
contracts.
F-9

Revenue recognition
Revenue from the sale of livestock, embryos, forage grasses and
raw materials is recognized when the merchandise is delivered to
the customer and title passes.

Research and development
Research and development costs are charged to operations as
incurred.

Employees' benefits
Mandatory contributions are made to the Government's health,
retirement benefit and unemployment schemes at the statutory rates
in force during the period, based on gross salary payments. The
cost of these payments is charged to the statement of income in
the same period as the related salary cost.

Use of estimates
The preparation of consolidated financial statements requires
management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.

Earnings per share
The Company has adopted SFAS No. 128, "Earnings Per Share". Under
SFAS 128, basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of
common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is increased
to include the number of additional common shares that would have
been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive.
F-10

Per share amounts and shares have been adjusted for the 6 to 1
reverse stock split on December 12, 2002.

Recent pronouncements
In July 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain costs
Incurred in a Restructuring). SFAS 146 requires recognition of a
liability for a cost associated with an exit or disposal activity
when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. SFAS 146 is to be
applied prospectively to exit or disposal activities initiated
after December 31, 2002. The Company does not believe that the
adoption of SFAS 146 will have a material effect on the Company's
financial position, results of operations, or cash flows.

In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations". The statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The statement is effective for the Company in
fiscal 2003. The Company does not expect the adoption of SFAS 143
to have a material impact on the Company's future results of
operations or financial position.

In August 2001, the FASB issued SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement
supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of",
and the accounting and reporting provisions of APB Opinion 30,
"Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and infrequently Occurring Events and Transactions", for the
disposal of a segment of a business. The statement is effective
for the Company in fiscal 2003. The Company does not expect the
adoption of SFAS 144 to have a material impact on the Company's
future results of operations or financial position.
F-11

In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. SFAS 145 eliminates the requirement to
classify gains and losses from extinguishments of indebtedness as
extraordinary, requires certain lease modifications to be treated
the same as a sale-leaseback transaction, and makes other
non-substantive technical corrections to existing pronouncements.
SFAS 145 is effective for fiscal years beginning after May 15,
2002, with earlier adoption encouraged. The Company is required to
adopt SFAS 145 effective January 2003. The Company does not
believe that the adoption of SFAS 145 will have a material effect
on the Company's financial position, results of operations, or
cash flows.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS 148
amends SFAS 123 "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to
the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS 148 is effective for
fiscal years beginning after December 15, 2002. The interim
disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after
December 15, 2002. The Company does not expect the adoption of SFAS
148 to have a material effect on our financial position, results of
operations, or cash flows.
F-12

4. FIXED ASSETS
Fixed assets are comprised of the following at December 31:

2002 2001
----- -----
Infrastructure $ 226,506 $ 81,928
Buildings 3,428,537 2,519,277
Equipment 1,265,961 1,225,200
Other 626,506 826,024
------------ ------------
5,547,510 4,652,429
Accumulated Depreciation (1,320,907) (680,656)
------------ ------------
$ 4,226,603 $ 3,971,773
============ ============

5. NOTES PAYABLE
Balance at December 31, 2002:

Promissory note to Market Management LLC, due December 11, 2005,
interest payments are due semi-annually commencing 180 days after
the date of the note (December 11, 2002) at 8% per annum. $616,753

Promissory note to Thomas I. Tedrow due December 11, 2005,
interest payments are due semi- Annually commencing 180 days
after the date of the
note (December 11, 2002) at 8% per annum. 165,980
-------
$782,733

Each of the notes listed above are repayable from the first dollars
received from any proceeds of any offering subsequent to the
acquisition of Eternal Technologies Group Ltd. or at the option of
the Lender, convertible into post reverse split common shares at a
rate equal to the mean of the high and low share price as of the
first date that the shares begin trading subsequent to the
acquisition.
F-13

The Company is performing additional detailed review of all
expenditures prior to the merger. The balances of the notes are
subject to change pending the outcome of the review of these
expenditures.

6. INCOME TAXES

The companies operate 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 financial statements.

Under current law of the British Virgin Islands, any dividends and
capital gains arising form 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 provide certain exemptions from taxation.
Aershan should be exempt from taxation. Accordingly, no PRC
corporate taxes have been provided in these financial statements.

7. CONCENTRATION OF CREDIT RISKS

Financial instruments which potentially subject the Group to a
concentration of credit risk principally consist of cash deposits,
trade receivables, long-term receivable and the amounts due from
and to directors and related companies.

(i) Cash deposits
The Group places it cash deposits with an international bank.

(ii) Amounts due from related companies The Company does not
have a policy of requiring collateral.
F-14

(iii) Amounts due from and to directors (See "Additional
related party balances and transactions")

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of financial instruments are set out as follows
(i) Cash deposits The cash deposits are stated at cost, which
approximates market value.
(ii) Trade receivables, other receivables and amounts due from
directors and related companies Trade receivables, other
receivables and the amounts due from related companies and
directors are stated at their book value less provision for
doubtful debts, which approximates the fair value.
(iii) Accounts payable and amounts due to related companies and
directors are stated at their book value which approximates their
fair value.

9. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Company's operations are conducted in the PRC. Accordingly,
the Company's business, financial condition and results of
operations may be influenced by the political, economic and legal
environments in the PRC, and by the general state of the PRC
economy.

The Company's operations in the PRC are subject to special
considerations and significant risks not typically associated with
companies in North America and Western Europe. These include risks
associated with, among others, the political, economic and legal
environments and foreign currency exchange. The Company's results
may be adversely affected by changes in the political and social
conditions in the PRC, and by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures,
currency conversion and remittance abroad, and rates and methods
of taxation, among other things.
F-15

10. ADDITIONAL RELATED PARTY BALANCES AND TRANSACTIONS

The Company's amounts due from/(to) directors, related parties,
and related company are unsecured, interest-free and are repayable
on demand. China Continental, Inc. ("CCI") is a related company.
One of the Company's officers, directors and major shareholder
(Shang Jia Ji) owns more than 10% of CCI and Towering
International Trade (US) Corp.

CCI acquired 2,000 goat embryos and services from Eternal for
US$425,000 in December, 2000. CCI's 2,000 goats with implanted
embryos were sold in March, 2001 for approximately US$1,687,000.

CCI had sales of forage grass to Eternal for approximately
US$1,735,000 during 2001. These purchases were at the same price
as to third parties. The forage grass was sold to a third party
for $1,855,000.

Eternal sold 3,000 goat embryos and services to a subsidiary of
CCI for approximately US$600,000 during 2002.

Eternal acquired 100% interest in Aershan in a transaction valued
at $6,000,000 from Shang Jia Ji. The $6,000,000 represents Shang
Jia Ji's cost.

Eternal entered into various construction contracts with companies
controlled by Shang Jai Ji. The contracts totaled approximately
$985,530. This amount was paid in full by December 31, 2002.

The Company entered into a contract with Towering International
Trade (US) Corp during 2001 for a research and development project
totaling $1,400,000. No payments were made in 2001. During 2002,
$400,000 was paid on this contract.

The Company entered into an ivestor relations agreement with
Stoneside Development Limited ("Stoneside"). Stoneside is
controlled by Thomas L. Tedrow. The agreement is for $10,000 per
month for twenty-four months commencing June 2002. Thomas L.
Tedrow also received a $90,000 fee from the Company.

F-16

11. MAJOR CUSTOMERS

The Company purchases and sells livestock whose purchases and
sales exceed 10% of total purchases and sales.

Purchases: 2002 2001
---- ----
Company A - 16%
Company B 40% 31%
Company C - 43%
Company D 40% -
Sales:
Company E 49% 84%
Company F - 16%
Company G 44% -
12. CONTINGENCIES AND COMMITMENTS

The Company is committed to various entities for certain research
and development projects. These commitments totaled $1,600,000 and
$2,600,000 at December 31, 2002 and 2001.

F-17

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2003 (UNAUDITED)
(UNITED STATES DOLLARS)

ASSETS

JUNE 30 December 31
2003 2002
----------- -----------

(Unaudited) (Audited)
CURRENT ASSETS
Cash and bank balances $ 11,727,651 $ 7,135,559
Inventories 232,401 232,401
Accounts receivable - 4,483,855
Receivable due from related company 522,212 518,212
Prepayments and deposits 149,607 146,715
------------ -----------
TOTAL CURRENT ASSETS 12,631,871 12,516,742

FIXED ASSETS
(net of accumulated depreciation of
$1,623,677 in 2003 and $1,320,907 in 2002 3,923,833 4,226,603
CONSTRUCTION IN PROGRESS 4,658,697 4,658,697
ESTIMATED FUTURE CONSTRUCTION COST UNDER
CONTRACT 1,000,000 1,000,000
LAND USE RIGHTS
(net of accumulated amortization of
$682,788 in 2003 and $558,620 in 2002) 5,317,212 5,441,380
------------ ----------
TOTAL ASSETS $ 27,531,613 $27,843,422
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable for construction $ 348,193 $ 348,193
Notes payable 782,733 782,733
Estimated payable for construction
contracts not invoiced 1,000,000 1,000,000
Accounts payable and accrued expenses 789,658 711,572
Payable to related company 151,379 156,265
Amounts due to related parties 321,583 291,193
----------- -----------

TOTAL CURRENT LIABILITIES 3,393,546 3,289,956
SHAREHOLDERS' EQUITY

Preferred shares - 5,000,000 authorized
$.001 par - none issued - -
Common shares - 95,000,000 shares authorized,
At $.001 par, 26,177,046 and 25,531,316 shares
issued and outstanding at June 30, 2003 and
December 31, 2002, respectively 26,177 25,531
Paid - in capital 6,012,325 5,825,735
Retained earnings 18,099,565 18,702,200
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 24,138,067 24,553,466
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $27,531,613 $27,843,422
============ ===========

F-18

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNITED STATES DOLLARS)

Three Months Ended Six Months Ended
June 30 June 30
----------------------- -------------------------
2003 2002 2003 2002
------- ------ ------ ------
(Unaudited) (Unaudited)(Unaudited) (Unaudited)

SALES $ 91,084 $ 240,963 $ 119,460 $ 843,373

COST OF SALES - 120,481 - 436,467
--------- --------- --------- ---------
GROSS PROFIT 91,084 120,482 119,460 406,906

DEPRECIATION AND AMORTIZATION 213,469 288,267 426,938 436,607
RESEARCH AND DEVELOPMENT COSTS - - - 1,000,000
SELLING AND ADMINISTRATIVE
EXPENSES 161,147 361,526 295,157 428,973
---------- --------- --------- ----------
NET LOSS BEFORE INCOME TAXES (283,532) (529,311) (602,635) (1,458,674)

INCOME TAXES - - - -
---------- --------- --------- ----------
NET LOSS $ (283,532) $ (529,311) $(602,635) $(1,458,674)
========== ========= ========= ==========
EARNINGS PER SHARE
Basic and diluted
Net loss $ (0.01) $ (0.02) $ (0.02) $ (0.06)

Weighted average number of common
shares outstanding
Basic and diluted 26,119,233 25,531,316 * 25,892,971 25,531,316
========= ============ ========== ==========

Note
*Number of shares outstanding the date of the merger for comparison only.

F-19

ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNITED STATES DOLLARS)

June 30
----------------------------------
2003 2002
-------- --------

(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (602,635) $(1,458,674)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortizatio 426,938 436,607
(Increase) decrease in assets:
Inventories - (190,038)
Accounts receivable 4,483,855 1,975,904
Receivable due from related parties (4,000) 68,218
Prepayments and deposits (2,892) 18,192
Increase (decrease) in liabilities:
Accounts payable for construction work - (2,557,615)
Accounts payable and accrued expenses 78,086 94,843
Amounts advanced by related parties 30,390 64,500
Account payable to related company (4,886) (1,715,663)
-------- ------------

Net cash provided by operating
activities 4,404,856 (3,263,726)
---------- ------------

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets - (905,665)
Construction in progress - (639,510)
---------- -----------
Net cash used by investing activities - (1,545,175)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVIES
Issuance of capital shares 187,236 9,000
---------- -----------
NET INCREASE IN CASH AND
BANK BALANCES 4,592,092 (4,799,901)

Cash and bank balances, beginning
of period 7,135,559 7,753,452
----------- ------------

Cash and bank balances, at end
of period $11,727,651 $2,953,551
=========== ============
SUPPLEMENTARY CASH FLOWS DISCLOSURES

1. Interest paid - -
Taxes paid - -

2. During the six months ended June 30, 2003, 645,730 shares were issued. Cost
associated with the issues were $94,153.

F-20

ETERNAL TECHNOLOGIES GROUP, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2003

1. Reporting entity

Eternal acquired a 100% equity interest in Willsley Company
Limited ("Willsley"), a company incorporated in the British Virgin
Island with limited liability on May 16, 2000.

Willsley's principal activity is investments and owns 100%
interest in Inner Mongolia Aershan Agriculture & Husbandry
Technology Co., Ltd ("Aershan").

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, 2002 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 June 30, 2003, the results
of operations for the three months ended June 30, 2003 and 2002
and the six months ended June 30, 2003 and 2003, respectively.
Interim results are not necessarily indicative of full year
performance because of the impact of seasonal and short-term
variations.

3. Segment reporting

The Company currently is engaged in only one business segment.

4. Cash
Approximately $11,725,000 of cash is restricted by the company for
use in operations in the PRC.

F-22