SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2006

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

              For the transition period from__________to__________.

                           Commission File No. 0-27929


                        ETERNAL TECHNOLOGIES GROUP, INC.
                    _________________________________________
             (Exact name of registrant as specified in its charter)


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


                     Sect. D, 5/F, Block A. Innotech Tower,
                 235 Nanjing Rd. Heping District, Tianjin 300052
                    ________________________________________
                    (Address of principal executive offices)

                               011-86-22-2721-7020
                               __________________
                           (Issuer's telephone number)


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

As of November  14, 2006,  40,567,300  shares of Common Stock of the issuer were
outstanding.

<PAGE>

                                TABLE OF CONTENTS

                        ETERNAL TECHNOLOGIES GROUP, INC.

Part I. Financial Information




Item 1.   Financial Statements

          Unaudited Consolidated Condensed Balance Sheet at
          September 30, 2006                                                   3

          Unaudited Consolidated Condensed Statements of Operations for
          the three and nine months ended September 30, 2006 and 2005          4


          Unaudited Consolidated Condensed Statements of Cash Flows for
          the nine months ended September 30, 2006 and 2005                    5

          Notes to the Unaudited Consolidated Condensed Financial Statements   6

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                           10


Item 3.   Controls and Procedures                                             12

                           Part II. Other Information

Item 1.   Legal Proceedings                                                   14


Item 2.   Changes in Securities and Small Business Issuer Purchases of
          Equity Securities                                                   14


Item 3.   Defaults Upon Senior Securities                                     14


Item 4.   Submission of Matters to a Vote of Security Holders                 14


Item 5.   Other Information                                                   14


Item 6.   Exhibits                                                            14

          Signatures                                                          15


<PAGE>

                          Part I. Financial Information

Item 1.   Financial Statements

                        ETERNAL TECHNOLOGIES GROUP, INC.
                 UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
                               September 30, 2006
                       (Amounts in United States Dollars)
----------------------------------------------------------------------
----------------------------------------------------------------------




                                     ASSETS
 Current assets:
     Cash and cash equivalents                                    $   14,891,671
     Short-term investments                                           25,262,732
     Accounts receivable                                               2,379,749
     Inventories                                                          58,963
     Prepayments and deposits                                            263,352
                                                                  --------------
                                                                  --------------

       Total current assets                                           42,856,467

 Advances to distributors                                                783,145
 Property and equipment, net of accumulated depreciation               6,962,452
 Land use rights, net of accumulated amortization                      4,728,236
 Intangible assets                                                     1,174,717
                                                                  --------------
                                                                    ------------

         Total assets                                             $   56,505,017
                                                                  ==============
                                                                    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
     Notes Payable and convertible debt                           $      443,366
     Accounts payable and accrued liabilities                          1,864,418
     Amounts due to related parties                                      215,861
     Income taxes payable                                                354,261
     Derivative financial instrument liability                           286,451
                                                                  --------------
                                                                  --------------

       Total current liabilities                                       3,164,357
                                                                  --------------

Commitments and contingencies:

 Stockholders' equity:
     Preferred shares - $0.001 par value, 5,000,000
      authorized, none issued or outstanding                                   -
     Common shares - $0.001 par value; 95,000,000 authorized;
      40,567,300 and 39,854,026 shares issued and outstanding
      at September 30, 3006 and December 31, 2005, respectively           40,567
     Additional paid - in capital                                     13,636,496
     Subscription receivable                                            (10,176)
     Retained earnings                                                37,258,983
     Accumulated other comprehensive income                            2,414,790
                                                                  --------------
                                                                  --------------

       Total stockholders' equity                                     53,340,660
                                                                  --------------

         Total liabilities and stockholders' equity               $   56,505,017
                                                                  ==============


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


                                       3
<PAGE>


                        ETERNAL TECHNOLOGIES GROUP, INC.
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
     For the Three Months and Nine Months Ended September 30, 2006 and 2005
                       (Amounts in United States Dollars)
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<TABLE>

                                             Three Months Ended September 30,         Nine Months Ended September 30,
                                           --------------------------------------  ---------------------------------------
                                           --------------------------------------
                                                 2006                2005                2006                 2005
                                           ------------------  ------------------  ------------------   ------------------
                                           ------------------  ------------------  ------------------
<S>                                        <C>                 <C>                 <C>                     <C>

                                                                  (Restated)                               (Restated)

Sales                                      $   7,116,175   $       5,026,968   $      21,702,671    $      17,259,383

Cost of sales                                  3,893,304           3,512,402          14,277,572           12,550,186
                                           --------------  ------------------  ------------------   ------------------

Gross profit                                   3,222,871           1,514,566           7,425,099            4,709,197

Depreciation and amortization                    267,573             193,619             798,559              573,954

Selling, general and administrative
    expenses                                     975,078             294,917           2,289,608            1,203,804
                                           --------------  ------------------  ------------------   ------------------
                                           --------------  ------------------  ------------------   ------------------

Income from operations                         1,980,220           1,026,030           4,336,932            2,931,439
                                           --------------  ------------------  ------------------   ------------------

Other income (expense)
Interest income                                   52,384              42,278             141,221              138,973
Interest expense                                       -                   -                   -             (54,761)
Change in value of derivative
financial instruments                             64,373           (338,077)            (39,841)            (455,560)
                                           --------------  ------------------  ------------------   ------------------
                                           --------------  ------------------  ------------------   ------------------

    Other income (expense), net                  116,757           (295,799)             101,380            (371,348)

Income before provision for
    income taxes                               2,096,977             730,231           4,438,312            2,560,091

Provision for income taxes                       253,234                   -             395,070                    -
                                           --------------  ------------------  ------------------   ------------------

Net income                                 $   1,843,743   $         730,231   $       4,043,242    $       2,560,091
                                           ==============  ==================  ==================   ==================

Net income per common share
Basic and diluted                          $        0.05   $            0.02   $            0.10    $            0.08
                                           ==============  ==================  ==================   ==================
                                           ==============  ==================  ==================   ==================

Weighted average number of
common shares outstanding,
Basic and diluted                             40,567,300          30,733,058          40,321,041           30,696,630
                                           ==============  ==================  ==================   ==================
                                           ==============  ==================  ==================   ==================

</TABLE>


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

                                       4
<PAGE>


                        ETERNAL TECHNOLOGIES GROUP, INC.
            UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
              For the Nine Months Ended September 30, 2006 and 2005
                       (Amounts in United States Dollars)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>

                                                                          2006                 2005
                                                                    ------------------   ------------------
                                                                                            (Restated)
<S>                                                                   <C>                 <C>

 Cash flows from operating activities
     Net income                                                     $       4,043,243    $       2,560,091
     Adjustments to reconcile net income to net cash
       provided by operating activities:
       Depreciation and amortization                                          798,559              573,954
       Amortization of beneficial conversion feature                                -               54,761
       Stock issued for services                                                    -              193,831
       Change in value of derivative financial instruments                     39,841              455,560
       Changes in operating assets and liabilities:
         Inventories                                                           79,055              246,462
         Accounts receivable                                                4,898,444          (7,606,388)
         Prepayments and deposits                                               (633)                 (15)
         Accounts payable and accrued expenses                              1,420,264              261,053
         Account payable to related parties                                  (29,262)              140,725
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

        Purchase
           Net cash provided by (used in) operating activities             11,249,511          (3,119,966)
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

 Cash flows from investing activities:
     Purchase of  Short-term investments                                 (15,157,639)                    -
      Purchase of fixed assets                                                      -          (1,516,830)
     Advances to distributors                                               (252,628)                    -
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

           Net cash (used in) investing activities                       (15,410,267)          (1,516,830)
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

 Cash flows from financing activities:
     Capital contributed                                                            -              330,899
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

           Net cash provided by financing activities                                -              330,899
                                                                    ------------------   ------------------
                                                                    ------------------   ------------------

 Effect of exchange rate changes on cash                                      827,939              997,460
                                                                    ------------------   ------------------

 Net decrease in cash and cash equivalents                                (3,332,817)          (3,308,437)

 Cash and cash equivalents, beginning of period                            18,224,488           27,473,354
                                                                    ------------------   ------------------

 Cash and cash equivalents, end of period                           $      14,891,671    $      24,164,917
                                                                    ==================   ==================

 Supplemental disclosure of cash flow information:
     Interest paid                                                  $               -    $               -
                                                                    ==================   ==================
                                                                    ==================   ==================

     Income Tax paid                                                $         395,070    $               -
                                                                    ==================   ==================
                                                                    ==================   ==================

</TABLE>


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

                                       5
<PAGE>

                        ETERNAL TECHNOLOGIES GROUP, INC.
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (Amounts in United States Dollars)
--------------------------------------------------------------------------------
1.   Background and Critical Accounting Policies

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.  Immediately  following the  acquisition,  the former  shareholders of
Eternal  Technology  Group Limited,  a British Virgin Islands limited  liability
company,  owned 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  100% of  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. Its principal  activities are to transplant
embryos,  and to propagate  quality meat,  sheep and other  livestock  breeds in
Inner Mongolia. However, because of restrictions on the use of the farm in Inner
Mongolia by the PRC  government,  the operations were terminated at the farm and
the farm land was leased to a PRC company for the growing of trees.

E-Sea Biomedical  Engineering Co. International Ltd. was incorporated on October
20, 2004 under the laws of the British Virgin Islands. (E-Sea) E-Sea owns all of
the issued and  outstanding  stock of E-Sea Shenzhen which owns a Chinese patent
for dialysis  technology  and produces and markets a series of  instruments  for
detecting  breast  disease  specifically  breast  cancer by  applying  its image
processing  technology.  The  assets of E-Sea were  acquired  as of the close of
business on September  30, 2005 for  5,709,875  shares of the  Company's  common
stock and $2,283,950 in cash.

     Inventory

Embryo inventories are recorded at historical cost.  Inventories are measured at
the lower of cost or net realizable value using the first-in  first-out ("FIFO")
or weighted  average cost formulas.  The Company  performs a quarterly review of
its inventory to identify slow moving, obsolete or otherwise impaired inventory.
The  identification  process includes  historical  performance of the inventory,
current  operational  plans for the inventory,  as well as industry and customer
specific  trends.  If actual results differ from  management  expectations  with
respect to the selling of  inventories at amounts equal to or greater than their
carrying amounts, an adjustment to inventories would be made.

     Land Lease Rights and Amortization

Land lease rights in Mainland  China were stated at the amount of the prepayment
less accumulated amortization.  Amortization of land lease rights was calculated
on the straight-line basis over the term of the lease of approximately 25 years.
The land  lease  rights  with  respect  to the  Company's  farm were  originally
purchased  from the Chinese  government  for  $6,000,000  and such rights extend
through 2025. The farm is located in Wulagai Development Area in Inner Mongolia.

     Foreign Currency Translation

The Company's  reporting  currency is the US$. The Company maintains no material
accounts in currency of the United  States of America.  All of the  subsidiaries
maintain  their books and accounts in the People's  Republic of China  currency,
which is called Renminbi ("RMB").  Translation of the balance sheet amounts from
RMB into US$ has been made at the single rate of exchange on September  30, 2006
and  December  31,  2005,  of 7.92 and 8.07  RMB/US$,  respectively.  The income
statement  has been  translated at the average rate of exchange in effect during
the period of 7.97 RMB/US$ and 8.24 RMB/US$ for the three months ended, and 8.02
RMB/US$ and 8.3 RMB/US$ for the nine months ended  September  30, 2006 and 2005,
respectively. No representation is made as to whether the RMB amounts could have
been, or could be, converted into US$ at that rate on September 30, 2006 or 2005
or at any other date.

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.

On July 21, 2005, China effectively  revalued its currency by removing its "peg"
against the U.S. dollar at 8.3:1 and measuring it against a basket of currencies
of which the U.S. dollar is only one.

                                       6
<PAGE>


                        ETERNAL TECHNOLOGIES GROUP, INC.
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (Amounts in United States Dollars)
-------------------------------------------------------------------------------


1.   Background and Critical Accounting Policies, continued

     Revenue Recognition

In accordance with Staff  Accounting  Bulletin No. 104 (SAB 104),  revenues from
the sale of livestock,  embryos,  raw materials and equipment is recognized when
realized or realizeable, and when earned. In general this is when title and risk
of loss passes to the customer. Further, revenues are generally realized when we
have persuasive evidence of a sales arrangement, the product has been shipped or
the services  have been provided to the  customers,  the sales price is fixed or
determinable, and colletibly is reasonably assured.

     Stock-Based Compensation

Stock  compensation   expense  for  stock  granted  to  non-employees  has  been
determined in accordance  with Statement of Financial  Accounting  Standards No.
123,  "Accounting  for Stock-Based  Compensation"  ("SFAS 123") and the Emerging
Task Force consensus in Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in conjunction with Selling
Goods  or  Services  ("EITF  96-18"),  as the fair  value  of the  consideration
received or the fair value of the equity instruments  issued,  whichever is more
reliably measured.

Effective  January 1, 2006 the Company  adopted the  revision to SFAS 123 ("SFAS
123R"),   "Share-Based  Payment",  that  focuses  primarily  on  accounting  for
transactions in which an entity obtains employee services in share-based payment
transactions  utilizing the modified prospective method. This statement replaces
SFAS 123, "Accounting for Stock-Based Compensation",  and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees". SFAS 123R requires companies
to expense the fair value of employee stock options and similar awards.

     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.

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, 2005 and notes
thereto included in the Company's Form 10-KSB.

In the opinion of management,  the unaudited  consolidated  condensed  financial
statements   reflect  all  adjustments  (which  include  only  normal  recurring
adjustments)  necessary to present fairly the financial  position of the Company
as of  September  30,  2006,  the results of  operations  for the three and nine
months ended September 30, 2006 and 2005, respectively.  Interim results are not
necessarily  indicative  of full  year  performance  because  of the  impact  of
seasonal and short-term variations.

3.    Cash and Cash Equivalents

At  September  30,  2006,  the  Company  maintains  bank  accounts in the PRC of
$14,888,941.

4.   Notes Payable

The Company's  promissory notes payable are in default at September 30, 2006 and
2005. The holder of the notes has filed suit for payment of the notes.  The case
is scheduled for trial in Houston, Texas in February, 2007. The Company believes
it has meritorious defenses to the lawsuit related to the notes.


                                       7
<PAGE>



                        ETERNAL TECHNOLOGIES GROUP, INC.
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (Amounts in United States Dollars)
-----------------------------------------------------------------------------

5.   Income Taxes

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

The tax holiday in the prior years  resulted  in tax  savings  that  account for
substantially the entire difference  between the income tax provision that would
be  expected  using  United  States  federal  statutory  tax  rates  and the tax
provision of zero for the three and nine months ended  September  30, 2005.  The
tax  provisions  for the three and nine month  periods of the current  year were
$253,234 and $395,070 respectively, all from the business activities of E-Sea.

 6.   Contingencies

In conjunction with certain  subscription  agreements  entered into during 2003,
the Company agreed to register the shares issued under a Form SB-2  registration
statement.  There were penalties for not timely meeting filing and effectiveness
deadlines,  and the Company received claims related to these  penalties.  On May
24, 2005 the Company issued  convertible  notes,  allowing for conversion of the
penalty to the Company's  common stock, to certain  holders of the  subscription
agreements who accepted settlement. One subscription agreement holder elected to
not accept a convertible  note and is pursuing legal action as discussed in Part
II, Item 1.

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.

7.   Related Party Transactions

During the three and nine month periods ended  September 30, 2006 and 2005,  the
Company engaged in various transactions with related parties as follows:

<TABLE>

                                      Three Months Ended September 30,      Nine Months Ended September 30,
                                    ----------------------------------     --------------------------------
                                          2006         2005                     2006            2005
                                    ------------  -------------               ---------      ------------
<S>                                 <C>            <C>                      <C>               <C>

      Common stock sold by
      officer/director
        with proceeds contributed to
        the
        Company for payment of
        operating
        expenses                    $         -     $     98,087             $      -       $     441,298
</TABLE>





                                       8
<PAGE>




                        ETERNAL TECHNOLOGIES GROUP, INC.
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (Amounts in United States Dollars)
----------------------------------------------------------------------------


8.   Segment Reporting

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

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

Information  regarding  our  reportable  segments  for  the  nine  months  ended
September 30, 2006 and 2005, is as follows:
<TABLE>

                                         Agricultural            Medical
                                           Genetics              Devices              Corporate              Total
                                        ----------------     ----------------      ----------------     ----------------
<S>                                      <C>                 <C>                     <C>                   <C>

                2006
-------------------------------------
-------------------------------------

Revenues                             $    15,941,035   $        5,761,636    $                -   $       21,702,671
Income from operations                     2,406,029            2,624,488             (693,585)            4,336,932
Depreciation and amortization                593,829              204,730                     -              798,559
Total assets                              48,760,179            7,742,108                 2,730           56,505,017

                2005
-------------------------------------
-------------------------------------

Revenues                             $    17,259,383   $                -    $                -   $       17,259,383
Income from operations                     3,566,501                    -             (635,062)            2,931,439
Depreciation and amortization                573,954                    -                     -              573,954
Total assets                              45,430,912                    -                45,114           45,476,026


Information  regarding  our  reportable  segments  for the  three  months  ended
September 30, 2006 and 2005, is as follows:

                                         Agricultural            Medical
                                           Genetics              Devices              Corporate              Total
                                        ----------------     ----------------      ----------------     ----------------
                2006
-------------------------------------
-------------------------------------

Revenues                             $        3,418,707   $        3,697,468    $                -   $        7,116,175
Income from operations                          383,781            1,679,762              (83,323)            1,980,220
Depreciation and amortization                   198,974               68,599                     -              267,573


                2005
-------------------------------------
-------------------------------------

Revenues                             $        5,026,968   $                -    $                -   $        5,026,968
Income from operations                        1,133,157                    -             (107,127)            1,026,030
Depreciation and amortization                   193,619                    -                     -              193,619

</TABLE>

                                       9
<PAGE>


                        ETERNAL TECHNOLOGIES GROUP, INC.
         NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                       (Amounts in United States Dollars)
-------------------------------------------------------------------------------


9.   Non-Cash Investing and Financing

During the three and nine month  periods ended  September 30, 2006,  the Company
had as follows:

                                             The Following Non-Cash Investing
                                                 And Financing Activities
                                           -------------------------------------
                                                 2006                2005
                                           ------------------  -----------------

      Common stock issued to convert
      debt                                 $         419,335              -

10.    Restatement

The  accompanying  three  month  periods  ended  September  30,  2005  financial
statements  have been  restated to properly  account  for  derivative  financial
instruments  associated with  convertible  debt.  Following is the impact of the
restatement:

       As Originally Filed

                      2005
       ------------------------------------
       ------------------------------------

       Current assets                         $       33,685,080
       Total assets                                   45,476,026

       Current liabilities                             2,698,965

       Common stock subject to
       registration right
           Penalties                                           -

       Stockholders' equity                           42,777,061

       Revenues                                        5,026,968
       Gross profit                                    1,514,566
       Income from operations                          1,026,030
       Other income and expenses                          42,278
       Net income                                      1,068,308

       Basic and diluted earnings per
       share                                                0.03
       As Restated
       As Restated
        As  Restated

                      2005
       ------------------------------------
       ------------------------------------

       Current assets                         $       33,685,080
       Total assets                                   45,476,026

       Current liabilities                             4,245,401

       Common stock subject to
       registration right
          Penalties                                            -

       Stockholders' equity                           41,230,625

       Revenues                                        5,026,968
       Gross profit                                    1,514,566
       Income (loss) from operations                   1,026,030
       Other income and expenses                       (295,799)
       Net income                                        730,231

       Basic and diluted earnings per
       share                                                0.02

                                       10
<PAGE>

Item 2. Management's Discussion and Analysis or Plan of Operation

The Company's business is seasonal.  Accordingly,  the results of operations for
the three and nine month periods ended  September 30, 2006 are not indicative of
the results for any other quarter, period or for the fiscal year.

The  following is derived  from,  and should be read in  conjunction  with,  our
unaudited consolidated condensed financial statements,  and related notes, as of
and for the three and nine months ended September 30, 2006 and 2005.


Three Months Ended  September 30, 2006 Compared to Three Months Ended  September
30, 2005

Revenues

Revenues for the three months ended  September 30, 2006  increased by $2,089,207
or 41.6% to $7,116,175 from $5,026,968 for the corresponding period of the prior
year. This increase resulted primarily from the inclusion of E-Sea's revenues of
$3,711,142  and from an increase in sales of roll  mutton of  $3,113,910.  These
amounts were offset by a decrease in cattle embryo transfers of $3,396,712 and a
decrease in the sales of lamb meat of $1,188,665.

Cost of Sales

Cost of sales for the  three  months  ended  September  30,  2006  increased  by
$380,902 or 10.8% to $3,893,304 from $3,512,402 for the corresponding  period of
the prior year.

Depreciation and Amortization

Depreciation and amortization expenses increased by $73,954 or 38.2% to $267,573
from $193,619 for the  corresponding  period of the prior year. This increase is
attributable to the acquisition of E-Sea.

Selling and Administrative Expenses

Selling and administrative  expenses increased by $680,161 or 230.6% to $975,078
from  $294,917 for the  corresponding  period of the prior year.  This  increase
resulted primarily from additional costs of $649,535 attributable to E-Sea.

Other Income (Expense)

For the three  months  ended  September  30,  2006 the  Company  experienced  an
increase  of  $10,106  in  interest  income  to  $52,384  from  $42,278  for the
corresponding period of the prior year.

For the three  months ended  September  30, 2006 the Company had a change in the
value of derivative instruments of $64,373. For the three months ended September
30,  2005  the  Company  had a  negative  change  in  the  value  of  derivative
instruments of $338,077.

For the three months ended September 30, 2006, the Company provided taxes on its
income of $253,234  from its E-Sea  operations.  The  remainder of the Company's
income is from  agricultural  activities and benefits from a tax holiday.  Since
E-Sea was acquired as of the close of business on September 30, 2005,  there was
no provision for income taxes for the corresponding period of the prior year.

As a result of the foregoing,  the Company had net income of $1,843,743 or $0.05
per share for the three months ended  September  30, 2006 compared to net income
of $730,231 or $0.02 per share for the corresponding period of the prior year.


Nine Months Ended  September 30, 2006 As Compared to Nine Months Ended September
30, 2005

Revenues

Revenues for the nine months ended September 30, 2006 increased by $4,443,288 or
25.7% to $21,702,671 from $17,259,383 for the corresponding  period of the prior
year. This increase is primarily  attributable  to the addition of E-Sea,  which
generated revenues of $5,761,636.

Cost of Sales

Cost of sales  for the  nine  months  ended  September  30,  2006  increased  by
$1,727,386 or 13.8% to $14,277,572 from $12,550,186 for the corresponding period
of the prior year. This increase resulted  primarily from the addition of E-Sea,
which  had cost of sales of  $2,087,083  and from  changes  in the  sales mix of
cattle embryo transfers, sheep embryo transfers and sales of roll mutton.

Depreciation and Amortization

Depreciation  and  amortization  expenses  increased  by  $224,605  or  39.1% to
$798,559  from  $573,954 for the  corresponding  period of the prior year.  This
increase is attributable to the acquisition of E-Sea.

                                       11
<PAGE>


Selling and Administrative Expenses

Selling  and  administrative  expenses  increased  by  $1,085,804  or  90.2%  to
$2,289,608 from $1,203,804 for the corresponding  period of the prior year. This
increase  resulted  primarily from additional costs of $845,234  attributable to
E-Sea.

Other Income (Expense)

For the nine months ended September 30, 2006 the Company experienced an increase
of $2,248 in interest  income to $141,221  from  $138,973 for the  corresponding
period of the prior year.

The Company had no interest  expense in the nine months ended September 30, 2005
compared  to  $54,761  in the  corresponding  period  of the  prior  year.  This
reduction in interest expense resulted from the conversion of debt to equity.

For the nine months ended  September 30, 2006 the Company had a negative  change
in the value of  derivative  instruments  of $39,841.  For the nine months ended
September 30, 2005 the Company had a negative  change in the value of derivative
instruments of $455,560.

The Company  provided taxes on its income from the E-Sea  operations of $395,070
for the nine months ended  September  30, 2006.  The  remainder of the Company's
income is from  agricultural  activities and benefits from a tax holiday.  Since
E-Sea was acquired as of the close of business on September 30, 2005,  there was
no provision for income taxes for the corresponding period of the prior year.

As a result of the foregoing,  the Company had net income of $4,043,242 or $0.10
per share for the nine months ended September 30, 2006 compared to net income of
$2,560,091 or $0.08 per share for the corresponding period of the prior year.

Liquidity and Capital Resources

As of  September  30,  2006,  the  Company  had  cash and  cash  equivalents  of
$14,891,671,  short-term  investments  of  $25,262,732  and  working  capital of
$39,692,110.  This  compares  with  cash and cash  equivalents  of  $18,224,488,
short-term  investments of $9,909,084  and working  capital of $33,710,274 as of
December 31, 2005. These funds are more than sufficient to cover its operations.

Cash provided by operating  activities  totaled  $11,249,511 for the nine months
ended September 30, 2006.  This compares with cash used in operating  activities
of $3,119,966 for the  corresponding  period of the prior year. This $14,369,477
positive increase was primarily attributable to changes in trade receivables and
the timing of billings and collections.

Cash used in  investing  activities  was  $15,410,267  for the nine months ended
September 30, 2006. This resulted primarily from the movement of cash funds into
short-term  investments.  This compares to cash used in investing  activities of
$1,516,830 for the purchase of fixed assets in the  corresponding  period in the
prior year.

There  was no cash  provided  by or used in  financing  activities  for the nine
months ended  September 30, 2006.  This compares with cash provided by financing
activities of $330,899 for the nine months ended  September  30, 2005.  The 2005
amount consists entirely of contributed capital.

At September 30, 2006, the Company lists notes payable of $443,366.  These notes
are currently the subject of litigation  where the Company is challenging  their
validity.

Item 3. Controls and Procedures

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

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

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

                                       12
<PAGE>

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

(ii) The Company has  restated its  consolidated  financial  statements  for the
year-ended  December 31, 2004 to reflect the  accounting  for  derivatives.  The
restatement  is  considered  a material  weakness  over  financial  reporting as
defined by the PCAOB.

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

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



                                       13
<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

As of September 30, 2005, we were a party to two legal proceedings. The first is
a lawsuit brought by Limestreet  Securities.  This cause of action seeks payment
of $500,942 on two outstanding promissory notes plus accrued interest since July
11, 2004,  attorney's fees, cost of collection and other court costs. This cause
of action was filed in Federal Court in the Eastern  District of Louisiana.  The
Company challenged the venue of this action and was granted a motion to transfer
for  lack of  jurisdiction/improper  venue.  The  cause of  action  has now been
transferred  to Federal  District  Court for the  Southern  District of Texas in
Houston, Texas. The Company intends to challenge the validity of these notes.

The second  cause of action was filed in State Court in New York City by Bristol
Investments  Limited  against  the  company  and is seeking  the  payment of the
penalty due under their  original  investment for failure to have a registration
effective within a stated period of time.  Bristol is currently  seeking $53,000
in principal plus penalties,  interest and attorney fees.  Bristol has refused a
settlement  offer of a convertible  promissory  note and continues to pursue the
litigation.  While the Company  acknowledges the principal,  it believes that it
has valid defenses to the remaining claims for compensation.

As of November 14, 2006 we are not a party to any other pending  litigation  and
were not aware of any threatened litigation.

Item 2. Changes in Securities

During the three  month  period  ended  September  30, 2006 we did not issue any
shares of common stock.

Item. 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None

Item 6. Exhibits

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

                                   Signature

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


                              ETERNAL TECHNOLOGIES GROUP, INC.

                             /s/ Jiansheng Wei
                              -------------------------------------
November 14,  2006               Jiansheng Wei,  Chief Executive Officer


                            /s/ Shen Zheng
November 14,  2006            -------------------------------------
                                 Shen Zheng, Chief Financial Officer

                                       14
<PAGE>


                                 CERTIFICATIONS
                                                                 EXHIBIT 31.1

Certification  by  Jiansheng  Wei  Pursuant  to  Securities  Exchange  Act  Rule
13a-14(a)

I, Jiansheng Wei, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2006

/s/    JIANSHENG WEI
---------------------------------------
Jiansheng Wei, Chief Executive Officer

                                       15
<PAGE>


                                                             EXHIBIT 31.2

Certification by Zheng Shen Pursuant to Securities Exchange Act Rule 13a-14(a)

I, Zheng Shen, certify that:

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

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

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

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules  13a-15(e) and 15d-15(e))  and internal  control over
     financial  reporting  (as  defined  in  Exchange  Act Rules  13a-15(f)  and
     5d-15(f)) for the registrant and have:

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

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

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

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

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

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

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

Date: November 14, 2006

/s/   ZHENG SHEN
-------------------------------------
Zheng Shen, Chief Financial Officer


                                       16
<PAGE>

                                                             EXHIBIT 32.1

Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350

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

(i) the Quarterly Report on Form 10-QSB of the Company for the nine months ended
September 30, 2006, as filed with the Securities and Exchange  Commission on the
date hereof (the "Report") fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

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

Date: November 14, 2006

/s/    JIANSHENG WEI
-----------------------
Jiansheng Wei
Chief Executive Officer

                                       17
<PAGE>



                                                             EXHIBIT 32.2


Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350

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

(i) the Quarterly Report on Form 10-QSB of the Company for the nine months ended
September 30, 2006, as filed with the Securities and Exchange  Commission on the
date hereof (the "Report") fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and

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

Date: November 14, 2006

/s/    Zheng Shen
Zheng Shen
Chief Financial Officer