**UNITED
      STATES**


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-Q





x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
      ACT OF 1934




**For
      the quarterly period ended June 30, 2008**




o
      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. 000-50906**







**ETERNAL
      ENERGY CORP.**


(Exact
      Name of Small Business Issuer in its Charter)





**Nevada**
            
            **20-0237026**(State
                or Other Jurisdiction
              of
                Incorporation or
              Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)





**2549
      West Main Street, Suite 202**


**Littleton,
      CO 80120**


(Address
      and telephone number of Principal Executive Offices)





**(303)
      798-5235**


(Issuer’s
      Telephone Number, Including Area Code)





Indicate
      by check mark whether the registrant: (1) has 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 o




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


Yes
o
      No x




Indicate
      the number of shares outstanding of each of the issuer's classes of common
      equity, as of the latest practicable date: 44,550,000 shares of common stock
      issued and outstanding at August 13, 2008.





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





(Check
      one):





Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o
            Smaller
                reporting company x









ETERNAL
      ENERGY CORP.


FORM
      10-Q


QUARTERLY
      PERIOD ENDED JUNE 30, 2008





INDEX


A
                  Note About Forward Looking Statements
              1PART
                  I - FINANCIAL INFORMATIONItem
                  1 - Financial Statements
              2Balance
                  Sheet (Unaudited) - June 30, 2008
              F-1Statement
                  of Operations (Unaudited) - For the three and six months ended
                  June 30,
                  2008 and 2007
              F-2Statement
                  of Cash Flows (Unaudited) - For the six months ended June 30, 2008
                  and
                  2007
              F-3Notes
                  to Unaudited Financial Statements
              F-5Item
                  2 - Management's Discussion and Analysis of Financial Condition
                  or Results
                  of Operations
              4Item
                  4 - Controls and Procedures
              7PART
                  II - OTHER INFORMATIONItem
                  6 - Exhibits
              8Signatures
              10









*A
      Note About Forward-Looking Statements*





This
      Quarterly Report on Form 10-Q contains “forward-looking statements” within the
      meaning of the Private Securities Litigation Reform Act of 1995 that are based
      on management's current expectations. These statements may be identified by
      their use of words like “plans,” “expect,” “aim,” “believe,” “projects,”
“anticipate,” “intend,” “estimate,” “will,” “should,” “could” and other
      expressions that indicate future events and trends. All statements that address
      expectations or projections about the future, including statements about our
      business strategy, expenditures, and financial results, are forward-looking
      statements. We believe that the expectations reflected in such forward-looking
      statements are accurate. However, we cannot assure you that such expectations
      will occur.





Actual
      results could differ materially from those in the forward looking statements
      due
      to a number of uncertainties including, but not limited to, those discussed
      in
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations. Factors that could cause future results to differ from these
      expectations include general economic conditions; further changes in our
      business direction or strategy; competitive factors; market uncertainties;
      and
      an inability to attract, develop, or retain consulting or managerial agents
      or
      independent contractors. As a result, the identification and interpretation
      of
      data and other information and their use in developing and selecting assumptions
      from and among reasonable alternatives requires the exercise of judgment. To
      the
      extent that the assumed events do not occur, the outcome may vary substantially
      from anticipated or projected results, and accordingly, no opinion is expressed
      on the achievability of those forward-looking statements. No assurance can
      be
      given that any of the assumptions relating to the forward-looking statements
      specified in the following information are accurate, and we assume no obligation
      to update any such forward-looking statements. You should not unduly rely on
      these forward-looking statements, which speak only as of the date of this
      Quarterly Report. Except as required by law, we are not obligated to release
      publicly any revisions to these forward-looking statements to reflect events
      or
      circumstances occurring after the date of this report or to reflect the
      occurrence of unanticipated events.





1





**PART
      I. FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**


**Eternal
        Energy Corp.**
  **Condensed
        Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and 2007***
  
 2





**Eternal
      Energy Corp.**




**Index
      to the Condensed Financial Statements**




***As
      of June 30, 2008,***


***For
      Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
      2007***





Condensed
                  Financial Statements of Eternal Energy Corp.:Condensed
                  Balance Sheet as of June 30, 2008
              F-1Condensed
                  Statements of Operations For Each of the Three-Month and Six-Month
                  Periods
                  Ended June 30, 2008 and 2007
              F-2Condensed
                  Statements of Cash Flows For Each of the Six-Month Periods Ended
                  June 30,
                  2008 and 2007
              F-3Notes
                  to the Condensed Financial Statements
              F-5




3


**Eternal
        Energy Corp.**
  **Condensed
        Balance Sheet**
  ***June
        30, 2008***
 
 *ASSETS*June
                    30,
                
                December 31,2008
                
                2007Current
                    assets:Cash
                
                $
                1,064,760
                
                $
                791,891Accounts
                    receivable
                
                
                16,319
                
                
                -Prepaid
                    expenses
                
                
                32,724
                
                
                46,966Total
                    current assets
                
                
                1,113,803
                
                
                838,857Receivable
                
                
                750,000
                
                
                500,000Equipment
                    and leasehold improvements, net of accumulateddepreciationand
                    amortization of $37,216 and
                  $19,625,respectively
                
                
                95,170
                
                
                90,282Oil
                    and gas properties, net of accumulated depletion of$43,202
                    and$30,107,
                    respectively
                
                
                3,570,723
                
                
                3,526,190Licenses,
                    net of accumulated amortization of $34,200 and $0,respectively
                
                
                649,800
                
                
                684,000Deposits
                
                
                1,414,678
                
                
                1,536,130**Total
                    assets**
                
                **$**
                **7,594,174**
                
                **$**
                **7,175,459***LIABILITIES
                    AND STOCKHOLDERS' EQUITY*Current
                    liabilities:Accounts
                    payable and accrued liabilities
                
                $
                108,569
                
                $
                177,309Accrued
                    officer's compensation
                
                
                43,101
                
                
                43,101Due
                    to related party
                
                
                250,000
                
                
                250,000Total
                    current liabilities
                
                
                401,670
                
                
                470,410Due
                    to related party - non-current
                
                
                250,000
                
                
                250,000**Total
                    liabilities**
                
                **$**
                **651,670**
                
                **$**
                **720,410**Commitments
                    and contingenciesStockholders'
                    equity:Common
                    stock, $.001 par value, 875,000,000 shares authorized,44,550,000and
                    44,550,000 shares issued
                  andoutstanding,
                    respectively
                
                
                44,550
                
                
                44,550Additional
                    paid-in capital
                
                
                8,551,060
                
                
                8,395,321Accumulated
                    deficit
                
                
                (1,653,106
                )
                
                (1,984,822
                )Total
                    stockholders' equity
                
                
                6,942,504
                
                
                6,455,049**Total
                    liabilities and stockholders' equity**
                
                **$**
                **7,594,174**
                
                **$**
                **7,175,459**  The
            accompanying notes are an integral part of the financial
            statements.
  F
                -1
 **Eternal
              Energy Corp.**
  **Condensed
              Statements of Operations**
  ***For
              Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
              2007***
  For
                      the Three-Month Period Ended
                  
                  For
                        the Six-Month Period EndedJune
                      30, 2008
                  
                  June
                      30, 2007
                  
                  June
                      30, 2008
                  
                  June
                      30, 2007Sale of prospects
                  
                  
                  1,353,645
                  
                  
                  877,353
                  
                  
                  1,353,645
                  
                  
                  877,353Oil
                      and gas sales
                  
                  
                  56,816
                  
                  
                  -
                  
                  
                  137,073
                  
                  
                  -Spud fee revenue
                  
                  
                  -
                  
                  
                  249,985
                  
                  
                  250,000
                  
                  
                  249,985Total
                      revenue
                  
                  
                  1,410,461
                  
                  
                  1,127,338
                  
                  
                  1,740,718
                  
                  
                  1,127,338Operating expenses:Cost
                      of prospect sold
                  
                  
                  253,506
                  
                  
                  259,482
                  
                  
                  253,506
                  
                  
                  259,482Oil
                      and gas operatingexpenses
                  
                  
                  187,838
                  
                  
                  -
                  
                  
                  397,226
                  
                  
                  -Down-hole gas and waterlicenseroyalties
                  
                  
                  -
                  
                  
                  -
                  
                  
                  51,000
                  
                  
                  -Dry
                      hole costs
                  
                  
                  (1,194
                  )
                  
                  1,538,416
                  
                  
                  1,087
                  
                  
                  1,538,41General
                      and administrative
                  
                  
                  219,393
                  
                  
                  289,828
                  
                  
                  443,753
                  
                  
                  417,814Professional
                      fees
                  
                  
                  151,376
                  
                  
                  89,084
                  
                  
                  200,915
                  
                  
                  119,409Depreciation,amortization anddepletion expense
                  
                  
                  35,812
                  
                  
                  -
                  
                  
                  64,886
                  
                  
                  5,208Total
                      operating costs
                  
                  
                  846,731
                  
                  
                  2,176,810
                  
                  
                  1,412,373
                  
                  
                  2,340,329Total
                      operating income (loss)
                  
                  
                  563,730
                  
                  
                  (1,049,472
                  )
                  
                  328,345
                  
                  
                  (1,212,991
                  )Interest
                      income
                  
                  
                  705
                  
                  
                  18,711
                  
                  
                  3,372
                  
                  
                  33,996**Net
                      income (loss**)
                  
                  **$**
                  **564,435**
                  
                  **$**
                  **(1,030,761**
                  **)**
                  **$**
                  **331,717**
                  
                  
                  **(1,178,995**
                  **)****Net
                      income (loss) per common share -****Basic**
                  
                  **$**
                  **0.01**
                  
                  **$**
                  **(0.02**
                  **)**
                  **$**
                  **0.01**
                  
                  **$**
                  **(0.03**
                  **)****Diluted**
                  
                  **$**
                  **0.01**
                  
                  **$**
                  **(0.02**
                  **)**
                  **$**
                  **0.01**
                  
                  **$**
                  **(0.03**
                  **)****Weighted
                      average number of shares****outstanding
                      -****Basic**
                  
                  
                  **44,550,000**
                  
                  
                  **42,550,000**
                  
                  
                  **44,550,000**
                  
                  
                  **42,550,000****Diluted**
                  
                  
                  **44,583,333**
                  
                  
                  **42,550,000**
                  
                  
                  **44,572,222**
                  
                  
                  **42,550,000**





The
      accompanying notes are an integral part of the
      financial statements.




F
          -2


**Eternal
        Energy Corp.**
  **Condensed
        Statements of Cash Flows**
  ***For
        Each of the Six-Month Periods Ended June 30, 2008 and
        2007***


For
                  the
              
              For
                  theSix-Month
              
              Six-MonthPeriod
                  Ended
              
              Period
                  EndedJune
                  30, 2008
              
              June
                  30, 2007*Cash
                  flows provided by (used in) operating activities:*Net
                  income (loss)
              
              $
              331,717
              
              $
              (1,178,995
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Non
                  cash transactions:Stock-based
                  compensation
              
              
              155,738
              
              
              92,092Depreciation,
                  depletion and amortization
              
              
              64,886
              
              
              5,208Dry
                  hole costs incurred in prior year
              
              
              -
              
              
              1,543,902Changes
                  in operating assets and liabilities:Increase
                  in receivables
              
              
              (266,319
              )
              
              -Decrease
                  in prepaid expense
              
              
              14,242
              
              
              12,828Increase
                  (decrease) in accounts payable andaccrued
                  liabilities
              
              
              (68,740
              )
              
              (134,931
              )Increase
                  (decrease) in accrued payroll-related costs
              
              
              -
              
              
              (2,331
              )**Net
                  cash used in operating activities**
              
              
              **231,524**
              
              
              **337,773***Cash
                  flows used in investing activities:*Return
                  of drilling deposits
              
              
              121,452
              
              
              163,510Additions
                  to oil and gas properties
              
              
              (57,628
              )
              
              (1,366,181
              )Additions
                  to equipment and leasehold improvements
              
              
              (22,479
              )
              
              (61,198
              )**Net
                  cash used in investing activities**
              
              
              **41,345**
              
              
              **(1,263,869**
              **)****Net
                  increase in cash**
              
              
              **272,869**
              
              
              **(926,096**
              **)****Cash
                  - beginning of period**
              
              
              **791,891**
              
              
              **2,366,810****Cash
                  - end of period**
              
              **$**
              **1,064,760**
              
              **$**
              **1,440,714**


The
      accompanying notes are an integral part of the
      financial statements.




F
          -3




**Eternal
        Energy Corp.**
  **Condensed
        Statements of Cash Flows**
  ***For
        Each of the Six-Month Periods Ended June 30, 2008 and
        2007***


*Supplemental
      Disclosure of Cash Flow Information*




For
                  the
              
              For
                  theSix-Month
              
              Six-MonthPeriod
                  Ended
              
              Period
                    EndedJune
                  30, 2008
              
              June
                  30, 2007Cash
                  paid during the three-month and six-month period for:Interest
              
              $
              -
              
              $
              -Income
                  taxes
              
              $
              -
              
              $
              -


The
        accompanying notes are an integral part of the financial
        statements.


F
          -4




**Eternal
          Energy Corp.**
  **Notes
          to the Condensed Financial Statements**
  ***As
          of June 30, 2008,***
 ***For
          Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
          2007***


**1.**
              **Description
                  of Business**


Eternal
      Energy Corp. (the "Company") was incorporated in the state of Nevada in March
      2003. The Company engages in the acquisition, exploration, development and
      producing of oil and gas properties. At June 30, 2008, the Company has entered
      into participation agreements related to oil and gas exploration projects in
      the
      Big Sand Spring Valley Prospect and the Cherry Creek Project, both located
      in
      Nye County, Nevada. The Company has also owns a 75% working interest in the
      South West extension of the West Ranch Field, located in Jackson County, Texas.
      In addition, the Company has acquired licensing and usage rights to a certain
      down hole gas and water separation technology, designed to stimulate the
      production of underperforming wells.


**2.**
                **Interim
                    Presentation**




The
      results of operations for the three-month and six-month periods ended June
      30,
      2008 and 2007 are not necessarily indicative of the results to be expected
      for
      the full year. The interim financial statements should be read in conjunction
      with the Company's annual report on Form 10-KSB as of December 31,
      2007.




Certain
      amounts from the previous year have been reclassified to conform to the current
      period presentation.


**3.**
                **Summary
                    of Significant Accounting
                    Policies**




*Basis
      of Presentation*




These
      financial statements are presented in United States dollars and have been
      prepared in accordance with accounting principles generally accepted in the
      United States.




*Revenue*




The
      Company records the sale of its interests in prospects when the terms of the
      transaction are final and the sales price is determinable. Spud fee revenue
      is
      recorded when drilling commences. Working interest, royalty, and net profit
      interests are recorded as revenue when oil and gas is sold.




*Concentration
      of Credit Risk*




At
      June
      30, 2008, the Company had $1,073,987 on deposit that exceeded United States
      (FDIC) federally insurance limit of $100,000 per bank. The Company believes
      this
      credit risk is mitigated due to the financial strength of the financial
      institution.




F
          -5


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**3.**
                **Summary
                    of Significant Accounting Policies,
                    Continued**




*Equipment
      and Leasehold Improvements*




Equipment
      and leasehold improvements are recorded at cost. Expenditures for major
      additions and improvements are capitalized and depreciated over their useful
      lives. Depreciation is provided over the estimated useful lives of the related
      assets using the straight-line method for financial statement purposes. The
      Company uses other depreciation methods (generally accelerated) for tax purposes
      where appropriate. The estimated useful lives for significant property and
      equipment categories are as follows:


Equipment
              3
                  yearsLeasehold
                  improvements
              lesser
                  of useful life or lease term




When
      equipment and improvements are retired or otherwise disposed of, the cost and
      the related accumulated depreciation are removed from the Company's accounts
      and
      any resulting gain or loss is included in the results of operations for the
      respective period.




Expenditures
      for minor replacements, maintenance, and repairs are charged to expense as
      incurred.




*Oil
      and Gas Properties*




The
      Company follows the full cost method of accounting for its investments in oil
      and gas properties. Accordingly, all costs associated with the acquisition,
      exploration and development of oil and gas reserves are capitalized as incurred.
      The Company has not capitalized any interest or any of its internal costs
      related to its investments in oil and gas properties.




In
      addition, the capitalized costs are subject to a "ceiling test," which limits
      such costs to the aggregate of the "estimated present value" of future net
      revenues from proved reserves, discounted at a 10 percent interest rate, based
      on current economic and operating conditions, plus the lower of cost or fair
      market value of unproved properties.




Costs
      are
      accumulated by specific prospect, or cost center, and if economically
      recoverable reserves are not discovered in a prospect, the costs incurred are
      charged to expense as "dry hole costs."




Depreciation
      and depletion of producing oil and gas properties is determined by the units
      of
      production method.




F
          -6


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**3.**
                **Summary
                    of Significant Accounting Policies,
                    Continued**




*Fair
      Value of Financial Instruments*




In
      accordance with the requirements of Financial Accounting Standards Board's
      Statement of Financial Accounting Standards ("SFAS") No. 107, *Disclosures
      about Fair Value of Financial Instruments* ,
      the
      Company has determined the estimated fair value of its financial instruments
      using available market information and appropriate valuation methodologies.
      Due
      to their short-term maturity, the fair value of financial instruments classified
      as current assets and current liabilities approximates their carrying
      values.




*Accounting
      for Stock-Based Employee Compensation*




In
      December 2004, the FASB issued SFAS No. 123(R) ("SFAS 123(R)"), *Share-Based
      Payment* .
      This
      pronouncement amends SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      ("SFAS
      123") and supersedes Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* ("APB
      25"). SFAS 123(R) requires that companies account for awards of equity
      instruments issued to employees under the fair value method of accounting and
      recognize such amounts in their statements of operations. The Company adopted
      SFAS 123(R) on January 1, 2006, using the modified prospective method and,
      accordingly, has not restated the consolidated statements of operations for
      periods prior to January 1, 2006. Under SFAS 123(R), the Company is required
      to
      measure compensation cost for all stock-based awards at fair value on the date
      of grant and recognize compensation expense in our consolidated statements
      of
      operations over the service period that the awards are expected to vest. As
      permitted under SFAS 123(R), the Company has elected to recognize compensation
      cost for all options with graded vesting on a straight-line basis over the
      vesting period of the entire option.




*Accounting
      for Stock-Based Employee Compensation, Continued*




Prior
      to
      January 1, 2006, the Company accounted for share-based payment, as permitted
      by
      SFAS 123, under the intrinsic value method described in APB 25. Under the
      intrinsic value method, no stock-based employee compensation cost is recorded
      when the exercise price is equal to, or higher than, the market value of the
      underlying common stock on the date of grant.




The
      following table illustrates the effect on net loss and loss per share if the
      Company had applied the fair value recognition provisions of SFAS 123(R) to
      stock-based employee compensation, using the straight-line method, for the
      following periods:




F
          -7


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**3.**
                **Summary
                    of Significant Accounting Policies,
                    Continued**


For
                  the Three-Month Period Ended
              
              For
                    the Six-Month Period EndedJune
                  30, 2008
              
              June
                  30, 2007
              
              June
                  30, 2008
              
              June
                  30, 2007Net
                  income (loss), as reported
              
              $
              564,435
              
              $
              (1,030,761
              )
              $
              331,717
              
              $
              (1,178,995
              )Total
                  stock-based employee compensation expense determined
                under
                  fair value based method for all awards, net of related tax
                  effect
              
              
              (15,605
              )
              
              (15,605
              )
              
              (31,210
              )
              
              (31,210
              )Pro
                  forma net income (loss)
              
              $
              548,830
              
              $
              (1,046,366
              )
              $
              300,507
              
              $
              (1,210,205
              )Income
                (loss) per
                share:Basic
                  and diluted - as reported
              
              $
              0.01
              
              $
              (0.02
              )
              $
              0.01
              
              $
              (0.03
              )Basic
                  and diluted - pro forma
              
              $
              0.01
              
              $
              (0.02
              )
              $
              0.01
              
              $
              (0.03
              )


There
      was
      no material effect on net loss or loss per share in the three or six-month
      period ended June 30, 2008 and 2007.




*Basic
      and Diluted Loss Per Share*




Basic
      loss per common share is computed by dividing net loss available to common
      shareholders by the weighted average number of common shares outstanding during
      the period. Diluted loss per common share is computed in the same way as basic
      loss per common share except that the denominator is increased to include the
      number of additional common shares that would be outstanding if all potential
      common shares had been issued and if the additional common shares were dilutive.
      As of June 30, 2008, the Company had outstanding stock options that can be
      converted into 4,543,800 shares of common stock, of which 1,961,499 options
      are
      vested. The exercise price for 66,666 of the vested stock options is lower
      than
      the closing stock prices as of June 30, 2008 and, accordingly, these stock
      options have been included in the calculation of diluted earnings per share
      for
      the period.




*Income
      Taxes*




The
      Company follows the liability method of accounting for income taxes. Under
      this
      method, deferred income tax assets and liabilities are recognized for the future
      tax consequences attributable to differences between the financial statement
      carrying amounts of existing assets and liabilities and their respective tax
      balances. Deferred income tax assets and liabilities are measured using enacted
      or substantially enacted tax rates expected to apply to the taxable income
      in
      the years in which those differences are expected to be recovered or settled.
      The effect on deferred income tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the date of enactment
      or substantive enactment.




F
          -8


**Eternal
          Energy Corp.**
  **Notes
          to the Condensed Financial Statements**
  ***As
          of June 30, 2008,***
 ***For
          Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
          2007***


**3.**
                **Summary
                    of Significant Accounting Policies,
                    Continued**




*Use
      of Estimates and Assumptions*




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires the use of estimates and
      assumptions that affect the reported amounts of assets, liabilities, revenues
      and expenses and disclosure of contingent obligations in the financial
      statements and accompanying notes. The Company's most significant assumptions
      are the estimates used in the determination of the deferred income tax asset
      valuation allowance and the determination of the value of the Company’s common
      shares that were issued for obligations. The estimation process requires
      assumptions to be made about future events and conditions, and as such, is
      inherently subjective and uncertain. Actual results could differ materially
      from
      our estimates.




*New
      Accounting Pronouncements*




In
      June
      2006, the FASB issued Interpretation No. 48 (FIN 48), *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
      109* .
      This
      interpretation was effective and adopted by the Company as of January 1,
      2007.




*New
      Accounting Pronouncements, Continued*




In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* ("SFAS
      157"). SFAS 157 establishes a single definition of fair value and a framework
      for measuring fair value, sets out a fair value hierarchy to be used to classify
      the source of information used in fair value measurements, and requires new
      disclosures of assets and liabilities measured at fair value based on their
      level in the hierarchy. SFAS 157 is effective for the Company’s year beginning
      January 1, 2008 and is to be applied prospectively. The Company is currently
      evaluating the impacts and disclosures of this standard, but would not expect
      SFAS 157 to have a material impact on its results of operations or financial
      condition.




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ("SFAS
      159"). SFAS 159 permits an entity to choose, at specified election dates, to
      measure eligible financial instruments and certain other items at fair value
      that are not currently required to be measured at fair value. An entity shall
      report unrealized gains and losses on items for which the fair value option
      has
      been elected in earnings at each subsequent reporting date. Upfront costs and
      fees related to items for which the fair value option is elected shall be
      recognized in earnings as incurred and not deferred. SFAS 159 also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between entities that choose different measurement attributes for similar types
      of assets and liabilities. SFAS 159 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007 (January 1, 2008 for the
      Company) and interim periods




F
          -9




**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***
 **3.**
                **Summary
                    of Significant Accounting Policies,
                    Continued**




within
      those fiscal years. At the effective date, an entity may elect the fair value
      option for eligible items that exist at that date. The entity shall report
      the
      effect of the first remeasurement to fair value as a cumulative-effect
      adjustment to the opening balance of retained earnings. The Company is currently
      evaluating the impacts and disclosures of this standard, but would not expect
      SFAS 159 to have a material impact on its results of operations.


**4.**
                **Change
                    of Accounting
                    Principal**




FASB
      Staff Position ("FSP") EITF 00-19-2, *Accounting
      for Registration Payment Arrangements* ,
      specifies that the contingent obligation to make future payments or otherwise
      transfer consideration under a registration payment arrangement, whether issued
      as a separate agreement or included as a provision of a financial instrument
      or
      other agreement, should be separately recognized and measured in accordance
      with
      SFAS No. 5 ("SFAS 5"), *Accounting
      for Contingencies* .
      This
      FSP further clarifies that a financial instrument subject to a registration
      payment arrangement should be accounted for in accordance with other applicable
      Generally Accepted Accounting Principles without regard to the contingent
      obligation to transfer consideration pursuant to the registration payment
      arrangement. This FSP is effective immediately for registration payment
      arrangements and the financial instruments subject to those arrangements that
      are entered into or modified subsequent to December 21, 2006. For registration
      payment arrangements and financial instruments subject to those arrangements
      that were entered into prior to December 21, 2006, the guidance in the FSP
      is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2006, and interim periods within those fiscal years.




On
      January 1, 2007, the Company recorded a cumulative effect of change in
      accounting principle and increased additional paid in capital by $6,091,061,
      decreased financial instrument derivative liability by $2,069,949 and increased
      accumulated deficit at December 31, 2007 by $4,021,112.




F
          -10


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**5.**
                **Equipment
                    and Leasehold
                    Improvements**




The
      following is a summary of equipment and improvements, at cost as of June 30,
      2008:


Office
                  equipment
              
              $
              74,630Downhole
                  gas and water equipment
              
              
              19,000Leasehold
                  improvements
              
              
              38,756Total
                  equipment and improvements
              
              
              132,386Less:
                  accumulated depreciation
              
              
              (37,216
              )**Equipment
                  and improvements, net**
              
              **$**
              **95,170**




Depreciation
      expense for the six-month periods ended June 30, 2008 and 2007 was $17,591
      and
      $5,208, respectively.




**6.**
                **Oil
                    and Gas
                    Properties**




*Producing
      Properties*




In
      2007,
      the Company acquired a 75% working interest in the South West extension of
      the
      West Ranch Field, located in Jackson County, Texas.




The
      net
      capitalized cost of this property is summarized below:


Acquisition
                  cost
              
              $
              1,894,259Improvement
                  costs
              
              
              460,6052,354,864Depletion
              
              
              (43,202
              )**Balance
                  at June 30, 2008**
              
              **$**
              **2,311,662**




*Exploratory
      Prospects*




The
      Company has also entered into participation agreements in three exploratory
      oil
      and gas properties. Two of these properties have been abandoned. The Company
      has
      a 50% working interest in the wells on the remaining property, if they are
      successful. The Company paid certain amounts upon execution of the agreements,
      and is obligated to share in the drilling costs of the exploratory wells. In
      addition, the Company has agreed to issue shares of its common stock based
      upon
      the proven reserves of the property. A description of the oil and gas properties
      follows.




F
          -11


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***
 **6.**
                **Oil
                    and Gas Properties,
                    Continued**




Big
      Sand Spring Valley and Cherry Creek Prospect




The
      Company acquired a 50% working interest in these properties for an initial
      payment of $667,000 and the obligation for a future payment of $2,000,000,
      which
      represents 50% of the estimated initial drilling costs. The Company is obligated
      to pay 50% of future drilling costs on this property. In addition, the Company
      is obligated to issue one million shares of its common stock for each ten
      million equivalent barrels of net proven oil reserves developed on the Big
      Sand
      Spring Valley Prospect. At June 30, 2008, the Company was not obligated to
      fund
      any additional drilling costs nor are there any net proven oil reserves on
      these
      properties. This participation agreement has a term of ten years, which expires
      in November 2015.




North
      Sea Quad 41 and Quad 42




The
      Company acquired 10% working interests in these prospects with the obligation
      to
      fund 15% of exploratory wells. The Company placed $1.5 million for the Quad
      41
      and 42 prospect on deposit to cover its share of these costs. The exploratory
      wells on both of these prospects have been completed and no economically viable
      reserves were discovered.




No
      amounts have been released to the operator for the Quad 41 and 42 prospect
      and
      the Company has instructed the holder of the funds not to make any
      distributions. The Company is attempting to determine what amounts, if any,
      it
      is obligated to pay related to this prospect.




The
      following table summarizes the activity of exploratory costs for the six-month
      periods ended June 30, 2008 and 2007:


2008
              
              2007Balance
                  at the beginning of the period
              
              $
              1,210,458
              
              $
              1,245,210Additions
                  to exploratory costs
              
              
              303,303
              
              
              1,638,633Dry
                  hole costs
              
              
              (1,194
              )
              
              (1,538,416
              )Costs
                  of prospects sold
              
              
              (253,506
              )
              
              (259,482
              )Balance
                  at the end of the period
              
              $
              1,259,061
              
              $
              1,085,945




Utah




In
      December 2007, the Company purchased a 50% interest in a 640-acre mineral lease
      from the State of Utah. In the first quarter of 2008, the Company purchased
      a
      50% interest in an additional 10,860 acre lease from the State of Utah.




F
          -12


**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**6.**
                **Oil
                    and Gas Properties,
                    Continued**




In
      June
      2008, the Company acquired an overriding royalty position in additional
      prospects located in Saskatchewan, Canada.




*Prospects
      Sold*




In
      May
      2007, the Company sold its 15% equity interest in Pebble Petroleum, Inc.,
      ("Pebble") which held a working interest in the Pebble Beach prospect. Proceeds
      from the sale totaled $877,353, resulting in a gain on the disposition of the
      Pebble Beach investment of $619,901. An additional $163,150 of sales proceeds
      were received in the second quarter of 2008 relating to this transaction. Per
      the terms of the Pebble sale, the Company retained a 5% gross overriding royalty
      from each well drilled on certain acreage that Pebble holds rights to in western
      Canada. In addition, the Company obtained the right to receive $250,000 for
      each
      of the first eight wells drilled on the property. The Company records these
      amounts as “spud fees” when drilling commences. As of June 30, 2008, six wells
      have been drilled, for which the Company has earned $1,500,000 in spud fees.
      The
      two remaining wells were drilled in July and August 2008, respectively. As
      a
      result of the litigation described in Note 7, as of June 30, 2008, the purchaser
      is holding in escrow $750,000 in spud fees owed to the Company from three wells
      that have been drilled until the legal matter is resolved. The Company does
      not
      believe that there is any merit in the claim and expects that the spud fees
      due
      to the Company will eventually be received. The timeframe for the settlement
      of
      this lawsuit is uncertain and, accordingly, the receivable has been classified
      as non-current.




In
      June
      2008, the Company sold its 50% working interest in the Utah properties. Gross
      proceeds from the sale totaled $1,190,160, resulting in a $936,654 gain on
      the
      transaction. Under the terms of the sale, the Company retains an overriding
      royalty on production from the property sold, as well as an overriding royalty
      on production from properties of mutual interest which the purchaser may develop
      in the future.




**7.**
                **Commitments
                    and
                    Contingencies**




*Financial
      Results, Liquidity and Management's Plan*




Excluding
      profits realized from the disposition of oil and gas properties, the Company
      has
      incurred net losses for the six-month periods ended June 30, 2008 and 2007
      of
      $778,422 and $1,796,866, respectively, and a net operating loss of $1,437,768
      for the year ended December 31, 2007. These factors raise substantial doubt
      about the Company's ability to continue as a going concern. As stated in Note
      6,
      the Company has been successful in generating additional operating capital
      through the disposition of oil and gas prospects. However, the successful
      disposition of properties is not a viable strategy to fund the Company’s
      long-term operations. Accordingly, the Company’s management is developing and
      implementing plans to bolster the Company’s cash flow from operating
      activities.




F
          -13


**Eternal
          Energy Corp.**
  **Notes
          to the Condensed Financial Statements**
  ***As
          of June 30, 2008,***
 ***For
          Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
          2007***


**7.**
                **Commitments
                      and Contingencies,
                      Continued**


No
      assurances can be given that the Company can obtain sufficient working capital
      through the sale of oil and gas properties, the issuance of common stock or
      by
      leveraging the Company's current assets, or that the implementation of its
      business plan will generate sufficient revenues in the future to sustain ongoing
      operations. The financial statements do not include any adjustments that might
      be necessary if the Company is unable to continue as a going
      concern.




*Litigation*




The
      Company's policy is to accrue amounts related to legal matters as a charge
      to
      operations if it is probable that a liability has been incurred and the amount
      of loss can be reasonably estimated, as required by SFAS 5.




On
      November 20, 2007, the Company was served with a complaint alleging breach
      of
      contract, misappropriation of confidential and proprietary information and
      of
      trade secret and claims under the Colorado Uniform Trade Secrets Act, fraud,
      declaratory relief declaring any agreements of release to be void and
      unenforceable as they were obtained by fraudulent inducement, declaration of
      accounting and constructive trust for all proceeds and profits from the alleged
      misappropriation, injunctive relief for return of all allegedly misappropriated
      information and cessation of use, civil theft of business values, and tortuous
      interference with contract. Plaintiffs seek compensatory and punitive damages
      in
      an unspecified amount, prejudgment interest, declaratory relief, injunctive
      relief, accounting, and attorneys’ fees. The Company believes that the causes of
      action are without merit and intends to defend this case vigorously. The Company
      has filed a countersuit claiming abuse of process, intentional interference
      with
      an existing business and contractual relations, commercial disparagement and
      conspiracy. The lawsuit has continued to negatively impact the Company's ability
      to pursue additional opportunities or acquire additional oil and gas prospects,
      as discussed in Note 6. A further result of the lawsuit has been the sale of
      certain assets in order to fund the Company's ongoing operations, as discussed
      in Note 6. The litigation is currently in the discovery phase. As of the date
      of
      these financial statements, the ultimate outcome of the litigation cannot be
      reasonable estimated.




*Drilling
      Cost Obligations*




As
      discussed in Note 6, the Company is obligated to fund its share of drilling
      costs related to its participation in three exploratory oil and gas wells.
      The
      minimum future obligation on the wells on this property is $2
      million.




F
          -14




**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**7.**
                **Commitments
                    and Contingencies,
                    Continued**




*Employment
      Agreements*




The
      Company has entered into a two-year employment agreement with its President.
      This agreement, as amended, terminates on October 31, 2009, provides for annual
      compensation of $174,000 and a signing bonus of $125,000 of which $90,000 has
      been paid at June 30, 2008. In addition, the Company granted to its president
      options to purchase 1,443,800 shares of the Company’s common stock. The options
      vest over a three year period and have an exercise price of $1.00 per
      share.




In
      August
      2007, the Company entered into a two-year employment agreement with its Vice
      President of Engineering. The agreement provides for annual compensation of
      $120,000 and a signing bonus of $30,000. In addition, the Company granted to
      this employee options to purchase 1 million shares of the Company’s common
      stock. The options vest over a two year period and have an exercise price of
      $0.24 per share.




In
      June
      2008, the Company entered into a two-year employment agreement with its Chief
      Financial Officer. The agreement provides for annual compensation of $138,500.
      In addition, the Company granted to this employee options to purchase 1 million
      shares of the Company’s common stock. The options vest over a two year period
      and have an exercise price of $0.18 per share.




*Lease
      Obligation*




In
      February 2007, the Company entered into a lease for its corporate offices.
      The
      lease has a term of 48 months. Rents remaining as of June 30, 2008 under this
      lease are as follows:


Amount2008
                  (remaining)
              
              $
              24,8542009
              
              
              51,1782010
              
              
              52,7822011
              
              
              4,4102012
              
              
              -**Total**
              
              **$**
              **133,224**




F
          -15




**Eternal
        Energy Corp.**
  **Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***





**8.**
                **Loss
                    Per Share**




The
      following is a reconciliation of the number of shares used in the calculation
      of
      basic loss per share and diluted loss per share for the three and six-month
      periods ended June 30, 2008 and 2007:


For
                  the Three-Month
              
              For
                    the Six-MonthPeriod
                  Ended June 30,
              
              Period
                    Ended June 30,2008
              
              2007
              
              2008
              
              2007Net
                  income (loss)
              
              $
              564,435
              
              $
              (1,030,761
              )
              $
              331,717
              
              $
              (1,178,995
              )Weighted-average
                  number of common shares outstanding
              
              
              44,550,000
              
              
              42,550,000
              
              
              44,550,000
              
              
              42,550,000Incremental
                  shares from the assumed exercise of dilutive
                stock
                  options
              
              
              66,666
              
              
              -
              
              
              66,666
              
              
              -Diluted
                  common shares outstanding
              
              
              44,616,666
              
              
              42,550,000
              
              
              44,616,666
              
              
              42,550,000Net
                  loss per share, basic and diluted
              
              $
              0.01
              
              $
              (0.02
              )
              $
              0.01
              
              $
              (0.03
              )


The
      following securities were not included in the computation of diluted net loss
      per share as their effect would have been anti-dilutive:


For
                  the Six-MonthPeriod
                  Ended June 30,2008
              
              2007Options
                  to purchase common stock
              
              
              4,543,800
              
              
              2,093,800Warrants
                  to purchase common stock
              
              
              -
              
              
              12,924,000





**9.**
                **Share-Based
                    Payment**




In
      November 2005, the Company granted options to purchase 1,443,800 shares of
      its
      common stock to its president. The exercise price of these options is $1.00
      per
      share, which exceeded the market price on the effective date of grant. The
      options vest at the rate of 240,633 shares at the end of each six-month period
      from the effective date of grant, and all become exercisable on November 7,
      2008.




In
      February 2006, the Company granted options to purchase 500,000 shares of its
      common stock to a director. In December 2006, the Company exchanged the option
      to 500,000 common shares for a new option to purchase 350,000 shares of common
      stock. The exercise price of the new options is $0.78 per share, which was
      the
      market price on the effective date of grant. The options vest at the rate of
      116,667 shares at the date of grant and 58,333 at the end of each six-month
      period from the effective date of grant, and all become exercisable on December
      4, 2008.




F
          -16




**Eternal
      Energy Corp.**


**Notes
        to the Condensed Financial Statements**
  ***As
        of June 30, 2008,***
 ***For
        Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
        2007***


**9.**
              **Share-Based
                  Payment,
                  Continued**


In
      December 2006, Company granted options to purchase an additional 300,000 shares
      of its common stock to this same director. The exercise price of these options
      is $0.80 per share, which was the market price on the effective date of grant.
      The options vest at the rate of 50,000 at the end of each six-month period
      from
      the effective date of grant, and all become exercisable on December 4,
      2009.




In
      July
      2007, the Company granted options to purchase 300,000 shares of its common
      stock
      to a director. These options vest over three years, have a life of five years
      and have an exercise price of $0.25 per share, the market price on the effective
      date of grant. The options vest at the rate of 50,000 shares at the end of
      each
      six month period from the effective date of grant, and all will be exercisable
      on July 26, 2010.




In
      August
      2007, the Company granted options to purchase 1,000,000 shares of its common
      stock to its Vice President of Engineering. These options vest over 2 years,
      have a life of 5 years and have an exercise price of $0.24 per share, the market
      price on the effective date of grant. The options vest at the rate of 250,000
      shares at the end of each six month period from the effective date of grant,
      and
      all will be exercisable on August 1, 2009.




In
      March
      2008, the Board of Directors ratified the grant of options to purchase 50,000
      of
      its common shares to a consultant. The stock options were originally approved
      by
      management on August 1, 2006. These options vest over 1 year, have a life of
      5
      years and have an exercise price of $0.97 per share, the market price on the
      effective date of grant. Under the corresponding stock option agreement, 16,667
      options vested at the time the agreement was executed with an additional 16,667
      options vesting at the end of each six-month period from the grant date. As
      of
      June 30, 2008, all 50,000 stock options are exercisable.




Also
      in
      March 2008, the Board of Directors ratified the grant of options to purchase
      100,000 of its common shares to the same consultant. The stock options were
      originally approved by management on August 1, 2007. These options vest over
      1
      year, have a life of 5 years and have an exercise price of $0.20 per share,
      the
      market price on the effective date of grant. Under the corresponding stock
      option agreement, 33,333 options vested at the time the agreement was executed
      with an additional 33,333 options vesting at the end of each six-month period
      from the grant date, and all will be exercisable on July 31, 2008.




In
      June
      2008, the Company granted options to purchase 1,000,000 shares of its common
      stock to its Chief Financial Officer. These options vest over 2 years, have
      a
      life of 5 years and have an exercise price of $0.18 per share, the market price
      on the effective date of grant. The options vest at the rate of 250,000 shares
      at the end of each six month period from the effective date of grant, and all
      will be exercisable on December 2, 2010.




F
            -17
  **Eternal
          Energy Corp.**
  **Notes
          to the Condensed Financial Statements**
  ***As
          of June 30, 2008,***
 ***For
          Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
          2007***


**9.**
                **Share-Based
                    Payment,
                    Continued**




A
      summary
      of stock option activity, as of June 30, 2008, and changes during the six-month
      period then ended is presented below:


WeightedWeighted
              
              AverageAverage
              
              Remaining
              
              AggregateExercise
              
              Contract
              
              IntrinsicShares
              
              Price
              
              Term
              
              ValueOutstanding
                  at December 31, 2007
              
              
              3,393,800
              
              $
              0.67
              
              
              3.5
                    years
              
              
              -Options
                  granted
              
              
              1,150,000
              
              $
              0.22
              
              
              -
              
              
              -Options
                  exercised
              
              
              -
              
              
              -
              
              
              -
              
              
              -Options
                  expired
              
              
              -
              
              
              -
              
              
              -
              
              
              -Options
                  forfeited
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outstanding
                  at June 30, 2008
              
              
              4,543,800
              
              $
              0.55
              
              
              3.5
                  years
              
              $
              42,000Exercisable
                  at June 30, 2008
              
              
              1,961,499
              
              $
              0.82
              
              
              1.7
                  years
              
              $
              1,333


The
      assumptions used in the Black-Scholes option pricing model for the stock options
      granted during the six-month period ended June 30, 2008 were as
      follows:


Risk-free
                  interest rate
              
              
              2.37-3.25
              %Expected
                  volatility of common stock
              
              
              101
              %Dividend
                  yield
              
              $
              0.00Expected
                  life of options
              
              
              5
                  yearsWeighted
                  average fair market value of options granted
              
              $
              0.22


**10.**
                **Equity
                    Transactions**




*Issue
      of Shares for Working Interest*




In
      October 2007, the Company acquired an additional 25% working interest in the
      West Ranch Field in exchange for 2 million shares of its common stock, valued
      at
      $629,513.




*Sale
      of Equity Units*




In
      March
      and May 2006, the Company sold 11,876,000 and 1,248,000 equity units,
      respectively, through a private placement offering. Each equity unit consisted
      of one share of the Company’s common stock and one warrant to purchase a share
      of the Company’s common stock at $1.00 per share. The per equity unit price was
      $0.50 with net proceeds of $6,562,000. The Company paid $440,240 as finders
      fees
      related to this offering. The equity units have a registration rights agreement
      that required the Company to file a registration statement with the Securities
      and Exchange Commission covering the shares and shares to be issued upon
      exercise of the warrants. The registration rights agreement provides for
      liquidated damages equal to $72,500, which is included in accrued liabilities
      at
      June 30, 2008. The registration became effective and no additional penalties
      will be due.




F
          -18


**Eternal
        Energy Corp.**
 **Notes
            to the Condensed Financial Statements**
  ***As
            of June 30, 2008,***
 ***For
            Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
            2007***





**10.**
                **Equity
                    Transactions,
                    Continued**




*Warrants*


2008WeightedAverageNumber
                    of
                
                ExerciseWarrants
                
                Price**Outstanding,
                    December31, 2007**
                
                
                12,924,000
                
                $
                1.16Issued
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Expired
                
                
                (12,924,000
                )
                $
                (1.16
                )Forfeited
                
                
                -
                
                
                -**Outstanding,
                    June 30**,**2008**
                
                
                -
                
                $
                -**Exercisable,
                    June 30**,**2008**
                
                
                -
                
                $
                -




Warrants
      to purchase 11,676,000 million shares expired in March 2008 and 1,248,000
      expired in May 2008.




*Warrant
      Derivative Liability*




The
      holders of the warrants to purchase shares of the Company’s common stock have
      registration rights that require the Company to file a registration statement
      with the Securities and Exchange Commission to register for resale the common
      stock to be issued upon exercise of the warrants. Because the ability to
      register the shares to be issued upon exercise is deemed to be outside the
      control of the Company, the initial fair value of the warrants were recorded
      as
      a financial instrument derivative liability and are marked to market at the
      end
      of each reporting period. The registration statement became effective in the
      first quarter of 2007.




The
      Company estimated the fair value of the warrants using the Black-Scholes
      valuation model with the following assumptions:


December
                    31,Inception
              
              2005Term
              
              
              24
                  months
              
              
              22
                  monthsRisk
                  free interest rate
              
              
              4.30%
                  to 4.92
              %
              
              4.34
              %Volatility
              
              
              101
              %
              
              101
              %Dividend
              
              
              0
              
              
              0




F
          -19




**Eternal
          Energy Corp.**
 **Notes
              to the Condensed Financial Statements**
  ***As
              of June 30, 2008,***
 ***For
              Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
              2007***


**10.**
                **Equity
                    Transactions,
                    Continued**




*Shares
      Reserved for Future Issuance*




As
      of
      June 30, 2008, the Company has reserved shares for future issuance upon exercise
      of outstanding options and warrants as follows:


Options
              
              
              4,543,800Warrants
              
              
              -**Total**
              
              
              **4,543,800**




These
      amounts do not include any shares that may have to be issued upon the discovery
      of net proved reserves in the Nevada oil and gas property.


**11.**
                **Related
                    Party
                    Transaction**




In
      October 2007, the Company acquired certain exploratory oil and gas leases and
      exclusive licenses to use a down-hole gas/water device from entities owned
      by
      its Chairman and Chief Executive Officer. The Company paid $125,000 for the
      oil
      and gas leases and is obligated to pay to a related entity $250,000 on each
      of
      December 31, 2008 and December 31, 2009. The Company may pay these amounts
      either in cash or with shares of its common stock. In addition, the Company
      reimbursed one of the related entities $20,000 for amounts paid to Zavanna
      Canada Corp. The Company is required to drill and equip two wells, and may
      cancel this agreement after the two required wells have been drilled and the
      first $250,000 payment has been made.




One
      license agreement required the Company to pay $25,000 in September 2007 and
      further requires the Company to purchase ten devices each year, beginning in
      2008, at a cost of $4,000 per device. In addition, the grantor of the license
      will receive a 2% royalty on each well using the device. The license expires
      in
      January 2012 and can be extended for 5 years at a cost of $300,000.




The
      second license required a payment of $35,000 on March 30, 2008 and an annual
      payment of $10,000. The Company is required to pay $500 for each device used
      and
      give to the grantor of the license a 5% working interest in each well using
      the
      device. In order to retain exclusive rights to the device license, the Company
      was required to purchase and install 20 devices in Canada by June 30, 2008.
      The
      Company did not purchase and install the required number of devices and
      therefore the license is no longer exclusive.




F
          -20




**Eternal
      Energy Corp.**


**Notes
          to the Condensed Financial Statements**
  ***As
          of June 30, 2008,***
 ***For
          Each of the Three-Month and Six-Month Periods Ended June 30, 2008 and
          2007***
 
 **11.**
                **Related
                    Party Transaction,
                    Continued**




The
      third
      license requires the Company to make an annual payment of $6,000 each year,
      and
      give to the grantor of the license a 5% working interest in each well using
      the
      device. In order to retain exclusive rights to the device license, the Company
      was required to purchase and install five devices in the United States by June
      30, 2008. The Company did not purchase and install the required number of
      devices and therefore the license is no longer exclusive.




As
      part
      of the acquisition of the licenses from the related entity, the Company acquired
      an option to purchase all of the outstanding shares of such related entity
      in
      exchange for 25 million shares of its common stock. The Company is required
      to
      make a $20,000 payment each six months commencing on June 30, 2008 through
      June
      30, 2010 to retain this option, which expires on December 31, 2010.




F
          -21




**ITEM
      2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.**





THE
      FOLLOWING PRESENTATION OF OUR MANAGEMENT'S DISCUSSION AND ANALYSIS SHOULD BE
      READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND OTHER FINANCIAL
      INFORMATION INCLUDED ELSEWHERE IN THIS REPORT. THIS
      DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISK AND
      UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
      IN
      THE FORWARD-LOOKING STATEMENTS.





*Industry
      Outlook*





The
      petroleum industry is highly competitive and subject to significant volatility
      due to numerous market forces. Crude oil and natural gas prices are affected
      by
      market fundamentals such as weather, inventory levels, competing fuel prices,
      overall demand, and the availability of supply.





Worldwide
      oil prices rose throughout 2007 and reached historical highs during the first
      quarter of 2008. Continued economic growth, resulting in increased demand and
      concerns about supply availability, could result in continued high prices.
      Conversely, a decline in demand, caused by any number of economic and political
      factors, and further strengthening of the U.S. Dollar on foreign exchange
      markets could result in lower crude oil prices in future periods.





Oil
      prices have significantly affected profitability and returns for upstream
      producers. Oil prices cannot be predicted with any certainty. The West Texas
      Intermediate price has averaged approximately $38 per barrel over the past
      ten
      years; however, the industry has historically experienced wide fluctuations
      in
      prices.





While
      local supply/demand fundamentals are a decisive factor affecting domestic
      natural gas prices over the long-term, day-to-day prices may be more volatile
      in
      the futures markets, such as on the NYMEX and other exchanges, making it
      difficult to forecast prices with any degree of confidence. Over the last ten
      years, the NYMEX gas price has averaged approximately $5.03 per
      Mcf.





*Results
      of Operations for the Three-Month Periods Ended June 30, 2008 and
      2007*





During
      2007, the Company acquired a 75% working interest in the West Ranch property,
      through a series of cash and stock transactions. The Company began recognizing
      oil and gas revenues and operating expenses relating to the West Ranch property
      in the fourth quarter of 2007. Oil and gas revenues and operating costs related
      to the West Ranch property for the three month period ended June 30, 2008
      totaled $56,816 and $187,838, respectively, compared to zero for the same period
      in 2007.





In
      May
      2007, the Company sold its 15% equity interest in Pebble Petroleum, Inc.,
      ("Pebble") which held a working interest in the Pebble Beach prospect. Proceeds
      from the sale totaled $877,353, resulting in a gain on the disposition of the
      Pebble Beach investment of $619,901. An additional $163,150 of sales proceeds
      were received in the second quarter of 2008 relating to this transaction. Per
      the terms of the Pebble sale, the Company retained a 5% gross overriding royalty
      from each well drilled on certain acreage in western Canada to which Pebble
      holds rights. In addition, the Company obtained the right to receive $250,000
      for each of the first eight wells drilled on the property. The company
      recognized $250,000 in spud fee revenue for the three-month period ended June
      30, 2007, in connection with the drilling of one well. No wells were drilled
      during the second quarter of 2008. Accordingly, The Company did not record
      any
      spud fee revenue for the three months ended June 30, 2008.





In
      June
      2008, the Company sold its 50% interest in certain properties located in Utah.
      Proceeds from the sale totaled $1,190,160 and are reflected as revenue from
      the
      sale of oil and gas prospects on the accompanying income statement. The net
      gain
      on the disposition of these properties totaled $914,088. The Company had
      originally intended to participate in the development of the Utah prospect;
      however, the decision was made to dispose of the investment to ease cash
      restrictions resulting from the Company being named in litigation brought forth
      by Zavanna LLC, et al, as described below. Proceeds from the sale of prospects
      are being used to bolster the Company's working capital position.





As
      indicated in the footnotes to the financial statements, the Company capitalizes
      all exploration related costs related to a prospect until it can be determined
      whether the prospect contains any economically recoverable oil or gas reserves.
      In the event that the drilling of exploratory wells is unsuccessful in locating
      economic reserves, the prospect is abandoned and the related costs are expensed
      in the current period. The Company did not abandon any exploratory wells /
      prospects during the second quarter of 2008. In contrast, the Company recognized
      $1,538,416 in dry hole expense for the second quarter of 2007 in connection
      with
      the abandonment of the Quad 14 and Quad 41 / 42 properties. The Company's income
      statement for the three-month period ending June 30, 2008 contains a negative
      dry hole expense of $1,194 relating to the Quad 41 / 42 property, which
      represents residual exploratory cost, for which the Company was not billed
      until
      the current period.




4




As
      a
      result of hiring a Vice President of Engineering in August 2007 and a Chief
      Financial Officer in June 2008, the Company's payroll related expenses for
      the
      three-month period ended June 30, 2008 increased by $66,982 from the same period
      in 2007. As part of their overall compensation packages, each of these
      individuals received one million options to purchase shares of the Company's
      stock. The Company also granted stock options to two of its Directors in July
      2007. Accordingly, the Company's stock based compensation expense for the second
      quarter of 2008 increased by $32,825 from that of the second quarter of
      2007.





Legal
      expense for the three-month period ended June 30, 2008 increased by $75,920
      from
      the same period in 2007, primarily as a result of the Company's defense of
      litigation brought forth by Zavanna LLC, et al. The Company hopes to recoup
      all
      of its legal expenditures relating to this action as part of the countersuit
      it
      has filed against Zavanna LLC, et al.





The
      Company has not pursued the acquisition of additional oil and gas properties
      as
      aggressively in 2008 as it had in 2007, resulting in a decrease in travel
      expense of $68,227 for the three-month period ending June 30, 2008, compared
      to
      the same period in 2007. Participation in the litigation with Zavanna LLC,
      et
      al, severely hampered the Company's ability to pursue additional exploration
      and
      development opportunities in the current quarter.





The
      Company recorded depreciation, depletion and amortization expense of $35,812
      for
      the second quarter of 2008, compared to $4,236 for the same period in 2007.
      The
      increase is primarily due to the depletion of capitalized costs related to
      the
      West Ranch property and the amortization of certain down-hole gas/water
      separation technology licenses that the Company acquired in early 2008.





The
      company utilized a significant amount of its available cash in late 2007 to
      acquire the West Ranch Property and to pursue other potential prospects. As
      a
      result, interest income for the three-month period ended June 30, 2008 decreased
      by $18,006 from the same period in 2007.





*Results
      of Operations for the Six-Month Periods Ended June 30, 2008 and
      2007*





As
      noted
      above, the Company acquired a 75% working interest in the West Ranch property
      in
      2007. The Company began recognizing oil and gas revenues and operating expenses
      relating to the West Ranch property in the fourth quarter of 2007. Oil and
      gas
      revenues and operating costs for the six-month period ended June 30, 2008
      totaled $137,073 and $397,226, respectively, compared to zero for the same
      period in 2007.





The
      sale
      of the Company's interests in certain oil and gas prospects generated revenues
      of $1,353,645 and $877,353 for the six-month periods ended June 30, 2008 and
      2007 versus costs of $253,506 and $259,492, respectively. Gains recognized
      from
      the sale of oil and gas prospects contributed $1,100,139 and $617,871 to the
      Company's second quarter net income figures for 2008 and 2007.





The
      Company recognized approximately $250,000 in spud fee revenue for the six-month
      periods ended June 30, 2008 and 2007, in connection with the drilling of one
      well during each period. As of June 30, 2008, six of the eight initial wells
      for
      which the Company will receive spud fees have been drilled; five of which were
      drilled in 2007 and one which was drilled during the first quarter of 2008.
      The
      remaining two wells were drilled in July and August 2008, respectively, which
      will result in an additional $500,000 of spud fee revenue being recognized
      by
      the Company in third quarter of 2008. As a result of the Company's involvement
      in the Zavanna litigation, spud fees relating to wells that were drilled
      subsequent to the lawsuit are being held in escrow until the litigation is
      resolved. As of June 30, 2008, $750,000 of spud fees are held in escrow. Spud
      fees relating to the wells drilled in July and August 2008 will also be placed
      into escrow until the legal matter is ultimately resolved.





As
      indicated in the footnotes to the financial statements, the Company capitalizes
      all exploration related costs related to a prospect until it can be determined
      whether the prospect contains any economically recoverable oil or gas reserves.
      In the event that the drilling of exploratory wells is unsuccessful in locating
      recoverable reserves, the prospect is abandoned and the related costs are
      expensed in the current period. To date, the Company has not abandoned any
      exploratory wells / prospects during the 2008. The Company did, however, abandon
      the Quad 14 and Quad 41 / 42 properties during the second quarter of 2007,
      resulting in $1,538,416 of dry hole expense for the period. The Company's income
      statement for the six-month period ending June 30, 2008 contains dry hole
      expense of $1,086 relating to the Quad 41 / 42 property, which represents
      residual exploratory cost, for which the Company was not billed until the
      current period. As of June 30, 2008, the Company has $1,410,268 on deposit
      relating to the drilling of the Quad 41 / 42 prospect. No determination can
      be
      made at this point whether any or all of the deposited funds will ever be
      returned to the Company.




5




As
      a
      result of the hiring and stock option granting activities discussed above,
      the
      Company's payroll related and stock based compensation expenses for the
      six-month period ended June 30, 2008 increased by $122,647 and $63,645 from
      the
      same period in 2007, respectively.





Legal
      expense for the six-month period ended June 30, 2008 totaled $124,607, the
      majority of which was incurred in connection with the Company's defense of
      the
      litigation brought forth by Zavanna LLC, et al. The Company hopes to recoup
      all
      of its legal expenditures relating to this action as part of the countersuit
      it
      has filed against Zavanna LLC, et al.





Travel
      expense for the six-month period ended June 30, 2008 decreased by $84,915 from
      the same period in 2007, largely due to the fact that the Company has not
      pursued the acquisition of additional oil and gas prospects as aggressively
      as
      in 2007. Participation in the litigation with Zavanna LLC, et al, has severely
      hampered the Company's ability to pursue additional exploration and development
      opportunities in the current year.





Depreciation,
      depletion and amortization expense for the six-month period ended June 30,
      2008
      increased by $59,679 from the same period in 2007 as a result of depleting
      capitalized costs related to the West Ranch property and the amortization of
      certain down-hole gas/water separation technology licenses that the Company
      acquired in early 2008.





Year-to-date
      interest income for 2008 decreased by $30,624 from the prior year as a result
      of
      a lower average available cash balance on hand during the period. As noted
      previously, the company utilized a significant amount of its available cash
      in
      late 2007 to acquire the West Ranch Property and to pursue other potential
      prospects.





*Liquidity
      and Capital Resources*





As
      of
      June 30, 2008, the Company's cash and cash equivalents totaled $1,064,760.
      In
      addition, the Company has recorded receivables totaling $766,319, of which
      $16,319 is expected to be collected within the next twelve months and,
      accordingly, is classified as a current asset. The remaining $750,000 relates
      to
      earned spud fees which are being held in escrow pending the outcome of the
      Zavanna litigation. And additional $1,410,268 has been placed on deposit in
      connection with the drilling of the Quad 41 / 42 prospect. As previously stated,
      no economically recoverable reserves have been found on the Quad 41 / 42
      property. At this time, it is uncertain whether any of the funds placed on
      deposit will ultimately be returned to the Company.





The
      Company's cash flows from operations totaled 231,524 for the six-month period
      ended June 31, 2008. As of June 30, 2008, the Company has committed to fund
      future drilling efforts totaling at least $2 million in connection with various
      joint ventures and exploration participation agreements. In addition, the
      Company's management is evaluating various strategies designed to improve
      production from wells located on the West Ranch Property. Total costs associated
      with these strategies are estimated to range from approximately $210,000 to
      $420,000 over a period of the next six months.





While
      the
      Company has historically been successful in raising additional working capital
      through private equity funding sources and/or the sale of existing oil and
      gas
      prospects, as of June 30, 2008, the Company does not have the financial
      resources to meet all of its potential obligations. The Company's management
      is
      currently developing financial strategies to meet its liquidity needs and to
      continue to pursue exploration opportunities. No assurances can be given that
      the Company we will be able to obtain sufficient working capital through the
      issuance of common stock, the sale of oil and gas properties and/or the
      borrowing of funds or that the development and implementation of our business
      plan will generate sufficient revenues to sustain future operations. These
      factors raise substantial doubt with the Company's auditors with respect to
      the
      Company's ability to continue as a going concern.





In
      November 2007, the Company was named as a defendant in a complaint alleging,
      among other things, breach of contract, misappropriation of confidential and
      proprietary information and of trade secret and claims under the Colorado
      Uniform Trade Secrets Act, fraud, declaratory relief declaring any agreements
      of
      release to be void and unenforceable as they were obtained by fraudulent
      inducement, declaration of accounting and constructive trust for all proceeds
      and profits from the alleged misappropriation, injunctive relief for return
      of
      all allegedly misappropriated information and cessation of use, civil theft
      of
      business values, and tortuous interference with contract (the Zavanna
      litigation). The plaintiffs seek compensatory and punitive damages in an
      unspecified amount, prejudgment interest, declaratory relief, injunctive relief,
      accounting, and attorneys’ fees. The Company's management believes that the
      claims are without merit and intends to defend the Company's rights vigorously.
      In January 2008, the Company filed a countersuit claiming abuse of process,
      intentional interference with an existing business and contractual relations,
      commercial disparagement, and conspiracy. The lawsuit has continued to
      negatively impact the Company’s ability to pursue additional opportunities or
      acquire additional oil and gas prospects. The litigation is currently in the
      discovery phase. While management believes that the Company will ultimately
      prevail in this matter, the ultimate outcome of the litigation cannot be
      reasonably estimated.




6




*Off-Balance
      Sheet Arrangements*





The
      Company has no off-balance sheet arrangements at June 30, 2008.





**ITEM
      4. CONTROLS AND** **PROCEDURES.**





We
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including our Principal Executive Officer and our Principal
      Financial Officer, of the effectiveness of the design and operation of our
      disclosure controls and procedures as of the end of the period covered by this
      report. Based on the foregoing, our Principal Executive Officer and our
      Principal Financial Officer concluded that our disclosure controls and
      procedures were effective at the reasonable assurance level.




There
      has
      been no change in our internal controls over financial reporting during our
      most
      recent fiscal quarter that has materially affected, or is reasonably likely
      to
      materially affect, our internal controls over financial reporting.




7




**Part
      II - OTHER INFORMATION**





**ITEM
      6. EXHIBITS.**


**Exhibit**
              
              **Description
                  of Exhibit**




3(i).1
            Articles
                of Incorporation filed with the Nevada Secretary of State on July
                25,
                2003. (Incorporated by reference to Exhibit 3.1 of our Form 10-SB
                filed
                August 18, 2004.)




3(i).2
            Certificate
                of Change filed with the Nevada Secretary of State effective November
                7,
                2005. (Incorporated by reference to Exhibit 3(i).2 of our Current
                Report
                on Form 8-K filed November 9,
                2005.)




3(i).3
            Articles
                of Merger filed with the Nevada Secretary of State effective November
                7,
                2005. (Incorporated by reference to Exhibit 3(i).3 of our Current
                Report
                on Form 8-K filed November 9,
                2005.)




3(ii).1
            Bylaws,
                adopted July 18, 2003. (Incorporated by reference to Exhibit 3.2
                of our
                Form 10-SB filed August 18, 2004.)




3(ii).2
            Amendment
                No. 1 to Bylaws, adopted November 4, 2005. (Incorporated by reference
                to
                Exhibit 3(ii) of our Current Report on Form 8-K filed November 9,
                2005.)




10.1
            Agreement
                and Plan of Merger between Golden Hope Resources Corp. (renamed Eternal
                Energy Corp.) and Eternal Energy Corp., filed with the Nevada Secretary
                of
                State effective November 7, 2005. (Incorporated by reference to Exhibit
                10.1 of our Current Report on Form 8-K filed November 9,
                2005.)




10.2
            Purchase
                and Sale Agreement between Eternal Energy Corp. and Merganser Limited,
                dated November 7, 2005. (Incorporated by reference to Exhibit 10.2
                of our
                Current Report on Form 8-K filed November 9,
                2005.)




10.3
            Form
                of Subscription Agreement for November 2005 private placement.
                (Incorporated by reference to Exhibit 10.3 of our Current Report
                on Form
                8-K filed November 9, 2005.)




10.4
            Form
                of Common Stock Purchase Warrant for November 2005 private placement.
                (Incorporated by reference to Exhibit 10.4 of our Current Report
                on Form
                8-K filed November 9, 2005.)




10.5
            Registration
                Rights Agreement for November 2005 private placement. (Incorporated
                by
                reference to Exhibit 10.5 of our Current Report on Form 8-K filed
                November
                9, 2005.)




10.6
            Letter
                Agreement by and between Eternal Energy Corp. and International Frontier
                Resources Corporation. (Incorporated by reference to Exhibit 10.1
                of our
                Current Report on Form 8-K filed December 5,
                2005.)




10.7
            Employment
                Agreement by and between Eternal Energy Corp. and Bradley M. Colby.
                (Incorporated by reference to Exhibit 10.1 of our Amended Current
                Report
                on Form 8-K/A filed June 29, 2006).




10.7(b)
            Excerpt
                from the minutes of the Board of Directors meeting on July 26, 2007,
                setting forth the terms of the Second Amendment to Employment Agreement
                by
                and between Eternal Energy Corp. and Bradley M. Colby. (Incorporated
                by
                reference to Exhibit 10.1b of our Current Report on Form 8-K filed
                September 27, 2007.)




10.8
            First
                Amendment to Employment Agreement by and between Eternal Energy Corp.
                and
                Bradley M. Colby (Incorporated by reference to Exhibit 10.1(a) of
                our
                Current Report on Form 8-K filed December 8,
                2006).




10.9
            Letter
                Agreement by and between Eternal Energy Corp. and International Frontier
                Resources Corporation Relating to Quad 41 and Quad 42 dated January
                30,
                2006. (Incorporated by reference to Exhibit 10.1 of our Current Report
                on
                Form 8-K filed February 3, 2006.)




8




10.10
            Amended
                and Restated Letter Agreement by and between Eternal Energy Corp.
                and
                International Frontier Resources Corporation Relating to Quad 14
                dated
                January 30, 2006. (Incorporated by reference to Exhibit 10.2 of our
                Current Report on Form 8-K filed February 3,
                2006.)




10.11
            Finder’s
                Fee Agreement by and between Eternal Energy Corp. and Taverham Company
                Ltd. dated January 30, 2006. (Incorporated by reference to Exhibit
                10.3 of
                our Current Report on Form 8-K filed February 3,
                2006.)




10.12
            Form
                of Subscription Agreement for March 2006 private placement. (Incorporated
                by reference to Exhibit 10.1 of our Current Report on Form 8-K filed
                March
                8, 2006.)




10.13
            Form
                of Common Stock Purchase Warrant for March 2006 private placement.
                (Incorporated by reference to Exhibit 10.2 of our Current Report
                on Form
                8-K filed March 8, 2006.)




10.14
            Form
                of Registration Rights Agreement for March 2006 private placement.
                (Incorporated by reference to Exhibit 10.1 of our Amended Current
                Report
                on Form 8-K/A filed March 29,
                2006.)




10.15
            Letter
                Agreement between us and Eden Energy Corp. dated April 14, 2006
                (Incorporated by reference to Exhibit 10.1 our Current Report on
                Form 8-K
                filed April 21, 2006).




10.16
            Letter
                Agreement effective as of May 19, 2006, by and among Eternal Energy
                Corp.,
                International Frontier Resources Corporation, Palace Exploration
                Company
                Limited, Oilexco Incorporated, and Challenger Minerals (North Sea)
                Limited
                (Incorporated by reference to Exhibit 10.1 of our Current Report
                on Form
                8-K filed May 23, 2006).




10.17**
            Letter
                Agreement dated October 15, 2006, by and among Eternal Energy Corp.,
                Fairway Exploration, LLC, Prospector Oil, Inc., and 0770890 B.C.
                Ltd.
                (Incorporated by reference to Exhibit 10.17 of our Registration Statement
                on Form 10-KSB filed April 16,
                2007).




10.18**
            Letter
                Agreement dated October 26, 2006, by and among Eternal Energy Corp.,
                Fairway Exploration, LLC, Prospector Oil, Inc., 0770890 B.C. Ltd.,
                and
                Rover Resources Inc. (Incorporated by reference to Exhibit 10.18
                of our
                Registration Statement on Form 10-KSB filed April 16,
                2007).




10.19
            Letter
                Agreement dated February 28, 2007, by and among Eternal Energy Corp.,
                Pebble Petroleum Inc., Emerald Bay Holdings Ltd., and Heartland Resources
                Inc.(Incorporated
                by reference to Exhibit 10.19 of our Registration Statement on Form
                10-KSB
                filed April 16, 2007).




31.1*
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley
                Act




31.2*
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley
                Act




32.1*
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley
                Act




32.2*
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley
                Act







*
      Filed
      herewith.


**
      Portions omitted pursuant to a request for confidential treatment.




9




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      Report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





ETERNAL
                ENERGY CORP.(Registrant)August
                13, 2008
            /s/Bradley
                M. ColbyBradley
                M. ColbyPresident
                and Chief Executive Officer




10