SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549






FORM
10-KSB






(Mark
One)




[X]
      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
Fiscal Year Ended December 31, 2007




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









For
      the transition period from ____________ to
_____________Commission
      File No. 0-27929ETERNAL
      TECHNOLOGIES GROUP, INC.
              (Name
      of Small Business Issuer in its charter)Nevada
              (State
      or other jurisdiction of incorporation or organization)
            62-1655508
              (I.R.S.
      Employer Identification No.)Suite
      2007, Main Block
              Jinzhonghuan
      Commercial Tower
              3037th
      Jintian Rd. Futian Dist.
              Shenzhen,
      Guangdong Province, China 518048
              -----------------------------------------------------------------
              (Address
      of principal executive offices)(Zip code)Issuer's
      telephone number, including area code:
  011-86-22-2721-7020Securities
      to be registered pursuant to Section 12(b) of the Act:Title
      of each class
            Name
      of each exchange on which each is registeredNone
            NoneSecurities
      to be registered pursuant to Section 12(g) of the Act:Common
      Stock, $0.001 par value(Title
      of Class)




Indicate
by check mark if the registrant is a well known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes [ ] No [ X ]






Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act Yes [ ] No [ X ]






Indicate
by check mark whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports); and (2)
has been subject to such filing requirements for the past 90 days.






Yes [X]
No [ ]




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company






Large
Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ ] Smaller
Reporting Company [ X ]






The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold as of the last business day of the registrant's most recently
completed second quarter $30,957,835.






Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]






Indicate
by check mark whether the registrant is a shell company Yes [ ] No [ X
]






DOCUMENTS
INCORPORATED BY REFERENCE






None






Transition
Small Business Disclosure Format: Yes [ ] No [X]




1







TABLE OF
CONTENTS




PagePART
      IITEM
      1.    DESCRIPTION OF BUSINESS
              3ITEM
      1B. UNRESOLVED STAFF COMMENT’S
              6ITEM
      2.    PROPERTIES
              6ITEM
      3.    LEGAL PROCEEDINGS
              7ITEM
      4.    SUBMISSION OF MATTERS TO A VOTE OF 
      SECURITY HOLDERS
              7PART
      IIITEM
      5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
       MATTERS AND SMALL BUSINESS ISSUER PURCHASE OF
      EQUITY  SECURITIES
              8ITEM
      6.     SELECTED FINANCIAL DATA
              9ITEM
      7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS
              10ITEM
      8.    FINANCIAL STATEMENTS AND SUPPLEMENTAL
      DATA
              17ITEM
      9.    CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTSON
      ACCOUNTING AND FINANCIAL DISCLOSURE
              36ITEM
      9A. CONTROLS AND PROCEDURES
              36ITEM
      9B.  OTHER INFORMATION
              37PART
      IIIITEM
      10.  DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE
      GOVERANCE
              37ITEM
      11.  EXECUTIVE COMPENSATION
              39ITEM
      12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS
      AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS
              43ITEM
      13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
              44ITEM
      14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
              44ITEM
      15.  EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
              44SIGNATURES
              47


2




FORWARD-LOOKING
STATEMENTS






This
annual report on Form 10-KSB contains forward-looking statements within the
meaning of the federal securities laws. These forwarding-looking statements
include without limitation statements regarding our expectations and beliefs
about the market and industry, our goals, plans, and expectations regarding our
operations and properties and results, our intentions and strategies regarding
future operations, acquisitions and sales of properties, our intentions and
strategies regarding the formation of strategic relationships, our beliefs
regarding the future success of our operations, our expectations and beliefs
regarding competition, competitors, the basis of competition and our ability to
compete, our beliefs and expectations regarding our ability to hire and retain
personnel, our beliefs regarding period to period results of operations, our
expectations regarding revenues, our expectations regarding future growth and
financial performance, our beliefs and expectations regarding the adequacy of
our facilities, and our beliefs and expectations regarding our financial
position, ability to finance operations and growth and the amount of financing
necessary to support operations. These statements are subject to risks and
uncertainties that could cause actual results and events to differ materially.
We undertake no obligation to update forward-looking statements to reflect
events or circumstances occurring after the date of this annual report on Form
10-KSB.






As used
in this annual report on Form 10-KSB, unless the context otherwise requires, the
terms "we," "us," "the Company," and "Eternal Technologies" refer to Eternal
Technologies Group, Inc., a Nevada corporation.






PART I






ITEM 1. DESCRIPTION OF BUSINESS






General






Eternal
Technologies Group, Inc. is engaged in agricultural genetics and medical
equipment manufacturing and distribution operating in the People's Republic of
China. We focus on the development and application of advanced animal husbandry
techniques to produce improved food products, the development, manufacturing and
marketing of medical equipment and technologies used in the detection and
prevention of breast cancer in humans.






Our
agricultural genetics/animal husbandry operations are concentrated in the
application of advanced embryonic biotechnology techniques with the objective
being to shorten the development time for animal development resulting in
increased output and profitability and reduced use of animal feed. Since 2000,
we have utilized our advanced breeding techniques and marketed fine bred animal
embryos, breeding stock and breeding services to develop larger, stronger and
healthier sheep. In the fourth quarter of 2003, we began the production and sale
of lamb meat and began application of our advanced breeding techniques to the
breeding of higher-yielding purebred Holstein dairy cattle.






Our
development, manufacturing and marketing of medical equipment and medical
technologies are focused in the development of breast cancer detection
technology with the objective of earlier detection. We manufacture a device
which , if widely accepted, could substantially decrease the costs and therefore
increase the availability of breast cancer detection in many areas in Asia. We
entered this industry in October of 2005 with the acquisition of the assets of
E-Sea Biomedical Engineering Co. International, Ltd.






Our
principal executive offices are located at Suite D, 5/F, Block A, Innotec Tower,
235 Nanjing Road Heping District, Tianjin, PRC 300052 and our telephone number
is 011-86-22-2721-7020. We also maintain offices in Shenzhen, China at the
Golden Central Tower Suite 2007, 3037 Jintian Rd., Shenzhen, China
518048.




3









History
and Development of the Company






Eternal
Technologies Group, Ltd, was incorporared in the British Virgin Island (BVI) on
March, 2000. We conduct operations through our wholly-owned subsidiaries,
Eternal Technology Group Ltd. ("Eternal - BVI"), a British Virgin Islands
company, and its subsidiaries and E-Sea Biomedical Engineering Co. International
Ltd., ("E-Sea") also a BVI company, and Willsley Company Limited
(Willsley)






Eternal -
BVI acquired 100% of Willsley Company Limited in May 2000. Willsley is a
holding company that owns 100% of Inner Mongolia Aershan Agriculture &
Husbandry Technology Co., Ltd. ("Aershan Agriculture"). Aershan Agriculture
conducts breeding operations and owns a farm in Inner Mongolia which it leases
to a Chinese company ("lessee") for 4,620,000RMB per year for approximately
USD$579,000 per year. The lessee intends to raise fast growing trees on the
property for lumber.






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






Our
current agricultural operations are focused on developing superior livestock
breeds in order to improve the quality and yield of livestock in China as well
as the profitability of livestock operations. We initially imported embryos from
Australia and the United States, but are utilizing our facilities and expertise
to develop a herd of "carrier animals" to produce a domestic supply of embryos,
hereby eliminating our dependence on third party foreign embryo suppliers and
reducing the cost of embryos. Under this program, we transfer fine-breed sheep
and dairy cattle embryos into recipient animals and sell the pregnant animals to
customers with the offspring serving as breeding or commercial
stock.






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






We also
process and sell mutton from our higher yielding, higher quality genetically
engineered stock.






Our
current medical operations are centered around E-Sea and expanding our market in
China, both through the sales of our medical detection devices and leasing them
on a per usage basis. We are also exploring acquisitions to expand and
complement the E-Sea line of medical equipment.




During
February 2007, the Company entered into an Exchange Agreement (“the Agreement”)
by which it expended $14,850,000 RMB in cash, approximately $3,800,000 USD and
2,719,730 shares of common stock valued at $.63 US in exchange for 22% interest
in the common stock of Changsha Hong Yuan Aquatic Product, Inc. (“Hong Yuan”).
Hong Yuan is a corporation duly organized, validly existing, and in good
standing under the laws of the PRC and currently its operations focus on the
breeding and sale of turtles. In accordance with the Agreement, Hong Yuan has
committed to pay the Company a guaranteed return on its investment of $3,000,000
RMB per year either in cash or the equivalent in additional shares of its common
stock.
  On
October 15, 2007, the Company acquired a 30% equity interest, respectively, in
Hainan Futian Green Agriculture Ltd. ("Hainan") a mango farm, and Maoming
Huatong Orchard Trading Co., Ltd. ("Maoming") a Lychee farm. For the acquisition
of the interest in Hainan, the Company paid $33,000,000 RMB in cash,
approximately US$4,400,000, and issued 2,133,333 shares of its common
stock valued at $.84 USD based on the closing price of the stock.  For the
acquisition of the interest in Maoming, the Company paid $36,000,000 RMB in
cash, approximately US$4,800,000 and issued 2,444,444 shares of its common stock
valued at $.84 USD based on the closing price of the stock. Both companies are
incorporated under the laws of the PRC. The Mango farm has a guaranteed minimum
annual return on investment of $6,800, 000 RMB and will increase by a
minimum of 1% for ten years. The Lychee farm has a guaranteed minimum annual
return on investment of $7,800,000 RMB and will increase by 1% for five
years.  If the farms are unable to meet the  guaranteed minimum annual
returns on investment with cash flows from their operation, they must meet the
obligations by returning an equivalent amount of the company's shares originally
issued to them as part of the investment purchase.






4











Historically,
our business has been highly seasonal with nearly all of our revenues being
generated in the fourth quarter. While our business will remain seasonal it
should be less cyclical in the future because of the sale of lamb meat, embryo
transfers to dairy cattle and the acquisition of E-Sea thereby making our
overall business less seasonal.






Medical
Equipment Operations E-Sea






E-Sea
manufactures and sells a medical device known as a "Three-operator Mammary Gland
Detecting System." This device is used to examine persons and detect early stage
breast cancer. We anticipate wide acceptance of this product as it is a low cost
alternative to expensive and often times unavailable mammography.






Facility.
We manufacture and sell the medical equipment from a facility in Shenzhen, PRC.
The facility is approximately nine-thousand square feet and contains
manufacturing machinery, workspace, and administrative offices.






The
marketing of scanners produced by E-Sea is principally done through independent
distributors. Our agricultural products  and services are marketed by
company personnel.






Potential
Acquisitions






We intend
to evaluate various potential acquisitions of companies and facilities in order
to expand the scope of our operations and accelerate our growth. Specifically,
we intend to evaluate the acquisition of companies or facilities to provide
feedlot, dairy processing, slaughterhouse and meat processing, animal fattening
and similar capabilities. However, there are no current agreements to purchase
any companies or facilities.






Competition






Both the
agriculture and medical equipment industries are highly competitive. While
animal genetics is a relatively new field in China several large foreign
companies such as Smithfield Foods, Inc. of the United States and Sumitomo
Corporation of Japan have entered the market and compete with us in the
development and delivery of advanced animal husbandry products and services.
Likewise in the medical equipment field, companies such as Siemens and General
Electric have entered the market to compete with us. These companies have a
substantial advantage due to their size and the name recognition each
enjoys.






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






Intellectual
Property






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






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








5






Governmental
Regulation






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






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






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






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






Our
medical equipment operations are subject to extensive regulation by the Chinese
government and, if we market our products outside of China, other governments
may impose even greater restrictions. Chinese medical equipment regulation is
evolving and subject to much uncertainty. Under current regulations, the Chinese
equivalent of the United States Food And Drug Administration is responsible for
monitoring, and promulgating regulations with respect to the review of clinical
safety and efficacy trial, market approval of equipment and effectiveness
claims, manufacturing practices, and similar matters. Failure to comply with
market rules could result in fines, penalties or other adverse
consequences.










As of
December 31, 2006 and 2007, we had 68 and 70 full-time employees respectively,
including employees performing administrative functions and animal husbandry
services and farming functions. Third parties perform bioscience research and
related services on a contract basis. The employees are not covered by a
collective bargaining agreement, and we do not anticipate that any of our future
employees will be covered by any such agreement.






ITEM 1B.
UNRESOLVED STAFF COMMENTS






On
February 7, 2007, the Company received a comment letter from the SEC regarding
its filing on Form 10-KSB for the year ended December 31, 2005 and Form 10-QSB
for the quarter ended September 30, 2006. The Company is in the process of
responding and resolving the Staff comments mentioned in this letter. The
ultimate resolution of these comments is currently uncertain and may require the
Company to file amendments to both of the aforementioned filings.






ITEM 2.
PROPERTIES






We
operate from four separate facilities, our administrative offices in Tianjin and
Shenzhen PRC, a manufacturing facility in Shenzhen, and our farm in Inner
Mongolia, PRC.






.








6











The
administrative offices in Tianjin occupy approximately 97.8 square meters
(approximately 1,053 square feet) in a commercial building. The Company rents
this facility under a three-year lease, running through December 31, 2010, at
$8,000 RMB (approximately US$1,100) per month. The administrative office in
Shenzhen occupies approximately 150 square meters (approximately 1,585 square
feet) in a high rise office building. We rented this facility under a two year
lease running through October 21, 2009 at $24,324RMB (approximately US$3,300 per
month).






The
leased facility of E-Sea in Shenzhen is an 865 square meters (approximately
9,310 square feet) facility containing machinery for the manufacture of medical
equipment, administrative offices, and storage space for raw materials. The
lease expires on January 14, 2010 and requires monthly payments of $20,001RMB
(approximately US$2,700).






The farm
consists of approximately 2.8 million acres and is located in Inner Mongolia,
PRC. We purchased the land use rights to this farm in April 2000. Land use
rights with respect to our farm were purchased from the Chinese government for
$6,000,000. Such rights extend through 2026. We have the option to renew the
land use rights for an additional 25 years at a cost of USD$6,000,000. In April
2006 we reached an agreement to lease the farm to a Chinese company
("Lessee")for twenty years for approximately $579,000 per year. The Lessee
intends to raise fast growing trees on the property for lumber and
paper.






ITEM 3.
LEGAL PROCEEDINGS






On August
23, 2007, the U.S. District Court for the Southern District of Texas awarded
Western Securities Corporation the sum of $636,757 plus accrued interest since
May 22, 2007 and attorney fees in an amount to be determined this judgement
became final on October 31, 2007. The Company has several notices with the Court
that it intends to appeal this judgement. The judgement will have no impact on
earnings, as the potential liability had been previously accrued.






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






The third
cause of action involves one of the convertible promissory notes owned by
Bristol Investments Limited. This cause of action was filed in State Court in
New York and three times was dismissed. On March 30, 2006 without stating a new
cause of action, Bristol Investments Limited re-filed the same cause of action
against the Company and on December 27, 2007, the Court rendered a decision in
favor of Bristol Investments Limited. The parties have since reached an
oral settlement of $64,000 although, a formal settlement agreement has not
been executed.






As of
March 26, 2008, there are no other causes of action pending against the
Company.






ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS






During
the quarter ended December 31, 2007. The Company held its annual meeting on
November 15, 2007 in Honolulu, Hawaii. At this meeting, the seven directors
standing for election were elected and the Company’s Stock Option Plan was
approved. The following table sets forth the election results.




Director
            Votes
      For
            Votes
      Against
            Withheld
            Abstentions
      and Brokers Non-VotesJiJun
      Wu
            32,136,500
            40,000
            214,000
            64,000Jiansheng
      Wei
            28,500,500
            2,771,000
            121,000
            56,000Shien
      Zhu
            29,460,000
            2,873,500
            121,000
            -Genchang
      Li
            29,460,000
            2,873,500
            121,000
            -Shicheng
      Fu
            29,460,000
            2,873,500
            121,000
            -Yugo
      Cheng
            29,460,000
            2,873,500
            121,000
            -Mike
      Zhang
            29,360,000
            2,873,500
            121,000
            -






7






The
following table sets forth the vote totals for the 2007 Employee Stock
Option




Vote
      TotalsFor
            24,083,200Against
            8,263,300Broker
      Non-Votes
            108,000




PART II




ITEM
      5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      SMALL BUSINESS ISSUER PURCHASE OF EQUITY
  SECURITIES




Our
common stock is listed on the over-the-counter electronic bulletin board
("OTCBB") under the symbol "ETLT". The following table sets forth the range of
high and low bid prices for each quarter during the past two fiscal
years.




Calendar
      Year 2007
            High
            LowFourth
      Quarter
            $0.95
            $0.30Third
      Quarter
            0.74
            0.56Second
      Quarter
            0.74
            0.55First
      Quarter
            0.97
            0.57Calendar
      Year 2006Fourth
      Quarter
            $0.70
            $0.45Third
      Quarter
            0.51
            0.39Second
      Quarter
            0.56
            0.39First
      Quarter
            0.69
            0.39




On
January 1, 2007 we issued 2,719,730 shares of our common stock to shareholders
of Hong Yuan Aquatic Products, Inc.  along with $3,8000,000 USD in cash for
a 22% interest in that enterprise. The assigned value of the common stock issued
was $.70 per share which approximated the fair value of the common stock on
January 1, 2007. Hong Yuan has committed to pay us a guaranteed return on our
investment of $3,000,000 RMB per year in cash or the equivalent in shares of its
common stock.






On
January 5, 2007, we issued 600,000 shares to Yulang Zhang to compensate her for
the 600,000 shares she had sold to pay the various company obligations in the
United States d uring
the first quarter,of 2007, the Company issued 186,549 shares of its common
stock to four warrant holders for the cashless conversion of 330,578
warrants.






On
October 15, 2007, the Company issued 2,133,333 shares of its common stock along
with approximately $4,400,000 USD in cash to the shareholders of
Hainan Fuitian Green Agriculture Co. Ltd."Hainan" for a 30% equity interest in
that entity and issued 2,444,444 shares of its common stock  along with
approximately $4,800,000 USD in cash to the shareholders of Maoming Huatong
Orchard Trading Co., Ltd. "Maoming Hautong" for a 30% equity interest in that
entity. The investment in Hainan has a guarenteed  minimum annual
profit of $6,800,000 RMB and increases by 1% per annum. The investment in
Maoming Hautong has a guaranteed minimum annual profit of $7,800,000 RMB
and increases by 1% per year.








8











On
October 11, 2007, the Company issued 36,678 shares of its common stock to a
warrant holder for the cashless conversion of 68,572 warrants and issued 50,000
shares to another warrant holder for the cashless conversion of 104,054
warrants.






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






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






And
finally, between August 13 and September 3, 2007, the Company repurchased in
private transactions, 1,509,730 shares of its common stock.






We have
not paid dividends in the past and we intend to retain earnings, if any, and
will not pay cash dividends in the foreseeable future. Any future determination
to pay cash dividends will be at the discretion of the Board of Directors and
will be dependent upon our financial condition, results of operations, capital
requirements, general business conditions and such other factors as the board of
directors may deem relevant. In November, 2006, the PRC government relaxed its
currency controls. However, controls still exist which would make if difficult
to pay dividends in excess of $50,000 per year.






ITEM 6.
SELECTED FINANCIAL DATA






The
following selected financial data for 2007 and 2006 is qualified in its entirety
by, and should be read in conjunction with the more detailed information
contained in the Consolidated Financial Statements and Notes thereto and
Management’s Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Annual Report on Form 10-KSB.




2007
            
            
            2006Selected
      Statements of Operations DataSales
            
            
            35,590,718
            
            
            
            28,718,103Cost
      of Sales
            
            
            24,143,968
            
            
            
            18,986,902Gross
      Profit
            
            
            11,446,750
            
            
            
            9,731,201Research
      and Development Expenses
            
            
            564,512
            
            
            
            383,754Selling
      General & Administrative Expenses
            
            
            5,036,500
            
            
            
            3,682,740Depreciation
      & Amortization
            
            
            1,122,654
            
            
            
            1,069,602Other
      Income (Expense), net
            
            
            2,067,535
            
            
            
            439,696Provision
      for Income Taxes
            
            
            601,845
            
            
            
            555,792Net
      Income
            
            
            6,751,357
            
            
            
            4,881,668Average
      Common shares – basic
            
            
            47,867,890
            
            
            
            43,567,300Average
      Common shares – diluted
            
            
            47,929,145
            
            
            
            43,801,540Net
      income per share – diluted
            
            
            .14
            
            
            
            .11Financial
      Condition at December 31:Cash
      & Cash Equivalents
            
            
            12,692,479
            
            
            
            16,024,123Current
      Assets
            
            
            39,120,837
            
            
            
            43,723,751Current
      Liabilities
            
            
            2,230,035
            
            
            
            1,859,614Working
      Capital
            
            
            36,890,802
            
            
            
            41,864,137Ratio
      of Current Assets to current liabilities
            
            
            17.54
            
            
            
            23.51Total
      Assets
            
            
            75,052,297
            
            
            
            58,065,737Long
      term debts
            
            
            -
            
            
            
            -Stockholders'
      Equity
            
            
            72,822,262
            
            
            
            56,206,123






9











ITEM 7.
            MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
Company






Our
current operations are conducted through our wholly owned subsidiary, Eternal
Technology Group Ltd. ("Eternal Technologies - BVI"), a British Virgin Islands
company, and its subsidiaries. For a more detailed description of our business
please see "Item 1. Description of Business" on page 3.






Historically,
our business has been highly seasonal with nearly all of our revenues being
generated in the fourth quarter. This seasonality occurs because the embryo
sales occur only during the fourth quarter when animals are impregnated as
births occur in the spring. Other periods, other than the fourth quarter, should
benefit in the future from the sale of lamb meat and embryo transplants into
dairy cattle; thereby making our overall business less seasonal. We believe the
acquisition of E-Sea Biomedical Engineering Co. International, Ltd. provides
further diversification of our operations, thereby reducing the seasonality of
our revenues.






Critical
Accounting Policies






The
preparation of financial statements in conformity with United States generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Our
management routinely makes judgments and estimates about the effects of matters
that are inherently uncertain.






Our
critical accounting policies are those where we have made the most difficult,
subjective or complex judgments in making estimates, and/or where these
estimates can significantly impact our financial results under different
assumptions and conditions. Our critical accounting policies are:






Inventory
Valuation






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




Impairment
of Long-Lived Assets (including Property, plant and equipment), Goodwill and
Identifiable Intangible Assets.






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








10






Among our
long-lived assets subject to review for impairment are our land lease rights in
the PRC that are stated at cost less accumulated amortization. Amortization of
land lease rights was calculated on the straight-line basis over the lesser of
its estimated useful life or the lease term. The principal annual rate used for
amortization is 5%.






Stock-Based
Compensation






In
December 2004, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123(R), Share-Based
Payment. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost is to be measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards are to be remeasured each reporting period.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award. SFAS 123(R) is a revision of SFAS 123,
Accounting for Stock-Based Compensation, as amended by SFAS 148, Accounting for
Stock-Based Compensation-Transition and Disclosure and supersedes APB No. 25,
Accounting for Stock Issued to Employees. We adopted SFAS 123(R) effective
January 1, 2006, using the modified prospective method. This method applies the
fair value based method to new awards and to awards modified, repurchased or
cancelled after the required effective date. Also, compensation cost for the
portion of awards for which the requisite service has not been rendered that are
outstanding as of the required effective date shall be recognized as the service
is rendered on or after the required effective date. Any share based payments
issued subsequent to January 1, 2006 have been accounted for under SFAS
123(R).






Contingencies






We
account for contingencies in accordance with SFAS No. 5,”Accounting for
Contingences". SFAS No. 5 requires that we record an estimated loss from a loss
contingency when information available prior to issuance of our financial
statements indicates that it is probable that an asset has been impaired or a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated.






Revenue
recognition






In
accordance with Staff Accounting Bulletin ("SAB") No. 104 , revenue is recorded
when persuasive evidence of an arrangement exists; the price to the buyer is
fixed or determinable; the merchandise is delivered to the customer and title
passes; and collection is reasonably assured.






Derivative
instruments






In
connection with the sale of debt or equity instruments, we may sell options or
warrants to purchase our common stock. In certain circumstances, these options
or warrants may be classified as derivative liabilities, rather than as equity.
Additionally, the debt or equity instruments may contain embedded derivative
instruments, such as conversion options, which in certain circumstances may be
required to be bifurcated from the associated host instrument and accounted for
separately as a derivative instrument liability.






The
identification of, and accounting for, derivative instruments is complex. Our
derivative instrument liabilities are re-valued at the end of each reporting
period, with changes in the fair value of the derivative liability recorded as
charges or credits to income, in the period in which the changes occur. For
options, warrants and bifurcated conversion options that are accounted for as
derivative instrument liabilities, we determine the fair value of these
instruments using the Black-Scholes option pricing model. That model requires
assumptions related to the remaining term of the instruments and risk-free rates
of return, our current common stock price and expected dividend yield, and the
expected volatility of our common stock price over the life of the option. The
identification of, and accounting for, derivative instruments and the
assumptions used to value them can significantly affect our financial
statements.








11






Results
of Operations






Year
Ended December 31, 2007 Compared to Year Ended December 31, 2006






Revenues






Revenues
increased by $6,872,615 or 23.9% to $35,590,718 for the year ended December 31,
2007 from $28,718,103 for the year ended December 31, 2006. The increase was
primarily due to increases in embryo transfer services of $2,729,802, the sale
of roll mutton of $4,421,928. An increase in rents of $468,748 and increased
sales at E-Sea of $1,853,859 which were partially offset by decreases in the
sale of lamb meat of $1,882,162 and cattle embryo transfer services of
$719,560.






The
following chart illustrates the changes by category from the year-ended December
31, 2007 to December 31, 2006.




Category
            
            2007
            
            
            2006
            
            
            DifferenceLamb
      meat
            
            
            1,759,833
            
            
            $
            3,641,995
            
            
            
            (1,882,162
            )Cattle
      embryo transfers
            
            
            4,542,352
            
            
            
            5,261,912
            
            
            
            (719,560
            )Embryo
      transfer services
            
            
            4,082,865
            
            
            
            1,353,063
            
            
            
            2,729,802Roll
      mutton
            
            
            13,855,157
            
            
            
            9,433,229
            
            
            
            4,421,928Land
      lease
            
            
            758,153
            
            
            
            289,405
            
            
            
            468,748E-Sea
            
            
            10,592,358
            
            
            
            8,738,499
            
            
            
            1,853,859Totals
            
            $
            35,590,718
            
            
            $
            28,718,103
            
            
            $
            6,872,615




Cost of
Sales






Cost of
sales increased by $5,157,067 or 27.2% to $24,143,969 for the year ended
December 31, 2007 from $18,986,902 for the year ended December 31, 2006. The
increase in cost of sales is attributable to an increase in embryo transfer
services of $2,776,916 in the sale of roll mutton of $3,646,921, cost of the
land lease of $159,924 and E-Sea of $538,520 which were partially offset by
decreases in the cost of lamb meat of $1,326,200, cattle embryo transfers of
$577,699 and an decrease in the feeding fee of $61,315.






The
following chart illustrates the changes by category from the year-ended December
31, 2007 to December 31, 2006.




Category
            
            2007
            
            
            2006
            
            
            DifferenceLamb
      meat
            
            
            1,229,586
            
            
            $
            2,555,786
            
            
            
            (1,326,200
            )Cattle
      embryo transfers
            
            
            3,251,720
            
            
            
            3,829,419
            
            
            
            (577,699
            )Embryo
      transfer services
            
            
            4,017,224
            
            
            
            1,240,308
            
            
            
            2,776,916Roll
      mutton
            
            
            11,328,310
            
            
            
            7,681,389
            
            
            
            3,646,921Feeding
      Fee
            
            
            130,494
            
            
            
            191,809
            
            
            
            (61,315
            )Land
      Lease
            
            
            562,583
            
            
            
            402,659
            
            
            
            159,924E-Sea
            
            
            3,624,052
            
            
            
            3,085,532
            
            
            
            538,520Totals
            
            $
            24,143,969
            
            
            $
            18,986,902
            
            
            $
            5,157,067






12













The gross
profit by category is as follows:




Years-ended
      December 31,Category
            
            2007
            
            
            2006Lamb
      meat
            
            
            30.1
            %
            
            
            29.8
            %Cattle
      embryo transfers
            
            
            28.4
            %
            
            
            27.2
            %Embryo
      transfer service
            
            
            1.7
            %
            
            
            8.3
            %Roll
      mutton
            
            
            18.2
            %
            
            
            18.6
            %Land
      Lease
            
            
            25.8
            %
            
            
            (85.5
            )%E-Sea
            
            
            65.8
            %
            
            
            64.7
            %




Depreciation
and Amortization






Depreciation
and amortization decreased by $106,872 or approximately (16%) to $560,071 for
2007 from $666,943 for 2006. This decrease resulted from a decrease in
depreciation on cows which were sold in 2007.




Selling,
General and Administrative Expenses






Selling,
general and administrative expenses increased by $1,353,760 or (36.8%) to
$5,036,500 for 2007 as compared to $3,682,740 during 2006. The following chart
illustrates the charges by category for the year ended December 31, 2007 and
December 31, 2006.




Category
            
            2007
            
            
            2006
            
            
            Difference
      2007-2006Office
      charges
            
            $
            470,103
            
            
            $
            150,530
            
            
            $
            319,573Salaries
            
            
            1,593,039
            
            
            
            1,400,245
            
            
            
            192,794Commissions
      to distributors
            
            
            1,489,802
            
            
            
            503,640
            
            
            
            986,162Travel
            
            
            42,480
            
            
            
            50,310
            
            
            
            (7,830
            )Entertainment
            
            
            57,731
            
            
            
            15,394
            
            
            
            42,337Legal
      & Professional
            
            
            727,480
            
            
            
            443,208
            
            
            
            284,272Rent
            
            
            87,674
            
            
            
            94,141
            
            
            
            (6,467
            )Telephone
            
            
            6,600
            
            
            
            7,351
            
            
            
            (751
            )Advertising
      expenses
            
            
            0
            
            
            
            626,418
            
            
            
            (626,418
            )Litigation
reserve
            
            
            500,000
            
            
            
            0
            
            
            
            500,000US Office
Expenses
            
            
            60,000
            
            
            
            60,000
            
            
            
            0Impairment
            
            
            928
            
            
            
            1,252
            
            
            
            (324
            )Financial
            
            
            663
            
            
            
            730
            
            
            
            (67
            )Management Expenses
            
            
            0
            
            
            
            97,721
            
            
            
            (97,721
            )Other Expense
            
            
            0
            
            
            
            231,800
            
            
            
            (231,800
            )Totals
            
            $
            5,036,500
            
            
            $
            3,682,740
            
            
            $
            1,353,760






13






Other
Income (Expense)




Other
income (expense) increased by $1,627,839 or 370.2% to $2,067,535 for 2007
compared to income of $439,696 for 2006. The change resulted from an increase in
interest income of $43,059 to $223,480, a gain on the sale of assets of $477,540
compared to $0 in the prior year, an increase in investment income of
$800,533 to $1,251,554 and a positive change in the value of derivative
financial instruments of $306,707 to $114,961 from $(191,746) in the prior
year.






Income
Taxes






Our
provision for income taxes increased from $555,792 for the year ended December
31, 2006 to $601,845 for the year ended December 31, 2007. This increase is
attributable to the increased contribution to earnings of the E-Sea operations.
Our agricultural operations are exempt from taxation. Only the income of E-Sea
is subject to tax.






As a
result of the foregoing, our earnings increased by $1,869,689 or (38.3) % to
$6,751,357 for the year-ended December 31, 2007 from $4,881,668 for the year
ended December 31, 2006.






Liquidity
and Capital Resources






As of
December 31, 2007, we had cash of $12,692,479 and working capital of $36,890,802
compared to cash of $16,024,123 and working capital of $41,864,137 at December
31, 2006. We also had short-term investments of $13,827,174 as of December 31,
2007. This compares with short-term investments of $15,360,176 as of December
31, 2006. The short-term investments are somewhat equivalent to American
certificates of deposit, but because of Chinese regulations, are offered by
investment companies as opposed to banking who are by regulation are limited in
such offerings.






Cash
provided by operating activities totaled $9,015,207 for the year ended December
31, 2007. This compares with cash provided by operating activities of $1,589,842
for the year ended December 31, 2006. The increase in cash flows from operations
primarily resulted from an increase in a non-cash charge for services paid with
the company’s common stock and changes in the current accounts which were
partially offset by a decrease in earnings, a decrease in depreciation and
amortization and the items of other income.






Cash used
by investing activities during 2007 was $12,577,812 compared to $6,165,656 of
cash used in investing activities during 2006. For the year ended December 31,
2007, the amounts used in investing activities were $1,304,493 for the purchase
of property and equipment and $11,480,478 for the purchase of long-term
investments and which was partially offset by proceeds from short-term
investments of $2,728,279, proceeds from the sale of fixed assets of $1,417,974
and the repayment of advances to distributors of $1,121,123. This compares with
the purchase of $5,116,726 of short-term investments, advances to distributors
of $11,673 and the purchases of patents for $537,257 during the year ended
December 31, 2006.






Cash
flows used in financing activities totaled $871,914 for 2007 $882,090 of which
was used to purchase common stock which was partially offset by $10,176 of
proceeds collected from common stock subscriptions.  For 2006, the Company
had $1,200,000 of proceeds from financing activities, all from the sale of
common stock.




Although
we have a cash and cash equivalents balance of $12,692,479 and short-term
investments of $13,827,174, management believes that the best return for such
cash and short-term investments is in the People's Republic of China. Therefore,
if we are to expand outside the PRC, as we anticipate doing, we will have to
sell additional shares of our stock or borrow funds from third parties. However,
because of the loosening of currency restrictions in the PRC, we can pay our
non-PRC obligations from funds held in China. Therefore, in the opinion of
management, we have sufficient funds to carry out our business plans for the
next twelve months.








14






Capital
Expenditures and Commitments






Our only
material contractual obligations requiring determinable future payments on our
part are a note payable to our principal shareholder and our lease relating to
our executive offices in Shenzhen and Tianjin as well as the manufacturing
facility in Shenzhen.






The
following table details our contractual obligations as of December 31,
2007:




Payments
      Due by PeriodTotal
            2008
            2009
            ThereafterOperating
      lease commitments
            $178,170
            $85,848
            $79,197
            $13,125




Off-Balance
Sheet Arrangements






We had no
off-balance sheet arrangements or guarantees of third party obligations at
December 31, 2007.




15









Inflation






We
believe that inflation has not had a significant impact on our operations since
inception.






Outlook






For
calendar year 2008, we will focus on three areas:




1.
            Acquiring
      additional interests in agricultural facilities to complement our existing
      operations.









2.
            A
      possible acquisition to compliment or expand the operations of E-Sea, or a
      spin-off of the operations of
E-Sea.









3.
            Bring
      the E-Sea diagnostic equipment to the USA for FDA approval and potential
      eventual sale. This has been delayed because the Chinese equivalent of the
      FDA has not yet approved the equipment from
  export.




If we are
successful in implementing this strategy it should increase both our revenues
and profit margins.








16









ITEM 8.
FINANCIAL STATEMENTS






ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS




Report
      of Independent Registered Public Accounting Firm
            18Consolidated
      Balance Sheets as of December 31, 2007 and 2006
            19Consolidated
      Statements of Income for the years ended
              December
      31, 2007 and 2006
            20Consolidated
      Statements of Changes in Stockholders' Equity
              for
      the for the years ended December 31, 2007 and 2006
            21Consolidated
      Statements of Cash Flows for the years ended
              December
      31, 2007 and 2006
            22Notes
      to Consolidated Financial Statements
            23-33






17













REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM






To the
Board of Directors and Shareholders


of
Eternal Technologies Group, Inc.






We have
audited the accompanying consolidated balance sheets of Eternal Technologies
Group, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.






We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.






In our
opinion, the consolidated financial statements referred to above present fairly
in all material respects, the financial position of Eternal Technologies Group,
Inc. and Subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.






/s/ Ham
Langston Brezina, LLP


Ham
Langston Brezina, LLP






Houston,
Texas


April 1,
2008








18











ETERNAL
      TECHNOLOGIES GROUP, INC.CONSOLIDATED
      BALANCE SHEETSDecember
      31, 2007 and 2006(Amounts
      in United States Dollars)December
      31,
            
            December
      31,2007
            
            2006ASSETSCurrent
      assets:Cash
      and cash equivalents
            $
            12,692,479
            
            $
            16,024,123Short-term
      investments
            
            13,827,174
            
            
            15,350,176Accounts
      receivable
            
            6,274,866
            
            
            6,790,534Inventories
            
            6,312,236
            
            
            5,358,213Prepayments
      and deposits
            
            14,082
            
            
            200,705Total
      current assets
            
            39,120,837
            
            
            43,723,751Advances
      to distributors
            
            -
            
            
            1,048,929Property
      and equipment, net of accumulated depreciationof
      $4,296,083 and $3,943,592 at December 31, 2007 andDecember
      31, 2006, respectively
            
            7,161,773
            
            
            6,882,175Land
      use rights, net of accumulated amortizationof
      $2,043,266 and $1,647,961 at December 31, 2007 andDecember
      31, 2006, respectively
            
            4,765,501
            
            
            4,722,362Intangible
      assets
            
            6,571,098
            
            
            1,688,520Other
      assets
            
            17,433,088
            
            
            -Total
      assets
            $
            75,052,297
            
            $
            58,065,737LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Notes
      Payable
            $
            443,366
            
            $
            443,366Accounts
      payable and accrued liabilities
            
            1,294,310
            
            
            532,037Amounts
      due to related parties
            
            215,295
            
            
            216,175Payable
      due to income taxes
            
            167,764
            
            
            229,680Derivative
      financial instrument liability
            
            109,300
            
            
            438,356Total
      current liabilities
            
            2,230,035
            
            
            1,859,614Stockholders'
      equity:Preferred
      shares - $0.001 par value, 5,000,000Authorized,
      none issued or outstanding
            
            -
            
            
            -Common
      shares - $0.001 par value; 95,000,000Authorized;
      52,138,034 shares issued andoutstanding
            
            52,137
            
            
            43,566Additional
      paid - in capital
            
            21,303,505
            
            
            14,931,218Subscription
      receivable
            
            -
            
            
            (10,176)Retained
      earnings
            
            44,848,766
            
            
            38,097,409Treasury
      shares, at cost, 1,509,730 shares
            
            (882,090)
            
            
            -Accumulated
      other comprehensive income
            
            7,499,944
            
            
            3,144,106Total
      stockholders' equity
            
            72,822,262
            
            
            56,206,123Total
      liabilities and stockholders' equity
            $
            75,052,297
            
            $
            58,065,737The
      accompanying notes are an integral part of these consolidated financial
      statements






19











ETERNAL
      TECHNOLOGIES GROUP, INC.CONSOLIDATED
      STATEMENTS OF INCOMEFOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006(AMOUNTS
      IN UNITED STATES DOLLARS)2007
            
            2006Revenue:Agricultural
      and genetics sales
              Medical device sales and services
            $
            24,240,206
              10,592,359
            
            $
            19,690,199
              8,738,499Land
      lease
            
            758,153
            
            
            289,405Total
      revenue
            
            35,590,718
            
            
            28,718,103Cost
      of sales and servicesAgricultural
      and genetics sales
            
            19,957,333
            
            
            15,498,711Medical
      device sales and services
            
            3,624,052
            
            
            3,085,532Land
      lease
            
            562,583
            
            
            402,659Total
      cost of sales and services
            
            24,143,968
            
            
            18,986,902Gross
      profit
            
            11,446,750
            
            
            9,731,201Depreciation
      expenses and amortization
            
            
            
            
            
            560,071
            
            
            666,943Selling,
      general and administrative expenses
            
            5,036,500
            
            
            3,682,740Research
      and development expenses
            
            564,512
            
            
            383,754Income
      from operations
            
            5,285,667
            
            
            4,997,764Other
      income (expense)Interest
      income
            
            223,480
            
            
            180,421Gain
      on sale of assets
            
            
            
            477,540
            
            
            --Investment
      Income
            
            1,251,554
            
            
            451,021Change
      in value of derivativefinancial
      instruments
            
            114,961
            
            
            (191,746)Other
      income (expense), net
            
            2,067,535
            
            
            439,696Income
      before provision forincome
      taxes
            
            7,353,202
            
            
            5,437,460Provision
      for income taxes
            
            601,845
            
            
            555,792Net
      income
            $
            6,751,357
            
            $
            4,881,668Net
      income per common sharebasic
      and diluted
            $
            0.14
            
            $
            0.11Weighted
      average number ofcommon
      shares outstanding,Basic
      Diluted
            
            47,867,890
            
            
            43,567,30047,929,145
            
            
            43,801,540The
      accompanying notes are an integral part of
      these consolidated financial statements






20











ETERNAL
      TECHNOLOGIES GROUP, INC.CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006(AMOUNTS
      IN UNITED STATES DOLLARS)









Common
      Stock Shares
            Amount
            Additional
      Paid-In Capital
            Treasury
      Shares
            Stock
      Subscription Receivable
            Retained
      Earnings
            Accumulated
              Other
      Comprehensive Income
            TotalBalance
      at December
              31,
      2005
            39,854,026
            39,854
            13,217,874
            -
            (10,176)
            33,215,741
            1,176,170
            47,639,463Net
      Income
            -
            -
            -
            -
            -
            4,881,668
            -
            4,881,668Foreign
      currency
              translation
      adjustment
            -
            -
            -
            -
            -
            -
            1,967,936
            1,967,936Other
      comprehensive
              Income
            
            
            
            -
            
            
            
            6,849,604Common
      stock issued for cash
            3,000,000
            3,000
            1,197,000
            -
            -
            -
            -
            1,200,000Loss
      on issuance of common
              Stock
            -
            -
            97,721
            -
            -
            -
            -
            97,721Common
      stock issued for
              conversion
      of convertible
              notes
            713,274
            712
            418,623
            -
            -
            -
            -
            419,335Balance
      at December 31, 2006
            43,567,300
            43,566
            14,931,218
            -
            (10,176)
            38,097,409
            3,144,106
            56,206,123Net
      income
            -
            -
            -
            -
            -
            6,751,357
            -
            6,751,357Foreign
      currency
              translation
      adjustment
              Other Comprehensive Income
            -
            -
            -
            -
            -
            -
            4,355,838
            4,355,838
              
              11,107,195Compensatory
      element of common stock issued for services
            1,000,000
            1,000
            607,000
            -
            -
            -
            -
            608,000Common
      stock issued for purchase of long term investment
            7,297,507
            7,298
            5,551,466
            -
            -
            -
            -
            5,558,764Common
      stock issued for
              conversion
      of warrants
            273,227
            273
            213,821
            -
            -
            -
            -
            214,094Collection
      of subscription
              receivable
            -
            -
            -
            -
            10,176
            -
            -
            10,176Common
      stock repurchase
            -
            -
            -
            (882,090)
            -
            -
            -
            (882,090)Balance
      at December 31, 2007
            52,138,034
            $
      52,137
            $
      21,303,505
            $
      (882,090)
            $
      -
            $
      44,848,766
            $
      7,499,944
            $72,822,262




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








21











ETERNAL
      TECHNOLOGIES GROUP, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31,2007 AND 2006(AMOUNTS
      IN UNITED STATES DOLLARS)2007
            
            2006Cash
      flows from operating activitiesNet
      incomeAdjustments to reconcile net income to net cash
            
            $
            6,751,357
            
            $
            4,881,668provided
      by operating activities:Depreciation
      and amortization
            
            
            1,122,654
            
            
            1,069,602Gain
      on Disposition of Equipment
            
            
            (477,540)
            
            
            -Earnings
      of Long-term Investment
            
            
            (393,846)
            
            
            -Earnings
      of Short-term Investment
            
            
            (148,786)
            
            
            -Change in value of
      derivative financial instruments
            
            
            (114,961)
            
            
            191,746Compensatory
      element of common stock issued for services
            
            
            608,000
            
            
            97,721Changes
      in operating assets and liabilities:Inventories
            
            
            (585,239)
            
            
            (5,218,442)Accounts
      receivable
            
            
            1,406,901
            
            
            580,109Prepayments
      and deposits
            
            
            200,437
            
            
            65,352Accounts
      payable and accrued expenses
            
            
            647,931
            
            
            (45,853)Account
      payable to related parties
            
            
            (1,700)
            
            
            (32,061)Net
      cash provided by operating activities
            
            
            9,015,207
            
            
            1,589,842Cash
      flows from investing activities:Redemption/(purchase
      of) short-term investment
            
            
            2,728,279
            
            
            (5,116,726)Purchase
      of property and equipment
            
            
            (1,304,493)
            
            
            -Proceeds
      from disposition of equipment
            
            
            1,417,974
            
            
            -Purchase
      of patents
            
            
            
            (5,060,217)
            
            
            (537,257)Proceeds
      from/(advances to) distributors
            
            
            1,121,123
            
            
            (511,673)Purchase
      of long-term investment
            
            
            (11,480,478)
            
            
            -Net
      cash used in investing activities
            
            
            (12,577,812)
            
            
            (6,165,656)Cash
      flows from financing activities:Proceeds
      from sales of common stock
            
            
            -
            
            
            1,200,000Repurchase
      of common stock
            
            
            (882,090)
            
            
            -Proceeds
      collected from common stock subscription
            
            
            10,176
            
            
            -Net
      cash (used in)/ provided by financing activities
            
            
            (871,914)
            
            
            1,200,000Effect
      of exchange rate changes on cash
            
            
            1,102,874
            
            
            1,175,449Net
      decrease in cash and cash equivalents
            
            
            (3,331,644)
            
            
            (2,200,365)Cash
      and cash equivalents, beginning of period
            
            
            16,024,123
            
            
            18,224,488Cash
      and cash equivalents, end of period
            
            $
            12,692,479
            
            $
            16,024,123Supplemental
      disclosure of cash flow information:Interest
      Paid
            
            $
            -
            
            $
            -Tax
      paid
            
            
            380,039
            
            
            413,232The
      accompanying notes are an integral part of these consolidated financial
      statements






22






ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS






1.
ORGANIZATION AND PRINCIPAL ACTIVITIES






Pursuant
to an exchange agreement, Eternal Technologies Group, Inc., ("Company") formerly
known as Waterford Sterling Corporation, completed its acquisition of 100%
interest of Eternal Technology Group LTD. and Subsidiaries on December 12, 2002.
The Company has treated the transaction as a reverse merger for accounting
purposes. To facilitate the reverse merger, the Company's common shares were
reverse split on a one for six basis, and 95,000,000 post reverse split common
shares, $.001 par value were authorized. Following the acquisition, the former
shareholders of Eternal Technology Group LTD., a British Virgin Islands limited
liability company, now own approximately 85% of the issued and outstanding
common shares of Eternal Technologies Group Inc.






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






Eternal
acquired a 100% equity interest in Willsley Company Limited ("Willsley") on July
15, 2000. Willsley was incorporated in the British Virgin Island with limited
liability on May 16, 2000.






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






Aershan
was incorporated in the People's Republic of China ("the PRC") with limited
liability on July 11, 2000 and its principal activities are to transplant
embryos and to propagate quality sheep meat and other livestock breeds in Inner
Mongolia. During the year ended December 31, 2005, this facility was leased to a
Chinese company that intends to raise a fast-growing type of tree to meet the
growing demand for lumber and paper in the PRC.






E-Sea
Biomedical Engineering Co. International Ltd. ("E-Sea") was incorporated on
October 20, 2004 under the laws of the British Virgin Islands. E-Sea owns all of
the issued and outstanding stock of E-Sea Shenzhen, which owns various Chinese
patents for medical technology. E-Sea was acquired as of the close of business
on September 30, 2005 for 5,709,875 shares of the Company's common stock, valued
at $.40 which was the closing price of the stock as of the date the transaction
was negotiated, and $2,283,950 in cash.












23













ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS






2. BASIS
OF PRESENTATION






The
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America.  The
consolidated financial statements of the Company include the Company and its
wholly owned subsidiaries. All material intercompany balances and transactions
have been eliminated.




3.
SUMMARY OF PRINCIPAL ACCOUNTING POLICIES






Cash and
cash equivalents






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






Accounts
Receivable and Allowance for Doubtful Accounts






The
allowance for doubtful accounts is the Company's best estimate of the amount of
uncollectible amounts in its existing accounts receivable. Management analyzes
historical collection trends and changes in its customer payment patterns when
evaluating the adequacy of its allowance for doubtful accounts. The Company
reviews its allowance for doubtful accounts annually. Account balances deemed
uncollectible are charged off against the allowance for doubtful accounts. At
December 31, 2007 and 2006 the allowance for doubtful accounts was
$0.






Inventory






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






Fixed
assets and depreciation






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




Office
      Equipment
            5
      yearsInfrastructure
      in Inner Mongolia
            25
      yearsBuildings
            25
      yearsEquipment
            5
      yearsCows
            5
      yearsOther
            5
      years




In
accordance with the Statement of Financial Accounting Standards ("SFAS") No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the
Company examines the possibility of decreases in the value of fixed assets when
events or changes in circumstances reflect the fact that their
recorded








24













ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS






value may
not be recoverable. When such events and circumstances exist, the Company
compares the projected undiscounted future cash flows associated with the
related asset or group of assets over their estimated useful lives against their
respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is recorded in the
period in which the determination was made.






Land
lease rights and amortization






Land
lease rights in Mainland China are stated at the amount of the prepayment less
accumulated amortization. Amortization of land lease rights is calculated on the
straight-line basis over the term of the lease of approximately 25 years. The
land lease rights with respect to the Company's farm were originally purchased
from the Chinese government for US $6,000,000 and such rights extend through
2026. The Company has the option to renew the land lease rights for an
additional 25 years at a cost of $6,000,000. The farm is located in Wulagai
Development Area in Inner Mongolia.






Amortization
expense during 2007 and 2006 was $270,666 and $258,300,
respectively.






Intangible
Assets






In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No.142, "Goodwill and Other Intangible Assets," SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," the Company examines the
possibility of decreases in the value of finite-lived intangible assets when
events or changes in circumstances reflect the fact that their recorded value
may not be recoverable. When such events and circumstances exist, the Company
compares the projected undiscounted future cash flows associated with the
related asset or group of assets over their estimated useful lives against their
respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets and is recorded in the
period in which the determination was made.






Income
taxes






Income
taxes are accounted for in accordance with Statement of Financial Accounting
Standard No.109, "Accounting for Income Taxes". This Statement prescribes the
use of the liability method whereby deferred tax asset and liability account
balances are determined based on differences between financial reporting and tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Deferred tax assets are subject to tests of recoverability. A valuation
allowance is provided for such deferred tax assets to the extent realization is
not judged to be more likely than not.






Foreign
currency translation






The
Company's reporting currency is the United States of America Dollar ("USD"). The
Company maintains no material accounts in currency of the United States of
America. All of the subsidiaries maintain their books and accounts in the
People's Republic of China currency, which is called Renminbi ("RMB").
Translation of the balance sheet amounts from RMB into US$ has been made at the
single rate of exchange on December 31, 2007 and 2006 of 7.3141 and 7.82
RMB/US$, respectively. The income statement has been translated at the average
rate of exchange in effect during the year of 7.6172 RMB/US$ and 7.98 RMB/US$
for the years ended December 31, 2007 and 2006, respectively. No representation
is made as to whether the RMB amounts could have been, or could be, converted
into US$ at that rate on December 31, 2007 or 2006 or at any other
date.








25













ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS






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






Revenue
recognition






In
accordance with Staff Accounting Bulletin No. 104, revenue from the sale of
livestock, embryos, and raw materials is recognized when persuasive evidence of
an arrangement exists; the price to the buyer is fixed or determinable; the
merchandise is delivered to the customer and title passes; and collection is
reasonably assured.






Advertising






Indirect-response
advertising costs are charged to operations the first time the advertising takes
place. The cost of direct-response advertising is not significant.






Research
and development






Research
and development costs are charged to operations as incurred.






Stock-based
compensation






In
December 2004, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123(R), Share-Based
Payment. SFAS 123(R) requires compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost is to be measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards are to be remeasured each reported. Compensation cost
will be recognized over the period that an employee provides service in exchange
for the award. SFAS 123(R) is a revision of SFAS 123, Accounting for Stock-Based
Compensation, as amended by SFAS 148, Accounting for Stock Based
Compensation-Transition and Disclosure and supersedes APB No. 25, Accounting for
Stock Issued to Employees. The Company adopted SFAS 123(R) effective January 1,
2006, using the modified prospective method. This method applies the fair value
based method to new awards and to awards modified, repurchased or cancelled
after the required effective date. Also, compensation cost for the portion of
awards for which the requisite service has not been rendered that are
outstanding as of the required effective date shall be recognized as the service
is rendered on or after the required effective date. Any stock based payments
issued subsequent to January 1, 2006 will be accounted for under SFAS
123(R).






Employees'
benefits






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






Non-monetary
transactions






The
Company accounts for non-monetary transactions in accordance with APB Opinion
No. 29.








26













Derivative
financial instruments






The
Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.






Derivative
financial instruments are initially measured at their fair value. For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported as charges or credits to
income. For option-based derivative financial instruments, the Company uses the
Black-Scholes option pricing model to value the derivative instruments. To the
extent that the initial fair values of the freestanding and/or bifurcated
derivative instrument liabilities exceed the total proceeds received, an
immediate charge to income is recognized, in order to initially record the
derivative instrument liabilities at their fair value.






The
discount from the face value of the convertible debt or equity instruments
resulting from allocating some or all of the proceeds to the derivative
instruments, together with the stated interest on the instrument, is amortized
over the life of the instrument through periodic charges to income, usually
using the effective interest method. When the instrument is convertible
preferred stock, the dividends payable are recognize as they accrue and,
together with the periodic amortization of the discount, are charged directly to
retained earnings.






The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed periodically,
including at the end of each reporting period. If re-classification is required,
the fair value of the derivative instrument, as of the determination date, is
re-classified. Any previous charges or credits to income for changes in the fair
value of the derivative instrument are not reversed. Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether or not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.






Registration
rights agreements






In
connection with the sale of debt or equity instruments (including common stock),
the Company may enter into Registration Rights Agreements. Generally, these
agreements require us to file registration statements with the Securities and
Exchange Commission to register common shares that may be issued on conversion
of debt or preferred stock, to permit re-sale of common shares previously sold
under an exemption from registration or to register common shares that may be
issued on exercise of outstanding options or warrants.






The
Agreements usually require the Company to pay penalties for any time delay in
filing the required registration statements, or in the registration statements
becoming effective, beyond dates specified in the agreement. These penalties are
usually expressed as a fixed percentage, per month, of the original amount the
Company received on issuance of the debt or preferred stock, common shares,
options or warrants. The Company accounts for these penalties as an accrued
liability and not as a derivative instrument. Accordingly, we recognize the
penalties as they are incurred. Any penalties are expensed over the period to
which they relate.






Use of
estimates






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






Basic
earnings per share is computed by dividing net income available to common
shareholders by the weighted-average number of common shares assumed to be
outstanding during the period. Diluted earnings per share includes the weighted
average number of common shares outstanding and the number of equivalent shares
which would be issued related to the stock options and warrants using the
treasury method, contingently issuance shares, and convertible preferred stock
using the if-converted method, unless such additional equivalent shares are
anti-dilutive.








27










Earnings
Per Share






The
following table presents the calculation of basic and diluted net income per
share:




2007
            
            
            2006Net
      income
            
            $
            6,751,357
            
            
            $
            4,881,668Basic:
              Weighted-average
      shares of common stock outstanding
            
            
            47,867,890
            
            
            
            43,567,300Shares
      used in computing basic net income per share
            
            
            47,867,890
            
            
            
            43,567,300Effect
      of dilutive securities:
              Warrants
            
            
            61,255
            
            
            
            234,240Shares
      used in computing diluted net income per share
            
            
            47,929,145
            
            
            
            43,801,540Basic
      and diluted net income per share
            
            $
            0.14
            
            
            $
            0.11




FAIR
VALUE OF FINANCIAL INSTRUMENTS






The
Company includes fair value information in the notes to the consolidated
financial statements when the fair value of its financial instruments is
different from the book value. When the book value approximates fair value, no
additional disclosure is made.






CURRENT
VULNERABILITY DUE TO CERTAIN CONCENTRATIONS






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






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


NEW
ACCOUNTING PRONOUNCEMENTS




In
February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
155, “Accounting for Certain Hybrid Financial Instruments - an amendment of FASB
Statements No. 133 and 140” (“SFAS 155”).  SFAS 155 resolves issues
addressed in SFAS 133 Implementation Issue No. D1, “Application of Statement 133
to Beneficial Interests in Securitized Financial Assets.”  The
requirements in SFAS 155 are effective for all financial instruments acquired or
issued after the beginning of an entity’s first fiscal year that begins after
September 15, 2006.  During 2007, the adoption of this pronouncement
had no impact on the Company’s consolidated financial position, results of
operations, or cash flows.
  In June
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which
clarifies the accounting for uncertainty in tax positions.  This
Interpretation requires an entity to recognize the impact of a tax position in
its financial statements if that position is more likely than not to be
sustained on audit based on the technical merits of the position.  The
provisions of FIN 48 are effective for the Company as of the beginning of fiscal
2008, with earlier application encouraged.  Any cumulative effect of
the change in accounting principle will be recorded as an adjustment to the
opening accumulated deficit balance.  During 2007, the adoption of
this pronouncement had no impact on the Company’s consolidated financial
position, results of operations, or cash flows.
  In
September 2006, the Financial Accounting Standards Board adopted SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”).  This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements.  The Statement does not require any new fair value
measurements.  However, for some entities, the application of this
Statement will change current practice.  SFAS 157 is effective for
fiscal years beginning after November 15, 2007 and is generally to be applied
prospectively.  The Company is currently evaluating the impact of SFAS
157, however, management does not believe the adoption of this statement will
have a material effect on its financial statements.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” ("SFAS 159"), which provides
companies with an option to report selected financial assets and liabilities at
fair value.  SFAS 159 also  establishes
presentation  and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities.  SFAS 159 is effective as of
the beginning of an entity's first fiscal year beginning after November 15, 2007
with early adoption allowed.  The Company is currently evaluating the
impact of SFAS 159, however, management does not believe the adoption of this
statement will have a material effect on its financial statements.
  In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” ("SFAS 141(R)") and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” ("SFAS
160").  SFAS 141(R) and SFAS 160 are products of a joint project
between the FASB and the International Accounting Standards
Board.  The revised standards continue the movement toward the greater
use of fair values in financial reporting.  SFAS 141(R) will
significantly change how business acquisitions are accounted for and will impact
financial statements both on the acquisition date and in subsequent
periods.  These changes include the expensing of acquisition related
costs and restructuring costs when incurred, the recognition of all assets,
liabilities and noncontrolling interests at fair value during a
step-acquisition, and the recognition of contingent consideration as of the
acquisition date if it is more likely than not to be incurred.  SFAS
160 will change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests and classified as a component of
equity.  SFAS 141(R) and SFAS 160 are effective for fiscal years
beginning on or after December 15, 2008.  SFAS 141(R) will be applied
prospectively.  SFAS 160 requires retroactive adoption of the
presentation and disclosure requirements for existing minority
interests.  All other requirements of SFAS 160 shall be applied
prospectively.  Early adoption is prohibited for both
standards.  The Company is currently evaluating the impact of the
pronouncements, however, management does not believe the adoption of these
statements will have a material effect on its financial statements.
 
 RECLASSIFICATIONS






Certain
prior year amounts have been reclassified to conform with presentation for the
current year. Such reclassifications have no impact on net income or
shareholders’ equity as previously reported.








28








ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES






NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS






4.
INVENTORIES






Inventories
consists of the following at December 31, 2007 and 2006:




2007
            
            
            2006Sheep
      and cow embryos
            
            
            5,742,333
            
            
            $
            5,004,029Scanners
            
            
            569,903
            
            
            
            353,409Raw
      materials
            
            
            -
            
            
            
            775Total
      inventories
            
            $
            6,312,236
            
            
            $
            5,358,213




5.
PROPERTY AND EQUIPMENT






Fixed
assets are comprised of the following at December 31, 2007 and
2006:




2007
            
            
            2006Office
      equipment in the United States
            
            $
            40,761
            
            
            $
            40,761Infrastructure
            
            
            257,038
            
            
            
            240,486Building
            
            
            7,086,293
            
            
            
            6,629,979Equipment
            
            
            3,362,808
            
            
            
            1,929,662Cows
            
            
            -
            
            
            
            1,319,706Other
            
            
            710,956
            
            
            
            665,174Total
      property and equipment
            
            
            11,457,856
            
            
            
            10,825,768Less
      accumulated depreciation
            
            
            (4,296,083
            )
            
            
            (3,943,593
            )$
            7,161,773
            
            
            $
            6,882,175




Depreciation
expense during 2007 and 2006 was $560,071 and $666,943,
respectively.






6.
INTANGIBLE ASSETS






The
Company's net identifiable intangible assets are as follows at December 31, 2007
and 2006:





2007
                
                
                2006Patented
      dialysis technology
                
                $
                1,640,667
                
                
                $
                1,535,018Patented
      microwave therapy device
                
                
                205,083
                
                
                
                191,877Breast
      tumor testing technology/software
                
                
                369,150
                
                
                
                345,379Solid
      myoia curer
                
                
                2,433,656
                
                
                
                -Thermal
      tomography system
                
                
                2,638,739
                
                
                
                -7,287,295
                
                
                
                2,072,274Less
      accumulated amortization
                
                
                (716,197
                )
                
                
                (383,754
                )Total
      intangible assets
                
                
                6,571,098
                
                
                
                1,688,520




Amortization
expense during 2007 and 2006 was $293,853 and $150,340, respectively. The
estimated amortization expense related to identifiable intangible assets for the
next five years is as follows:








29











Year2008
            200,9822009
            200,9822010
            200,9822011
            200,9822012
            200,9822013
            200,982Thereafter
            192,778




The
weighted average amortization period for the intangible assets is 10 years based
on an appraisal performed by an independent appraisal firm in China. 
Subsequent to December 31, 2007, the Company sold certain of its intangible
assets.  Please refer to Note 19 for details.












During
February 2007, the Company entered into an Exchange Agreement (“the Agreement”)
by which it expended $14,850,000 RMB in cash, approximately $3,800,000 USD and
2,719,730 shares of common stock valued at $.63 US in exchange for 22% interest
in the common stock of Changsha Hong Yuan Aquatic Product, Inc. (“Hong Yuan”).
Hong Yuan is a corporation duly organized, validly existing, and in good
standing under the laws of the PRC and currently its operations focus on the
breeding and sale of turtles. In accordance with the Agreement, Hong Yuan has
committed to pay the Company a guaranteed return on its investment of $3,000,000
RMB per year either in cash or the equivalent in additional shares of its common
stock.
   On
October 15, 2007, the Company acquired a 30% equity interest, respectively, in
Hainan Futian Green Agriculture Ltd. ("Hainan") a mango farm, and Maoming
Huatang Orchard Trading Co., Ltd. ("Maoming") a Lychee farm. For the acquisition
of the interest in Hainan, the Company paid $33,000,000 RMB in cash,
approximately US$4,400,000, and issued 2,133,333 shares of its common
stock valued at $.84 USD based on the closing price of the stock.  For the
acquisition of the interest in Maoming, the Company paid $36,000,000 RMB in
cash, approximately US$4,800,000 and issued 2,444,444 shares of its common stock
valued at $.84 USD based on the closing price of the stock.. Both companies are
incorporated under the laws of the PRC. The Mango farm has a guaranteed minimum
annual return on investment of $6.800, 000 RMB and will increase by a
minimum of 1% for ten years. The Lychee farm has a guaranteed minimum annual
return on investment of $7,800,000 RMB and will increase by 1% for five
years.  If the farms are unable to meet the  guaranteed minimum annual
returns on investment with cash flows from their operation, they must meet the
obligations by returning an equivalent amount of the company's shares originally
issued to them as part of the investment purchase.






8. NOTES
PAYABLE






Notes
payable consist of the following at December 31, 2007 and 2006:




Promissory
note to Market Management LLC, due December
11, 2005, interest payments are due semi- annually
commencing 180 days after the date of the note
(December 11, 2002) at 8% per year. $443,366




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




The
Company's Board of Directors ceased accruing interest effective October
1, 2004 and at December 31, 2007 and 2006 the notes payable were in default. The
balance of the notes and related interest were determined by the federal
district court in Houston, Texas on October 31, 2007. The foregoing balance
reflects this amount.






9. STOCK
OPTION AND STOCK COMPENSATION PLAN




The
Company provides stock compensation to eligible employees, consultants and
directors through a stock compensation plan and a stock option
plan.




Stock
Option Plan




The
Company adopted the 2006 Stock Option Plan on October 12, 2006. The maximum
number of shares of common stock with respect to which awards may be granted
pursuant to this plan is 3,000,000 all of which have been awarded.




The
Company adopted the 2007 Stock Option Plan on November 15, 2007. The maximum
number of shares of common stock with respect to which awards may be granted
pursuant to this plan is 2,500,000 shares all of which have been
awarded.





Shares
      Issuable Under
              
              Weighted
      Average
                Outstanding
      Options
              
              
              Exercise
      PriceOptions
      outstanding at 1/1/06
              
              
              3,000,000
              
              
              
              -Options
      granted
              
              
              (3,000,000
              )
              
              $
              .40Options
      exercised
              
              
              -
              
              
              $
              . 40Options
      cancelled
              
              
              -Options
      outstanding at 12/31/06
              
              
              -
              
              
              
              -Options
      granted
              
              
              -
              
              
              
              -Options
      exercised
              
              
              -
              
              
              
              -Options
      outstanding at 12/31/07
              
              
              -
              
              
              
              --






30








10.
INCOME TAXES






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






It is
management's intention to reinvest all the income attributable to the Company
earned by its operations outside of the United States of America. Accordingly,
no United States corporate taxes have been provided in these consolidated
financial statements. The Company has a U.S. net operating loss carry forward of
$3,009,730 which will begin expiring in 2017. However a valuation allowance has
been provided as management does not expect the tax benefits to be realized. No
other significant deferred assets or liabilities existed at December 31, 2007.
The Company's net operating loss carry forwards may be subject to annual
limitations, which could reduce or defer the utilization of the losses as a
result of an ownership change as defined in section 382 of the Internal Revenue
Code.






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






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






exemptions
from taxation.






Under
current PRC law, all taxes on agriculture have been eliminated. Previously (from
July, 2000 through 2005) Aershan enjoyed a tax holiday. Therefore, Aershan's
business activities are not and have not been subject to tax. The tax holiday
resulted in tax savings of $1,475,452 and $968,866 for the years ended December
31, 2007 and 2006 respectively. Net income per share increased approximately
$0.08 and $0.02 on a basic and diluted basis for the years ended December 31,
2007 and 2006, respectively, as a result of the tax holiday.






E-Sea is
subject to the Enterprise Income Tax at the PRC rate of 15% on net profits. The
provisions for taxes on earnings of the PRC subsidiary for the periods ending
December 31, 2007and 2006 were $601,845 and $555,792, respectively.






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




2007
            
            
            2006Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentIncome
      taxes at federal statutory rate
            
            $
            2,295,461
            
            
            
            34
            %
            
            $
            1,659,767
            
            
            
            34
            %Effect
      of United States and British Virgin Island losses
            
            
            476,923
            
            
            
            7
            %
            
            
            317,205
            
            
            
            6
            %Income
      tax exemption in the Peoples Republic of China
            
            
            (1,475,452
            )
            
            
            (22
            %)
            
            
            (968,866
            )
            
            
            (20
            %)Difference
      in United
              States
      and foreign rates
            
            
            (695,087
            )
            
            
            (10
            %)
            
            
            (452,314
            )
            
            
            (9
            %)Income
      tax expense
            
            $
            601,845
            
            
            
            9
            %
            
            $
            555,792
            
            
            
            11
            %






31











11.
CONCENTRATION OF CREDIT RISKS






Financial
instruments which potentially subject the Company to a concentration of credit
risk principally consist of cash deposits, trade receivables, other receivables
and the amounts due from related companies. The Company performs ongoing
evaluations of its cash position and credit evaluations at the subsidiary level
to ensure collections and minimize losses.






(i) Cash
deposits. The Company places its significant cash deposits with banks in the
PRC.






(ii)
Receivables and amounts due from related companies. The Company does not have a
policy of requiring collateral.






ETERNAL
TECHNOLOGIES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED
FINANCIALSTATEMENTS






12.
ISSUANCE OF COMMON STOCK, WARRANTS AND CONVERTIBLE NOTES






Common
stock and warrants were sold to investors in September and October 2003. Both
the common stock and the warrants are subject to the Registration Rights
Agreement and associated penalties. The warrants have a ratchet exercise price
(i.e., the price is adjusted if the Company sells stock or warrants at a lower
exercise price). Because this makes the number of shares the Company may have to
issue "indeterminate", the warrants do not meet the tests in Emerging Issues
Task Force ("EITF") Issue 00-19 for classification as equity (in addition to
also failing the tests because of the registration rights penalties).
Accordingly, they have been accounted for as derivative financial instrument
liabilities, initially valued at fair value and then marked-to-market each
quarter thereafter. On exercise of any of the warrants, the fair value of the
derivative financial instrument as of the date of conversion is credited to
equity as part of the proceeds.






The
registration rights penalties through May 24, 2005 were settled by issuance to
the investors of convertible notes (see below). Because of the registration
rights and associated penalties, the proceeds allocated to the common stock are
classified as non-equity up until the time the penalties were settled. Although
the common stock itself is not a derivative, this treatment is analogous to
redeemable preferred stock that is classified outside equity in the so-called
"mezzanine" in accordance with SEC Accounting Series Release ("ASR") 268. The
effectiveness of the required registration statement is not within the Company's
control.






Warrants
issued in payment of placement agent/finders' fees have registration rights and
a ratchet exercise price and accordingly fail the EITF Issue 00-19 tests for
classification as equity. Accordingly, they have been accounted for as
derivative financial instrument liabilities, initially valued at fair value and
then marked-to-market each quarter thereafter. On exercise of any of the
warrants, the fair value of the derivative financial instrument as of the date
of conversion is credited to equity as part of the proceeds.






None of
the warrants have been exercised. By action of the Board, the exercise price of
the warrants was reduced from $1.54, $1.34 and $1.11 to $0.40 on November 5,
2004.






On May
24, 2005, convertible notes were issued to investors to settle registration
rights penalties due through that date. By agreement with the investors, no
further penalties are due. The convertible notes do not bear interest, have no
stated due date and are payable "without demand". All of the notes have been
converted (and the shares received by the investors sold).  The total
amount of penalties settled through the issuance of shares was
$356,419.








32






13.
ADDITIONAL RELATED PARTY BALANCES AND TRANSACTIONS






The
Company's amounts due from/(to) directors and related parties are unsecured,
interest-free and are repayable on demand.






The
Company has a payable to Ji Jun Wu, Chairman of the Board, of approximately
$50,311 and $50,516 at December 31, 2007 and 2006, respectively. The balance
represents advances made to the Company for various expenses in previous
years.






The
Company has a payable to a former employee of approximately $164,984 and
$165,659 at December 31, 2007 and 2006, respectively. The balance represents
advances made to the Company for various expenses in previous years. The change
in the balance is due to foreign currency translation.






14. MAJOR
CUSTOMERS AND SUPPLIERS






The
Company purchases and sells livestock. Companies whose purchases and sales
exceed 10% of total purchases and sales are as follows.




2007
            
            
            2006Purchases:Company
      A
            
            
            49
            %
            
            
            42
            %Company
      B
            
            
            17
            %
            
            
            23
            %Company
      C
            
            
            15
            %
            
            
            10
            %Sales:Company
      E
            
            
            13
            %
            
            
            15
            %Company
      F
            
            
            14
            %
            
            
            18
            %Company
      G
            
            
            15
            %
            
            
            23
            %






33




15.
COMMITMENTS AND CONTINGENCIES






The
administrative offices in Tianjin occupy approximately 97.8 square meters
(approximately 1,053 square feet) in a commercial building. The Company rents
this facility under a three-year lease, running through December 31, 2010, at
$8,000 RMB (approximately $1,100 per month). The administrative office in
Shenzhen occupies approximately 150 square meters (approximately 1,585 square
feet) in a high rise office building. We rented this facility under a two year
lease running through November 30, 2009 at $24,324RMB (approximately US$3,300.
per month).






The
leased facility of E-Sea in Shenzhen is an 865 square meters (approximately
9,310 square feet) facility containing machinery for the manufacture of medical
equipment, administrative offices, and storage space for raw materials. The
lease expires on January 14, 2010 and requires monthly payments of $20,001RMB
(approximately US$2,700).






The farm
consists of approximately 2.8 million acres and is located in Inner Mongolia,
PRC. The Company purchased the land use rights to this farm in April 2000. Land
use rights with respect to our farm were purchased from the Chinese government
for $6,000,000. Such rights extend through 2026. The Company has the option to
renew the land use rights for an additional 25 years at a cost of US$6,000,000.
The farm is located in the Wulagai Development Area in Inner
Mongolia.




Legal
Proceedings






On August
23, 2007, the U.S. District Court for the Southern District of Texas awarded
Western Securities Corporation the sum of $636,757 plus accrued interest since
May 22, 2007 and attorney fees in an amount to be determined this judgment
became final on October 31, 2007. The Company has several notices with the Court
that it intends to appeal this judgment. The judgment will have no impact on
earnings, as the potential liability had been previously accrued.






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






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






Other
Contingencies






The
Company is subject to other contingencies not mentioned elsewhere, including
various claims for compensation and reimbursement submitted by third parties.
The Company's Board of Directors have received these claims and the Company does
not believe it has any obligations to compensate or reimburse for any of these
claims. There have been no lawsuits against the Company related to these claims.
The ultimate outcome of this matter cannot be predicted with certainty, however
the Company believes based on advice from legal counsel, these matters will not
have a material adverse effect on the Company's consolidated financial
statements.








34






Lease
Contracts






The
Company leases its corporate facilities under lease contracts expiring at
various times during 2009 and 2010.  Future annual minimum lease payments
under non-cancellable operating leases are as follows at December 31,
2007:




Year2008
              $
      85,8482009
              79,179Thereafter
              13,125Total
              $
178,152




Rent
expense under operating lease obligations was $87,674 and $94,141 for the years
ended December 31, 2007 and 2006, respectively.






16. LEASE
INCOME






In April
2000, the Company purchased the land use rights for a 2.8 million acre farm in
Inner Mongolia, PRC from the Chinese government for USD$6,000,000. The Company's
land use rights extend through 2026. At December 31, 2007, the land use rights,
net of accumulated depreciation, were USD$4,765,501.






In April
2006, the Company entered into a lease agreement with a third-party ("lessee")
whereby the lessee may use approximately 104 square kilometers of the land,
including the facilities located on the land, such as the plant for embryo
transfer, all livestock, equipment, roads and energy-supplying systems. The
lease began May 1, 2006 and terminates April 30, 2026. The lessee pays the
Company an annual rate of 4,620,000 RMB (or approximately USD$578,810) on April
1st and October 1st of each year. Rental income for the year ended December 31,
2007 was USD$758,153 and has been classified in Sales. Future minimum lease
income is as follows:




Lease
      Income(USD)2008
              $     
        578,8102009
              578,8102010
              578,8102011
              578,8102012
              578,810Thereafter
              8,296,281$10,611,521


17.
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES




2007
              
              
              2006Common
      stock issued in connection with purchase of long-term
      investments
              
              $
              5,558,764
              
              
              $
              -Convertible
      notes converted into common stock
              
              $
              -
              
              
              $
              419,335Warrants
      converted into common stock
              
              $
              214,093
              
              
              $
              -


In
addition to the items listed above, See Note 14 regarding the purchase of
E-Sea.








35






18.
SEGMENT REPORTING






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











Agricultural
      Genetics
              Land
      Lease
              Medical
      Devices
              Corporate
              Total2007Revenues
              $    24,240,206
              $
      758,153
              $     10,592,359
              $      -
              $   35,590,718Income
      from operations
              3,405,701
              195,570
              3,274,140
              (1,589,744)
              5,285,667Depreciation
      and amortization
              135,442
              562,583
              424,629
              -
              1,122,654Total
      assets
              52,488,706
              4,765,501
              12,208,254
              5,589,836
              75,052,297Agricultural
      Genetics
              Land
      Lease
              Medical
      Devices
              Corporate
              Total2006Revenues
              $    19,690,199
              $
      289,405
              $ 
      8,738,499
              $   
      -
              $ 
      28,718,103Income
      from Operation
              3,018,880
              (113,254)
              3,149,487
              (1,057,349)
              4,997,764Depreciation
      and amortization
              392,725
              402,659
              274,218
              -
              1,069,602Total
      assets
              45,045,154
              4,722,362
              8,247,096
              51,125
              58,065,737










































ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




None






ITEM 9A.
CONTROLS AND PROCEDURE






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






Our
independent registered public accounting firm, Ham Langston & Brezina,
L.L.P. ("HLB") conducted an audit of our financial statements for 2007 and 2006.
In connection with the issuance of its report to the Board of Directors, HLB
reported two material weaknesses under standards established by the Public
Company Accounting Oversight Board regarding some elements of our system of
internal controls. They noted the following specific material deficiencies.(i)
We lacked the required expertise needed to properly account for non-routine
transactions, (such as the acquisition of other businesses and preparation of
its required financial statement disclosure in accordance with U.S. GAAP. and
SEC rules and regulations. (ii) Accounting for derivative instruments under FASB
133 to address the weakness, we have hired an independent accounting firm to
assist with accounting for derivatives and will seek outside accounting
assistance on any further acquisition.




Our
Evaluation of Disclosure Controls and Procedures




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. In furtherance, thereof we carried out an
evaluation under the supervision and with the participation of our management,
including our CEO and our CFO, as to the effectiveness, design and operation of
our disclosure controls and procedures, as defined by the Securities Exchange
Act of 1934, as amended. This evaluation considered the various processes
carried out under the direction of our board of directors in an effort to ensure
that information required to be disclosed in the SEC reports we file or submit
under the Exchange Act is accurate, complete and timely. Based on the results of
this evaluation, and with the changes outlined above our CEO and CFO concluded
that our disclosure controls and procedures were not effective as of December
31, 2007. This annual report does not include an attestation report of the
Company's registered independent public accounting firm regard in internal
control over financial reporting. Management's report was not subject to
attestation by the Company's independent registered public accounting firm
pursuant to temporary rules of the Securities & Exchange Commission that
permit the Company to provide only management's report in this annual report.




Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting (other than
assistance from third party firms) that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting during the fourth quarter 2007.








36






ITEM 9B. OTHER INFORMATION






None






PART
III




ITEM
      10.
            DIRECTORS
      AND EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




EXECUTIVE
OFFICERS






The
following table sets forth the names, ages and offices of the executive officers
of the Company as of March __, 2008. Each officer serves at the discretion of
the board of directors, but generally for a one-year term. The periods during
which such persons have served in such capacities are indicated in the
description of business experience of such persons below.




Name
              Age
              PositionJijun
      Wu
              71
              Chairman
      of the Board of DirectorsJiansheng
      Wei
              55
              President,
      Chief Executive Officer and DirectorShien
      Zhu
              51
              DirectorGenchang
      Li
              68
              DirectorShicheng
      Fu
              44
              DirectorYuguo
      Chang
              40
              DirectorMika
      Zhang
              33
              DirectorRui
      Zhai
              40
              SecretaryShen
      Zheng
              39
              Chief
      Financial Officer
 The
following is a biographical summary of the business experience of the executive
officers and directors of the Company. Each officer of the Company devotes
fulltime to their respective positions.






Jijun Wu
has served as our Chairman of the Board since the acquisition of Eternal
Technology Group Ltd. and Subsidiaries (the "Reorganization") in December 2002.
From March 2000 to the Reorganization, Mr. Wu served as Chairman of Eternal
Technology Group Ltd. From 1997 to 2000 he was the President of Sky Dragon
Foundation. Previously, Mr. Wu served as Accountant - General of a PRC
state-owned electronics company with revenues in excess of $1.5 billion and as a
consultant to various multinational corporations entering the PRC market. Mr. Wu
is a graduate of China Central Finance & Economics University and holds the
designation of CPA in China.






Jiansheng
Wei has served as Chief Operation Officer and a Director of the Company since
2002 and as President since 2004. From March 2000 to 2002, Mr. Wei served as
Chief Operation Officer and a Director of ETG. From 1998 to 2000, Mr. Wei was
the vice-general manager of Towering Industrial Group Ltd, a trading company.
Mr. Wei has been engaged in animal husbandry practices and management for over
30 years and has been responsible for operations of several large farms in Inner
Mongolia and Hebei Province. Mr. Wei holds an MBA from Tianhin Finance &
Economics College.






Shien Zhu
has served as a Director since 2000. Mr. Zhu served as a Director of the Company
from 2000 to 2002. Since 2001, Mr. Zhu has been a professor at China
Agricultural University. From 1996 to 2001, Mr. Zhu was an associate professor
at China Agricultural University. Mr. Zhu is also Associate Professor and Master
Director, involved in post doctorate studies, at Kochi University and Ehime
University in Japan. Mr. Zhu majored in the area of early embryo verification
freezing and transfer and mammal adoscuolation in embryo biotechnology. He
invented a system of freezing and preservation, not aided by a cooling
frigorimeter, which is characterized by low cost, simple operation and a high
embryo survival rate. In recent years, he has written more than 40 articles that
were published in international and domestic periodicals. Currently, he is
undertaking vital projects for China and scientific research projects under the
"Ninth Five-Year Plan" period.








37











Genchang
Li was appointed to the Board in 2005. He is an experienced researcher with
Tianjin Social Science Academy. Mr. Li is a pioneer in the development and
operation of China’s stock market. When he was working for the municipal
government, he was in charge of the review and administration or reorganizations
of assets and going public of state owned enterprises. He is engaged in the
research of the policies for China's stock market. He was involved in the
publication of various instructive essays and books. He was Section Chief in
Economic System Reform Commission of Tianjin Municipal Government from 1985 to
1993 AND vice general Manager of Investment Banking Department of Junan
Securities Company from 1994 to 1999. He is a researcher with Tianjin Social
Science Academy since 2000.






Shicheng
Fu was appointed to the Board in 2005. He is a lawyer, Dean of Law Department,
Nankai University, and Supervisor for graduate students. His other professional
activities include Director of China Law Institute Administrative Law Research
Society, Guest Researcher of Peking University Public Law Research Center,
Adjunct Researcher of State Administrative College Institute Administrative Law
Research Center, Consultant to the Standing Committee of Tianjin Municipal
People's Congress for legal affairs, Legal Consultant to Tianjin Municipal
Government, and Arbitrator of Tianjin Arbitrator Committee. Prof. Fu attended
Nankai University, Law Department from September 1981 to July 1985. He has been
teaching at Nankai University since 1985. He has participated in international
academic exchanges since 1998.






Yuguo
Chang has been associated with the Company since 2002 and is currently serving
as an assistant to the Chairman in planning corporate strategy and coordinating
company operations. Prior to joining the Company, Mr. Chang served in a similar
capacity with several state owned industries in the PRC. Mr. Chang holds a
Bachelor of Arts degree from Tianjin Advanced Science Technology Institute where
he studied enterprise management and investment strategy.






Mika
Zhang holds a Bachelor of Arts degree from Jilian University in China. For the
past three years, she has served as the Chief Executive Officer of P&P
Canada, a distribution company in Canada. For the five years prior, she was the
marketing manager of Sumjin International, Inc., a Korean company engaged in the
manufacturing and production of restaurant equipment.






Zhai Rui
was appointed as corporate secretary in 2005. Ms. Zhai has a B.A. degree in
computer science and has been the titular head of the company's U.S. office
since February 2005. For the four years before joining the Company, Ms. Rui was
a systems analyst for EB Electronic Engineering Company.






Zheng
Shen was appointed as the Chief Financial Officer of the Company in 2005. Ms.
Shen has a Ph.D in management (accounting and auditing) from Tianjin University
of Finance and Economics. Prior to joining the Company, Ms. Shen held positions
with a Chinese accounting firm and in two companies as their financial manager.
Ms. Shen is also a professor at Tianjin University of Finance and
Economics.






Since the
Company does not have an audit committee, the entire board is considered the
audit committee.






The
Company’s Board of Directors has determined that Zheng Shen is the audit
committee financial expert. Ms. Shen is not independent.






The
Company has adopted and filed a code of ethics that applies to the Company's
principal executive officer, principal financial officer, principal accounting
officer, and persons performing similar functions.








38






ITEM 11.
EXECUTIVE COMPENSATION




Summary
Compensation Table






The
following table sets forth information concerning cash and non-cash compensation
paid or accrued for services in all capacities to the Company during the year
ended December 31, 2007 of each person who served as the Company's Chief
Executive Officer during fiscal 2007 and the four other most highly paid
executive officers whose total annual salary and bonus exceeded $100,000 during
the fiscal year ended December 31, 2007 (the "Named Officers").




Annual
      Compensation
            Long-Term
      CompensationName
      and Principal Position
            Year
            Salary
            Bonus
            Other
      Annual Compensation
            Restricted
      Stock Awards
            Securities
      Underlying Options
            LTIP
      Payouts
            All
      Other CompensationJiJun
      Wu, Chairman of the Board
            2007
              2006
              2005
            130,000
              102,600
              100,000
            -
              -
            -
              -
            30,000
              80,000
            56,000
              -
              -
            -
              -
            -
              -
              -




Equity
Compensation Plan Information






The
maximum number of shares of Common Stock with respect to which awards may be
granted pursuant to the 2006 Plan is 500,000 shares. Shares issuable under the
2004 Plan may be either treasury shares or authorized but unissued shares. The
number of shares available for issuance will be subject to adjustment to prevent
dilution in the event of stock splits, stock dividends or other changes in the
capitalization of the Company.






Subject
to compliance with Rule 16b-3 of the Securities Exchange Act of 1934 (the
"Exchange Act"), the 2004 Plan is administered by the Board of Directors of the
Company (the "Board") or, in the event the Board shall appoint and/or authorize
a committee of two or more members of the Board to administer the 2004 Plan, by
such committee (the "Plan Administrator"). Except for the terms and conditions
explicitly set forth in the 2004 Plan, and subject to applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code") the Plan
Administrator shall have the authority, in its discretion, to determine all
matters relating to the options to be granted under the 2004 Plan, including,
without limitation, selection of whether an option will be an incentive stock
option or a nonqualified stock option, selection of the individuals to be
granted options, the number of shares to be subject to each option, the exercise
price per share, the timing of grants and all other terms and conditions of the
options.






Options
granted under the 2006 Plan may be "incentive stock options" ("incentive
options") within the meaning of Section 422 of the Code or stock options which
are not incentive stock options ("non-incentive options" and, collectively with
incentive options, hereinafter referred to as "options"). Each option may be
exercised in whole or in part; provided, that only whole shares may be issued
pursuant to the exercise of any option. Subject to any other terms and
conditions herein, the Plan Administrator may provide that an option may not be
exercised in whole or in part for a stated period or periods of time during
which such option is outstanding; provided, that the Plan Administrator may
rescind, modify, or waive any such limitation (including by the acceleration of
the vesting schedule upon a change in control of the Company) at any time and
from time to time after the grant date thereof. During an optionee's lifetime,
any incentive options granted under the 2004 Plan are personal to such optionee
and are exercisable solely by such optionee.






The Plan
Administrator can determine that additional forms of payment will be permitted.
To the extent permitted by the Plan Administrator and applicable laws and
regulations(including, without limitation, federal tax and securities laws and
regulations and state corporate law), an Option may be exercised
by:








39






(a)
delivery of shares of common stock of the Company held by an optionee having a
fair market value equal to the exercise price, such fair market value to be
determined in good faith by the Plan Administrator; or




(b)
delivery of a properly executed notice of exercise, together with instructions
to the Company to withhold from the shares of common stock that would otherwise
be issued upon exercise that number of shares of Common Stock having a fair
market value equal to the option exercise price.




Upon a
merger or consolidation in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to a person different from the person holding those securities
immediately prior to such transaction, the sale, transfer or other disposition
of all or substantially all of the Company's assets in complete liquidation or
dissolution of the Company the sale, or transfer or other disposition of all or
substantially all of the Company's assets to an unrelated entity, each, a
("Corporate Transaction"), at the discretion of the Plan Administrator, any
award carrying a right to exercise that was not previously exercisable shall
become fully exercisable, the restrictions, deferral limitations and forfeiture
conditions applicable to any other award granted shall lapse and any performance
conditions imposed with respect to awards shall be deemed to be fully
achieved.




Incentive
options granted under the 2004 Plan may not be transferred, pledged, mortgaged,
hypothecated or otherwise encumbered other than by will or under the laws of
descent and distribution, except that the Plan Administrator may permit
transfers of awards for estate planning purposes if, and to the extent, such
transfers do not cause a participant who is then subject to Section 16 of the
Exchange Act to lose the benefit of the exemption under Rule 16b-3 for such
transactions.




Additional
rules apply under the Code to the grant of Incentive Options. For instance an
incentive option must be exercised within 10 years after the date of grant,
unless granted to an individual owning more than 10% of the Company's stock, in
which case the exercise period may not exceed five(5) years. Similarly, an
Incentive Option must be granted at an exercise price that equals or exceeds
100% of the fair market value of the underlying stock at the time of grant, a
threshold that is increased to 110% of such fair market value in the case of a
grant to an individual owning more than 10% of the Company's stock.




For
federal income tax purposes, the grant to an optionee of a non-incentive option
generally will not constitute a taxable event to the optionee or to the Company.
Upon exercise of a non-incentive option (or, in certain cases, a later tax
recognition date), the optionee will recognize compensation income taxable as
ordinary income, measured by the excess of the fair market value of the common
stock purchased on the exercise date (or later tax recognition date) over the
amount paid by the optionee for such common stock, and will be subject to
federal income tax withholding. Upon recognition of income by the optionee, the
Company may claim a deduction for the amount of such compensation. The optionee
will have a tax basis in the common stock purchased equal to the amount paid
plus the amount of ordinary income recognized upon exercise of the non-incentive
option. Upon the subsequent sale of the common stock received upon exercise of
the non-incentive option, an optionee will recognize capital gain or loss equal
to the difference between the amount realized on such sale and his tax basis in
the common stock, which may be long-term capital gain or loss if the optionee
holds the common stock for more than one year from the exercise
date.






For
federal income tax purposes, in general, neither the grant nor the exercise of
an incentive option will constitute a taxable event to the optionee or to the
Company, assuming the incentive option qualifies as an "incentive stock option"
under Code ss.422. If an optionee does not dispose of the common stock acquired
upon exercise of an incentive option during the statutory holding period, any
gain or loss upon subsequent sale of the common stock will be long-term capital
gain or loss, assuming the shares represent a capital asset in the optionee's
hands. The statutory holding period is the later of two years from the date the
incentive option is granted or one year from the date the common stock is
transferred to the optionee pursuant to the exercise of the incentive option. If
the statutory holding period requirements are satisfied, the Company may not
claim any federal income tax deduction upon either the exercise of the incentive
option or the subsequent sale of the common stock received upon exercise
thereof. If the statutory holding period requirement is not satisfied, the
optionee will recognize compensation income taxable as ordinary income on the
date the common stock is sold (or later tax recognition date) in an amount equal
to the lesser of (i) the fair market value of the common stock on that date less
the amount paid by the optionee for such Common Stock, or (ii) the amount
realized on the disposition of the common stock less the amount paid by the
optionee for such common stock; the Company may then claim a deduction for the
amount of such compensation income.








40






The
federal income tax consequences summarized hereinabove are based upon current
law and are subject to change.






The Board
may amend, alter, suspend, discontinue or terminate the 2004 Plan at any time,
except that any such action shall be subject to shareholder approval at the
annual meeting next following such Board action if such shareholder approval is
required by federal or state law or regulation or the rules of any exchange or
automated quotation system on which the common stock may then be listed or
quoted, or if the Board of Directors otherwise determines to submit






such
action for shareholder approval. In addition, no amendment, alteration,
suspension, discontinuation or termination to the 2004 Plan may materially
impair the rights of any participant with respect to any vested option granted
before amendment without such participant's consent. Unless terminated earlier
by the Board, the 2004 Plan shall terminate upon the earliest to occur of (i) 10
years after the date or which the Board approves the 2004 Plan or (ii) the date
on which all shares of common stock available for issuance under the 2004 Plan
shall have been issued as vested shares. Upon such 2004 Plan termination, all
options and unvested stock issuances outstanding under the 2004 Plan shall
continue to have full force and effect in accordance with the provisions of the
agreements.






On August
26, 2005, the shareholders approved the Company's 2005 Stock Option Plan. This
plan is identical to the 2004 Plan except that it provides for the issuance of
2,500,000 shares. The full number of options authorized by this plan have been
exercised.






On
October 12, 2006 the shareholders approved the Company's 2006 Stock Option Plan.
This Plan is identical to the 2004 and 2005 plan except that it provides for the
issuance of 3,000,000 shares. The full number of options authorized by this plan
have been issued.






The
following table gives information about equity awards under the Company's
existing plan as of December 31, 2007:








41











Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted-average
      exercise price of outstanding options, warrants and rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in
    columnEquity
      compensation plans approved by security holders
            2,500,000
            $.40
            0Equity
      compensation plans not approved by security holders
            500,000
            --
            500,000Warrants
      issued with sale of shares
            1,049,575
            .40
            1,049,575Warrants
      issued in exchange for penalties
            1,486,867
            .25
            332,4785,536,442
            
            1,882,053




Employment
Contracts






The
Company has an employment agreement with Zhai, Rui. This contract runs from
February 20, 2007 to February 19, 2008 and pays annual compensation of
$60,000.






Compensation
of Directors






We
reimburse all direct costs of attendance of Board meetings by our
directors.






No
additional compensation of any nature is paid to employee
directors.






Name
      and Address of
                Beneficial Owner (1)
              Shares  (2)
              Percent of Class (2)Jijun
      Wu
              1,780,000
              3.78%Jiansheng
      Wei
              683,000
              1.45%Shien
      Zhu
              50,000
              *Genchang
      Li
              50,000
              *Shicheng
      Fu
              50,000
              *Yuguo
      Cheng
              30,000
              *Mike
      Zhang
              100,000
              *Rui
      Zhai
              75,100
              *Zheng
      Shen
              30,000
              *All
      executive officers and
                directors
      as a group (9 persons)
              2,848,100
              6.54%




*........Less
than 1%.






(1) The
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws, where applicable, and the information contained in the
footnotes to the table.






(2)
Includes shares of common stock not outstanding, but which are subject to
options, warrants and other convertible securities exercisable or convertible
within 60 days of the date of the information set forth in this table, which are
deemed to be outstanding for the purpose of computing the shares held and
percentage of outstanding common stock with respect to the holder of such
options. Such shares are not, however, deemed to be outstanding for the purpose
of computing the percentage of any other person.








42








(3)
Address is Suite 04-06, 28/F, Block A Innotec Tower, 235 Nanjing Road, Heping
District, Tianjin, PRC 300100.






Compliance
With Section 16(a) of the Exchange Act






Under the
securities laws of the United States, the Company's directors, its executive
officers, and any persons holding more than ten percent of the Company's common
stock are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to disclose in this Proxy Statement any failure to
file by these dates during 2006. Based solely on a review of such reports and
written statements of its directors, executive officers and shareholders, the
Company does not believe that all of the filing requirements were satisfied on a
timely basis in 2007.




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




The
following table is furnished as of December 31, 2007 to indicate beneficial
ownership of shares of the Company's common stock by (1) each shareholder of the
Company who is known by the Company to be a beneficial owner of more than 5% of
the Company's common stock, (2) each director, nominee for director and Named
Officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information in the following table was provided by such persons.




Under the
securities laws of the United States, the Company's directors, its executive
officers, and any persons holding more than ten percent of the Company's common
stock are required to report their initial ownership of the Company's common
stock and any subsequent changes in that ownership to the Securities and
Exchange Commission. Specific due dates for these reports have been established
and the Company is required to disclose in this Proxy Statement any failure to
file by these dates during 2006. Based solely on a review of such reports and
written statements of its directors, executive officers and shareholders, the
Company does not believe that all of the filing requirements were satisfied on a
timely basis in 2007.






43






ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE






Certain
Relationships and Transactions






There
were no related party transactions in either 2007 or 2006.






ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES






Fees Paid
to Independent Public Accountants




The
following table presents fees for professional audit services rendered by Ham
Langston & Brezina, LLP ("HLB") for the audit of the Company's annual
financial statements for the years ended December 31, 2007 and December 31, 2006
and fees billed for other services rendered by Ham Langston & Brezina, LLP
("HLB") during those periods.




Fiscal
      2007
            
            
            Fiscal
      2006Audit
      fees (1)
            
            $
            155,000
            
            
            $
            151,500Audit
      related fees (2)
            
            
            71,150
            
            
            
            21,530Tax
      fees
            
            
            -
            
            
            
            -All
      other fees
            
            
            -
            
            
            
            -Total
            
            $
            226,150
            
            
            $
            173,030




(1) Audit
Fees consist of fees billed for professional services rendered for the audit of
the Company's consolidated annual financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by Ham Langston Brezina LLP in connection with
statutory and regulatory filings or engagements.






(2)
Audit-Related Fees consist of fees billed for assurance and other services not
explicitly related to the performance of the audit or review of the Company's
consolidated financial statements and are not reported under "Audit Fees." This
category includes fees related to the Company's registration statements, review
of proxy statements and accounting research.






Auditor's
time on task






All of
the work expanded by HLB on our December 31, 2007 and 2006 auditors was
attributed to work performed by HLB's full-time, permanent
employees






ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES






(a)
Exhibits






Exhibit






Number Description of
Exhibit




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






44











3.1*
      Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
      Company's Registration Statement on Form SB-2, filed October 22, 2003 (SEC
      File No. 333-109908)).









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









3.3*
      Bylaws of Eternal Technologies Group, Inc. adopted December 12, 2002
      (incorporated by reference to Exhibit 3.3 to the Company's Registration
      Statement on Form SB-2, filed October 22, 2003 (SEC File No.
      333-109908)).









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









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









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









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









10.5*
      Dairy Cow Purchase Contract dated August 5, 2003 by and between Inner
      Mongolia Aeirshan Agricultural Technologies Limited and Xinjiang
      Bajinquoleng Husbandry Center.









10.6*
      Consulting Agreement dated January 1, 2003 by and between
    the









Company
      and Market Management LLC.









10.7
      *Public Relations Agreement dated January 23, 2004 by and between the
      Company and PMR and Associates LLC.









10.8*
      Contract dated June 13, 2003 by and between Eternal Technologies Group,
      Inc. and Paranna, Inc.









10.9*
      Form of Subscription Agreement relating to 2003 Placement of Common Stock
      (incorporated by reference to Exhibit 10.5 to the Company's Registration
      Statement on Form SB-2, filed October 22, 2003 (SEC File No.
      333-109908)).









10.10*Form
      of Placement Agreement with First Montauk Securities Corp (incorporated by
      reference to Exhibit 10.6 to the Company's Registration Statement on Form
      SB-2, filed October 22, 2003 (SEC File No.
  333-109908)).









10.11*Form
      of Warrant Agreement (incorporated by reference to Exhibit 10.7 to the
      Company's Registration Statement on Form SB-2, filed October 22, 2003 (SEC
      File No. 333-109908)).









10.12
      Employment Agreement between Eternal Technologies Group, Inc. and Zhai
      Rui









10.13
      Lease for the Shenzhen facility






45











10.14
      Exchange Agreement between Eternal Technologies Group, Inc. and Sea
      Biomedical Engineering Co. International Ltd. dated September 30, 2005
      *









14.1
      Code of Ethics for CEO and Senior Financial
  Officers









31.1
      Section 302 Certification of CEO









31.2
      Section 302 Certification of CFO









32.1
      Section 906 Certification of CEO









32.2
      Section 906 Certification of CFO









*
      Previously Filed






46













SIGNATURES






In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




ETERNAL
      TECHNOLOGIES GROUP, INC.Date:
      March 26, 2008
            By:
            /s/
      Jianshang WeiJianshang WeiChief
      Executive Officer




In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Signatures
              Title
              Date/s/ JIJUN
      WU
                JIJUN
      WU
              Chairman
      of the Board
              March
      26, 2008/s/ JIANSHENG
      WEI
                JIANSHENG
      WEI
              Chief
      Executive Officer and Director
              March
      26, 2008/s/ GENCHANG
      LI
                GENCHANG
      LI
              Director
              March
      26, 2008/s/ SHICHANG
      FU
                SHICHANG
      FU
              Director
              March
      26, 2008/s/ SHIEN
      ZHU
                SHIEN
      ZHU
              Director
              March
      26, 2008/S/ YAQUO
      CHANG
                YAQUO
      CHANG
              Director
              March
      26, 2008/S/ MIKE
      ZHANG
                MIKE
      ZHANG
              Director
              March
      26, 2008






47











CERTIFICATIONS






EXHIBIT
31.1






Certification
by Jiansheng Wei


Pursuant
to Securities Exchange Act Rule 13a-14(a)






I,
Jiansheng Wei, certify that:






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






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






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






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






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






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






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






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






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






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






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






Date:
March 26, 2008






/s/ JIANSHENG
WEI


Jiansheng
Wei


Chief
Executive Officer








48













EXHIBIT
31.2






Certification
by Zheng Shen


Pursuant
to Securities Exchange Act Rule 13a-14(a)






I, Zheng
Shen, certify that:






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






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






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






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






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






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






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






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






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






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






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






Date:
March 26, 2008






/s/ ZHENG
SHEN


Zheng
Shen


Chief
Financial Officer








49













EXHIBIT
32.1






Certification
of Periodic Financial Report


Pursuant
to 18 U.S.C. Section 1350






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






(i) the
Annual Report on Form 10-KSB of the Company for the year ended December 31,
2007, as filed with the Securities and Exchange Commission on the date hereof
(the "Report") fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and






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






Date:
March 26, 2008






/s/ JIANSHENG
WEI


Jiansheng
Wei


Chief
Executive Officer








50













EXHIBIT 32.2






Certification
of Periodic Financial Report


Pursuant
to 18 U.S.C. Section 1350






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






(i) the
Annual Report on Form 10-KSB of the Company for the year ended December 31,
2007, as filed with the Securities and Exchange Commission on the date hereof
(the "Report") fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and






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






Date:
March 26, 2008






/s/ Zheng
Shen


Zheng
Shen


Chief
Financial Officer