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, 2004

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

          For the transition period from ____________ to _____________

                           Commission File No. 0-27929

                        ETERNAL TECHNOLOGIES GROUP, INC.
                -------------------------------------------------
                 (Name of Small Business Issuer in its charter)

            Nevada                                     62-1655508
-------------------------------            -------------------------------------
 (State or other jurisdiction               (I.R.S. Employer Identification No.)
              of
 incorporation or organization)

              Suite D 5/F, Block A, Innotec Tower, 235 Nanjing Road
                      Heping District, Tianjin, PRC 300052
       ------------------------------------------------------------------
               (Address of principal executive offices)(Zip code)

Issuer's telephone number, including area code: 011-86-22-2721-7020

Securities to be registered pursuant to Section 12(b) of the Act:

 Title of each class          Name of each exchange on which each is registered
 --------------------     -----------------------------------------------------
        None                                        None

Securities to be registered pursuant to Section 12(g) of the Act:

                         Common Stock, $0.001 par value
                   -------------------------------------------
                                (Title of Class)

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

Yes      [X]           No         [ ]

     Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, 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-KSB or any amendment to
this Form 10-KSB.

     The Issuer's revenues for the fiscal year ended December 31, 2004 were
$16,834,759.

     The number of shares of the registrant's common stock, $.001 par value per
share, outstanding as of May 10, 2005 was 30,679,630. The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the
registrant on May 10, 2005, based on the last sales price on the OTC Bulletin
Board as of such date, was approximately $8,221,649.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

           Transition Small Business Disclosure Format: Yes [ ] No [X]
<PAGE>

                                TABLE OF CONTENTS

                                                                          Page

PART I

         ITEM 1.      DESCRIPTION OF BUSINESS..........................      3
         ITEM 2.      DESCRIPTION OF PROPERTY..........................      8
         ITEM 3.      LEGAL PROCEEDINGS................................      9
         ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF
                      SECURITY HOLDERS.................................      9

PART II

         ITEM 5.      MARKET FOR COMMON EQUITY AND
                      RELATED STOCKHOLDER MATTERS......................      9
         ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS.............     10
         ITEM 7.      FINANCIAL STATEMENTS.............................     15
         ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURE...........     29
         ITEM 8A.     CONTROLS AND PROCEDURES..........................     30

PART III

         ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                      CONTROL PERSONS; COMPLIANCE WITH
                      SECTION 16(a) OF THE EXCHANGE ACT................     30
         ITEM 10.     EXECUTIVE COMPENSATION...........................     32
         ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT............................     35
         ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...     36
         ITEM 13.     EXHIBITS AND REPORTS OF FORM 8-K.................     36
         ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES...........     38

SIGNATURES            .................................................     39

                                       2
<PAGE>



                           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 an agricultural  genetics company operating
in China and focused on the  development  and  application  of  advanced  animal
husbandry techniques to produce improved food products.

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

Our pharmaceutical operations focused on the application of our gene engineering
capabilities in the research,  development of biological  drugs. In September of
2004 the company  determined  that the  pharmaceutical  products being developed
were  unlikely  to  mature  into   commercially   viable   products  and  ceased
pharmaceutical operations.

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.

History and Development of the Company

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

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

                                       3
<PAGE>

Eternal - BVI was incorporated in the British Virgin Islands in March 2000. In
May 2000, Eternal - BVI acquired 100% of Willsley Company Limited. Willsley is a
holding company that owns 100% of Inner Mongolia Aershan Agriculture & Husbandry
Technology Co., Ltd. ("Aershan Agriculture"). Aershan Agriculture operates a
breeding center focused on the propagation of superior breeds of sheep and
livestock in the Inner Mongolia region of China.

In January 2003, we supplemented our research and development and embryo
transfer capabilities by establishing a relationship with Beijing AnBo Embryo
Biotech Center ("AnBo Biotech Center"), a biotech research and development and
embryo transfer center located in Beijing. This relationship was initially going
to be a joint venture, but because the parties were unable to reach agreement on
several key terms of the proposed joint venture, it was not consummated.
Instead, we maintain a close partnership with Anbo Biotech Center on technical
coorperation.

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

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

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

Historically,  our  business  has been  highly  seasonal  with nearly all of our
revenues being generated in the fourth  quarter.  While our business will remain
seasonal,  it should be less cyclical in the future  because of the sale of lamb
meat and embryo transfers to dairy cattle, a process which occurs throughout the
year.


                                       4
<PAGE>

Agricultural Genetics / Animal Husbandry Operations

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

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

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

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

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

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

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

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

In the fourth quarter of 2003, we expanded our embryo transfer and breeding
services to include, in addition to sheep, high-yielding pure-bread dairy
cattle. In our dairy cattle breeding and embryo transfer operations, we purchase
relatively high yielding dairy cattle in China, produce embryo's from these
cattle with advanced biotechnology and provide commercial dairy cattle through
embryo transfer. After birth, retain the offspring to serve as breeder stock and
sell the "host animal" back to the original owner.

Food Production. In the fourth quarter of 2003, we commenced the production and
sale of mutton. We purchase cross-breed sheep for sale to slaughterhouses for
processing and sale of mutton. Animals processed for mutton sale are generally
those that are not candidates for future breeding. We continuously evaluate our
farm operations and supplies of sheep for mutton production to assure the
economic viability of our meat supplies in light of changing land use
regulations in China. We do not presently own slaughterhouse or processing
facilities but intend to purchase such facilities in the future.

                                       5
<PAGE>

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

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

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

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

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

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

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

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

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

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

Because of recent changes in Chinese land use regulation, which may prohibit any
plowing on the farm because of past dust storms that affected Beijing our future
land use may be restricted. Although we have not plowed our acreage to plant
grain crops or forage grasses, the pasturing of a large number of animals on the
farms would require plowing to plant the crops necessary to maintain the
livestock. Because we had considered keeping additional livestock on the farms,
these plans are no longer viable and diminish our need for the facility. Despite
these new regulations, the value of the farm has not diminished as it had not
been plowed prior to or subsequent to our purchase and the value paid reflects
the value of unplowed acreage. We are evaluating the economic viability of the
continued operations of the farm and may, if determined to be in our best
economic interests, consider selling some or all of the grazing land on our
farm.

                                       6
<PAGE>

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

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

Pharmaceutical Operations

In September of 2004, the Company determined that the pharmaceutical products
being developed were unlikely to mature into commercially viable products. As
such the Company entered into agreements stipulating that the Company's research
and development expenses would not be reimbursed and the Company was released
from any further obligation.

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

The agriculture industry is 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. These companies have a substantial
advantage due to the 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.

                                       7
<PAGE>

Intellectual Property

We  currently  rely on a  combination  of  trade  secret  laws  and  contractual
provisions to protect our proprietary rights in our product.  As of December 31,
2003, we had applied for three Chinese  patents.  There can be no assurance that
our  applications  will result in issued  patents and  trademarks,  or that,  if
issued, our applications will be upheld if challenged. Further, even if granted,
there can be no assurance that these patents and trademarks will provide us with
any  protection  from  competitors,  or, that if they do provide any  meaningful
level of  protection,  that we will have the  financial  resources  necessary to
enforce our patent and trademark rights. In addition,  there can be no assurance
that others will not independently  develop  technologies similar to our pending
patents and trademarks, or design around the pending patents. If others are able
to design  around the patents,  our results of  operations  could be  materially
adversely  affected.  Further,  we will have very limited, if any, protection of
our  proprietary  rights in those  jurisdictions  where we have not affected any
filings or where we fail to obtain protection through our filings.

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

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

Governmental Regulation

Our business and the agriculture industry in general is 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 industry in particular, is not well defined and is
subject to substantial uncertainty. With China's entry in the WTO, China has
implemented numerous changes to its existing laws and regulations.

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

Employees

As of December 31, 2004, we had 26 full-time employees, including employees
performing administrative functions and animal husbandry services and farming
functions. Bioscience research and related services are performed by third
parties on a contract basis. The employees are not covered by a collective
bargaining agreement, and we do not anticipate that any of our future employees
will be covered by such agreement.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company operates from two separate facilities, its administrative offices in
Tianjin, PRC and its farm in Inner Mongolia, PRC. The administrative offices
occupy approximately 97.8 square meters (approximately 1,053 square feet) in a
commercial building in Tianjin, PRC. The Company rents this facilitiy under a 2
year lease, running through December 31, 2006, at $964 per month.

                                       8
<PAGE>

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. The land use rights run until 2025. See "Item 1. Description of Business -
Agricultural Genetics / Animal Husbandry Operations - Breeding Facilities" for a
description of the farm.

ITEM 3.  LEGAL PROCEEDINGS

As of March 1, 2005, we were a party to two legal proceedings. The first is a
lawsuit brought by Western Securities Corporation. This cause of action seeks
payment of $500,942 on two outstanding promissory notes, one to Market
Management, Inc. and one to Thomas L. Tedrow plus accrued interest since July
11, 2004, attorney's fees, cost of collection and other court costs. This cause
of action was filed in Federal Court in the Eastern District of Louisiana. The
Company has filed a Motion to Dismiss for lack of personal jurisdiction or
alternatively a Motion to Dismiss for lack of venue. Both motions are currently
pending before the court. The second cause of action was filed in State Court in
New York City by Bristol Investments Limited against the company and is seeking
the payment of the penalty due under their original investment for failure to
have a registration effective within a stated period of time. Bristol is
currently seeking $53,000 in damages. A settlement is pending in this cause of
action and documents are being drafted to reflect this settlement agreement.
Under this settlement agreement a Convertible Debenture Note will be issued in
lieu of a cash payment. This Debenture is convertible into shares of the
company's common stock at a 20% discount to the five trading day closing price
prior to the date of settlement. Debentures have a maturity of two years from
the date of closing and any unconverted non-redeemed debentures outstanding on
the second anniversary of the closing date will be paid in cash to the investor.

As of May 10, 2005 we are not a party to any other pending litigation and were
not aware of any threatened litigation.

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

During the quarter ended December 31, 2004, no matters were submitted to a vote
of security holders.


                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

                                              High              Low

Calendar Year 2004

         Fourth Quarter..............        $0.60             $0.34
         Third Quarter...............         0.60              0.32
         Second Quarter..............         0.96              0.41
         First Quarter...............         1.13              0.79

Calendar Year 2003

         Fourth Quarter..............        $1.25             $0.81
         Third Quarter...............         1.85              0.91
         Second Quarter..............         1.25              0.90
         First Quarter...............         1.17              0.75



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

                                       9
<PAGE>

As of May 10, 2005, the closing bid price of the Common Stock was $0.33.

As of May 10, 2005, we estimate that there were in excess of 2000 beneficial
holders of our Common Stock.

Between March 2003 and August 2003, we issued 979,505 shares of common stock to
various non-U.S. investors for $277,304. In September and October 2003, we
issued 1,749,288 shares of common stock and 1,181,205 warrants to seven
accredited investors for $1,316,643. The warrants issued during 2003 were
exercisable to purchase common stock at $1.11 to $1.54 per share and expire
between September 4 and October 8, 2008. On November 5, 2004 the Company amended
the warrants to reduce the exercise price to $0.40.

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

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

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

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

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.


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

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.  While our business will remain
seasonal,  it should be less  cynical in the future  because of the sale of lamb
meat and embryo transfers to dairy cattle, a process which occurs throughout the
year.

On October 31, 2004, as previously disclosed in a Form 8-K Securities & Exchange
Commission filing, the Company had entered into an Exchange Agreement to acquire
a 100%  interest in E-Sea  Biomedical  Co.  International,  Ltd.  (E-Sea) for 14
million shares of the Company's stock. On April 26, 2005, the Company  rescinded
the  acquisition of E-Sea.  The termination  was  retroactively  effective as of
October  31,  2004  the  original  date  of the  original  acquisition.  All the
certificates  representing  the 14 million  shares issued to E-Sea  shareholders
have been  returned to the Company and  cancelled.  The Company  will deliver to
E-Sea all the documents of E-Sea now in the possession of the Company.

The  acquisition of E-Sea was terminated  because the Company was unable to have
the financial statements of E-Sea Biomedical Engineering Co. International Ltd.,
Inc.  audited.  As such the 10-KSB does not  include  operations  of E-Sea.  The
Company has no further commitments from this termination.


                                       10
<PAGE>

Critical Accounting Policies

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

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

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

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

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

Among our long-lived assets subject to review for impairment are our land lease
rights in Mainland China that are stated at cost less accumulated amortization.
Amortization of land lease rights was calculated on the straight-line basis over
the lesser of its estimated useful life or the lease term. The principal annual
rate used for amortization is 4%.

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 No. 104 (SAB 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 collectibility is reasonably assured.

                                       11
<PAGE>

Research and Development

Research and development costs are charged to operations as incurred.

Results of Operations

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Revenues

 Revenues increased by $1,338,793 or 9% to $16,834,759 for the year ended
December 31, 2004 from $15,495,966 for the year ended December 31, 2003. The
increase was primarily due to an increase in the sales of rolled mutton of
$3,436,012, dairy cattle embryo transfers of $2,951,807, and the sale of live
sheep of $92,723. These increases were partially offset by a decrease of
$668,795 in the sale of lamb meat, $4,450,602 in sheep embryo transfers and
$22,352 in the sale of sheep embryos.

Cost of Sales

Cost of sales  increased by $3,754,932 or 57% to $10,305,514  for the year ended
December 31, 2004 from  $6,550,582  for the year ended  December  31, 2003.  The
decrease  in gross  profit  is  attributable  to a  reduction  in  sheep  embryo
transfers  which has a higher profit margin and an increase in the sale of sheep
meat and cattle embryo  transfers  which has a lower gross profit margin.  Gross
profit  as a percent  of sales  decreased  by 19.0% to 38.7% for the year  ended
December 31, 2004 from 57.7% for the year ended December 31, 2003.

Depreciation and Amortization

Depreciation and amortization decreased by $113,726 or approximately 13% to
$760,691 during 2004 from $874,417 during 2003. The decrease resulted from
certain equipment being fully depreciated during 2004 that was being depreciated
during 2003.

General, Selling and Administrative Expenses

General, Selling and administrative expenses increased by $189,045 or 14 % to
$1,580,990 during 2004 as compared to $1,391,945 during 2003. This increase is
primarily due to an increase in accrued penalties for failure to meet a
specified deadline for having a share registration effective, an increase in
professional fees resulting from costs incurred on the registration statement
and an increase in salaries expense which was partially offset by a decrease in
marketing expense.

Other Income (Expense)

Interest income increased by $42,777 from $83,272 during 2003 to $126,049 during
2004 due to a significant increase in amounts of cash being held in
interest-bearing accounts.Interest expense decreased by $24,207 from $51,441
during 2003 to $27,234 during 2004 because of reduced notes payable in 2004.
During the fourth quarter of 2003, we recorded an impairment charge of $300,000
based on our evaluation of our reception center which we sold during 2004. For
2004 we recorded an additional impairment charge of $53,517 when the final
purchase price of the reception center and related equipment was finally
resolved. As a result of the foregoing, the Company's earnings declined by
$2,177,991 to $4,232,662 for 2004 from $6,410,853 for 2003.

Liquidity and Capital Resources

As of December 31, 2004, the Company had cash of $27,473,354 and working capital
of $27,391,150 compared to cash of $16,302,464 and working capital of
$21,610,834 at December 31, 2003.

Cash provided by operating activities totaled $10,471,737 for the year ended
December 31, 2004. This compares with cash provided by operating activities of
$8,188,874 for the year ended December 31, 2003. The increase in cash flows from
operations primarily resulted from non-cash payments for compensation, an
increase in inventories from a non-monetary transaction, a decrease in other
receivable and related party receivables, a decrease in prepayments and deposit
and an increase in accounts payable which was partially offset by a reduced
impairment losses, an increase in accounts receivable, decreases in depreciation
and amortization, and a decrease in payables to a related party and to a related
company.

                                       12
<PAGE>

Cash provided from investing  activities during 2004 was $620,482 which was from
the  sale of the Company's reception center. During  2003 the  Company  used
$649,087 in  investing  activities  for the  remaining  payment to complete  the
construction work at the Company farm.

Cash flows from financing activities totaled $78,671 for 2004 from capital
contributed. Cash flows for 2003 totalled $1,627,117 all from the sale of the
Company's common stock. A total of 3,646,080 shares of common stock and
1,181,205 warrants for the purchase of common stock were issued during 2003. The
exercise prices on these warrants was initially $1.11 to $1.54 per share and was
subsequently modified to $0.40 during 2004. The warrants are exercisable for a
period of five years with the expiration dates ranging from September 4, 2008 to
October 8, 2008. The warrants include certain registration rights and have a
cashless exercise provision.

At December 31, 2004, the Company had notes payable of $443,366 that are due
December 11, 2005. Interest on the notes is payable semi-annually commencing 180
days after the date of the note (December 11, 2002) at 8% per annum. At December
31, 2003, the principal balances on the notes was $503,857. During 2004, the
Company issued 109,984 shares against the notes which reduced the balance on the
notes $60,491. The Company ceased accruing interest on the notes during 2004 as
they are the subject of current litigation. The company disputes the validity of
the notes. See Note 19 of the Company's Consolidated Financial Statements under
Item 7.

Although the Company has a cash and bank balance of $27,473,354, substantially
all of this amount is to be exclusively used by management for operations within
the People's Republic of China. Therefore, if the Company is to expand outside
the PRC, as it anticipates doing, or pay its non-PRC obligation, it will have to
sell additional shares of its stock or borrow funds from third parties. Unless
it is able to either borrow funds or sell additional shares, it may have
insufficient resources to carry out its business objectives outside the PRC for
the next twelve (12) months.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues -

 Revenues increased by $2,855,002 or 22.58% to $15,495,966 for the year ended
December 31, 2003 from $12,640,964 for the year ended December 31, 2002. The
increase was primarily due to the introduction of several new product lines,
namely the sale of lamb meat and the expansion of embryo transplants to dairy
cattle.

Cost of Sales

-Cost of sales increased by $3,797,771 or 138% from $2,752,811 for the year
ended December 31, 2002 to $6,550,582 for the year ended December 31, 2003. The
increase in cost of sales is attributable to the collecting and processing of
lamb meat and the expansion of embryo transplants to dairy cattle. Gross profit
as a percent of sales decreased to 57.7% for the year ended December 31, 2003
from 78.2% for the year ended December 31, 2002. The decrease in the gross
profit margins is attributable to the reduction of sheep embryo transfers as a
percentage of total revenues which have a higher profit margin. The market for
sheep embryo transfers is decreasing. The Company began to sell lamb meat and
transfer dairy cattle embryos in 2003. These two new projects partially offset
the decline from sheep embryo transfers.

Depreciation and Amortization

- Depreciation and amortization increased by $12,365 or 1.43% to $874,417 during
2003 from $862,052 during 2002. The increase is caused by additional buildings
and equipment that was put in service in 2003.

General, Selling and Administrative Expenses

- General, Selling and administrative expenses increased by $187,864 or 15.60%
to $1,391,945 during 2003 as compared to $1,204,081 during 2002. The increase is
primarily attributable to an increase in public relations fees of approximately
$110,000, and an I ncrease of salaries expense of approximately $240,000 which
were partially offset by a decrease in professional fees and consulting fees of
approximately $93,000 and $64,000, respectively.

                                       13
<PAGE>

Research and Development Costs

- During 2002, we incurred $1,000,000 of research and development costs. No
material additional costs were incurred during 2003. We did not conduct
research, but contracted with two outside parties who perform research on our
behalf.These contracts were terminated in 2004. During 2002, $400,000 was
incurred and paid to Towering International, and $600,000 was incurred and paid
to the Chinese Science Bureau.

Other Income (Expense)

Interest  income  increased by $81,840 from $1,432 during 2002 to $83,272 during
2003 due to a significant  increase in amounts of cash held in  interest-bearing
accounts.Interest  expense  increased  by $40,473  from  $10,968  during 2002 to
$51,441 during 2003 due to having more debt outstanding  during 2003. During the
fourth  quarter of 2003, we recorded an impairment  charge of $300,000  based on
our evaluation of our reception center which we plan to sell during 2004.

Net Income (Loss) - As a result of the  foregoing,  the net income  decreased by
$401,631  or 5.9% to  $6,410,853  for the year  ended  December  31,  2003  from
$6,812,484 for the year ended December 31, 2002.

Liquidity and Capital Resources

The Company had  $16,302,464 in cash at December 31, 2003 compared to $7,135,559
at December 31, 2002. The Company's  working capital was $21,610,834 at December
31, 2003 compared to $10,226,786 at December 31, 2002.

Cash  provided by operating  activities  totaled  $8,188,875  for the year ended
December 31, 2003.  This compares with cash provided by operating  activities of
$1,201,865  for the year ended  December 31, 2002. The increase in cash provided
by operating  activities is primarily due to the collection of trade receivables
of  $4,483,855  during 2003  (offset by an increase in inventory of $981,781 and
other  receivables of $3,399,995) and an overall increase in liabilities in 2003
of $500,001.  During 2002 there were  increases in receivables of $1,833,509 and
overall decreases in liabilities of $4,710,463.

Cash used in investing  activities  during 2003 was $649,087,  which was for the
remaining payment to complete  construction work on the farmhouses.  During 2002
the Company used  $1,893,365 in investing  activities  for the purchase of fixed
assets and for  construction  costs.  The construction was a one-time project to
build fences and make  additional  roads to the buildings  and reception  center
located on the Company's farm.

Cash flows from financing  activities totaled $1,627,117 during 2003 compared to
$73,607 during 2002. All cash flows from financing activities for 2003 were from
the sale of the Company's  common stock.  A total of 3,646,080  shares of common
stock and 1,049,575 warrants for the purchase of common stock were issued during
2003. The exercise prices on these warrants were $1.11 and $1.54 per share.  The
warrants are  exercisable  for a period of five years with the expiration  dates
ranging from September 4, 2008 to October 8, 2008. The warrants  include certain
registration rights and have a cashless exercise provision.

At December 31,  2003,  the Company had notes  payable of $503,857  that are due
December  11,  2005.  Interest  on the  notes  shall  be  payable  semi-annually
commencing  180 days after the date of the note  (December  11,  2002) at 8% per
annum.  The notes are payable from the first dollars  received from any proceeds
of any offering subsequent to the acquisition of Eternal Technologies Group Ltd.
or at the option of the  lender,  convertible  into post  reverse  split  common
shares  at a rate  equal to the mean of the high and low  share  price as of the
first date that the shares  begin  trading  subsequent  to the  acquisition.  At
December 31, 2002, the principal  balances on the notes were $782,733 and during
2003,  the Company issued 507,229 common shares which reduced the balance on the
notes $278,876.  Although these notes are recorded at $503,857,  the Company and
its  attorney's  are  conducting  a separate  review to determine if all amounts
accrued are properly chargeable to the Company.

Although  the  Company  has a cash  and bank  balance  of  $16,302,464,  all but
$1,018,226 is  arbitrarily  restricted by management for certain uses within the
People's Republic of China.  Therefore,  if the Company is to expand outside the
PRC, as it anticipates  doing,  or pay its non-PRC  obligation,  it will have to
sell additional  shares of its stock or borrow funds from third parties.  Unless
it is able to  either  borrow  funds or sell  additional  shares,  it will  have
insufficient  resources to carry out its business objectives outside the PRC for
the next twelve (12) months.

Capital Expenditures and Commitments

At December 31, 2003, we had total contractual commitments of $1,600,000 related
to research and development projects.

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.

                                       14
<PAGE>

The following table details our contractual obligations as of December 31, 2004:
<TABLE>

                                                    Payments due by period
                               ---------------------------------------------------------------
                                    Total        2005        2006        2007       Thereafter
                                    -----        ----        ----        ----       ----------
<S>                              <C>            <C>         <C>          <C>        <C>

Long-term debt                    $    0
Capital lease obligations         $    0
Operating lease commitments       $3,254      $ 3,254       $   -       $   -         $   0
Other contractual purchase
  Obligations                     $    0
Other long-term liabilities       $    0
                                ---------     --------     --------    ---------   ---------
     Total                             $      $ 3,254       $   -       $   -         $   0
                                =========     ========     ========    =========   =========
</TABLE>


Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party
obligations at December 31, 2004.

Inflation

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


Outlook

For calendar year 2005, the Company will focus on two areas:

- Acquiring a dairy cattle facility in the PRC to increase its embryo transplant
revenues from dairy cattle - Acquiring a facility in the U.S. to harvest dairy
cattle embryo's If the company is successful in implementing this strategy it
should increase both the Company's revenues and profit margins.


                                       15
<PAGE>


ITEM 7.  FINANCIAL STATEMENTS



                               ETERNAL TECHNOLOGIES GROUP, INC.

                          INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Registered Public Accounting Firm..................  F-2
Consolidated Balance Sheets as of December 31, 2004 and 2003.............  F-3
Consolidated Statements of Income For the Years ended December 31,
2004 and 2003............................................................  F-4
Consolidated Statements of Changes in Shareholders' Equity For the
Years ended December 31, 2004 and 2003...................................  F-5
Consolidated Statements of Cash Flows For the Years Ended December 31,
2004 and 2003............................................................  F-6
Notes to Consolidated Financial Statements...............................  F-7



                                       F-1


             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, 2004 and 2003, and
the related consolidated  statements of income, changes in shareholders' equity,
and  cash  flows  for  the  years  ended  December  31,  2004  and  2003.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly in all material respects,  the financial position of Eternal Technologies
Group,  Inc. and  Subsidiaries as of December 31, 2004 and 2003, and the results
of their  operations  and their cash flows for the years ended December 31, 2004
and 2003 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

As disclosed in Note 4. to the consolidated  financial  statements,  the Company
has restated its consolidated  financial  statements for the year ended December
31, 2002 related to the restatement of the negative equity position of Waterford
Sterling Corporation on the date of the acquisition.


/s/ Thomas Leger & Co., L.L.P

Thomas Leger & Co., L.L.P.
Houston, Texas
May 6, 2005

                                       F-2
<PAGE>


                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003
                             (UNITED STATES DOLLARS)
<TABLE>

ASSETS                                                     2004                 2003
<S>                                                       <C>                 <C>
                                                                             (Restated)
CURRENT ASSETS

  Cash and cash equivalents                               $27,473,354         $16,302,464
  Accounts receivable                                       1,538,313                   -
  Inventories                                                 621,307           1,214,182
  Other receivable                                                  -           3,399,995
  Receivable due from related company                               -             617,825
  Receivable- Property sold                                         -           2,192,071
  Prepayments and deposits                                        602             145,190
                                                      ----------------     ---------------
TOTAL CURRENT ASSETS                                       29,633,576          23,871,727

FIXED ASSETS net of accumulated depreciation                5,904,050           6,416,341

LAND USE RIGHTS net of accumulated amortization of
$1,055,361  in 2004 and $806,961 in 2003                    4,944,639           5,193,039
                                                      ----------------     ---------------
TOTAL ASSETS                                              $40,482,265         $35,481,107
                                                      ================     ===============

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

  Notes payable                                               443,366             503,857
  Accounts payable and accrued expenses                     1,526,595           1,133,462
  Payable to related company                                        -             205,957
  Amounts due to related parties                              272,465             417,617
                                                      ----------------     ---------------
TOTAL CURRENT LIABILITIES                                   2,242,426           2,260,893

SHAREHOLDERS' EQUITY

Preferred shares - 5,000,000 authorized $.001 par
none issued                                                         -                   -

Common shares - 95,000,000 authorized at $.001
par - 30,679,630 and 29,177,396 shares issued
and outstanding at December 31, 2004 and 2003
respectively                                                   30,679              29,177
   Paid - in capital                                        9,740,830           8,955,570
   Stock subscription receivable                              (10,176)            (10,176)
   Retained earnings                                       28,478,506          24,245,643
                                                         --------------       -------------

TOTAL SHAREHOLDERS' EQUITY                                 38,239,839          33,220,214
                                                        ----------------     --------------
                                                          $40,482,265         $35,481,107
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              ================     ==============

</TABLE>

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


                                       F-3
<PAGE>


                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
                             (UNITED STATES DOLLARS)



                                            2004                   2003
                                      -----------------      -----------------
                                           $16,834,759            $15,495,966
SALES

COST OF SALES                               10,305,514              6,550,582
                                      -----------------      -----------------
GROSS PROFIT                                 6,529,245              8,945,384

DEPRECIATION AND AMORTIZATION                  760,691                874,417
GENERAL SELLING AND ADMINISTRATIVE
EXPENSES                                     1,580,990              1,391,945
OTHER INCOME (EXPENSE)
  Interest income                              126,049                 83,272
  Interest expense                            (27,234)               (51,441)
  Impairment loss                             (53,517)              (300,000)
                                      -----------------      -----------------
NET INCOME BEFORE INCOME TAXES               4,232,862              6,410,853
INCOME TAXES                                         -                      -
                                      -----------------      -----------------
NET INCOME                                  $4,232,862             $6,410,853
                                      =================      =================
EARNINGS PER SHARE
  Basic                                        $  0.14                $  0.24
                                      =================      =================
  Diluted                                 $       0.14                $  0.24
                                      =================      =================
Weighted average number of
  common shares outstanding
  Basic                                     29,551,485             26,968,121
                                      =================      =================
  Diluted                                   29,563,297             26,968,121
                                      =================      =================



                                      F-4


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

<PAGE>




                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
                             (UNITED STATES DOLLARS)
<TABLE>

                       Common              Common                                 Stock
                       Stock               Stock           Paid - in           Subscription        Retained
                       Shares              Amount           Capital             Receivable         Earnings             Total
                       -------------    -----------      ------------         ---------------    -------------        -------------
<S>                    <C>              <C>              <C>                  <C>                <C>                  <C>

Balance, December
31, 2002,                25,531,316     $      25,531      $   5,825,735     $           -     $    18,702,201     $   24,553,467
as reported

Restatement adjustment            -                 -            867,411                 -           (867,411)                  -
                       -------------       -----------        -----------      ------------       -------------       ------------
Balance, December
31, 2002                 25,531,316            25,531          6,693,146                 -          17,834,790         24,553,467
(Restated)

Notes payable
converted to                507,229               507            278,469                 -                   -            278,976
stock

Accrued liabilities         172,000               172            349,629                 -                   -            349,801
converted to stock

Stock issued for
cash and                  2,934,581             2,935          1,624,182                 -                   -          1,627,117
commission

Stock subscribed for         32,270                32             10,144          (10,176)                   -                  -

Net income                        -                 -                  -                 -           6,410,853          6,410,853
                       -------------    -- -----------    --- -----------   ---------------    -- -------------   --- ------------
Balance, December
31, 2003                 29,177,396            29,177          8,955,570          (10,176)          24,245,643         33,220,214
(Restated)

Notes payable
converted to                109,984               110             60,381                 -                   -             60,491
stock

Stock issued for
public                      100,000               100             89,900                 -                   -             90,000
relation service

Stock issued for
employee                  1,292,250             1,292            515,608                 -                   -            516,900
compensation

Capital contributed               -                 -            119,372                 -                   -            119,372

Net income                        -                 -                  -                 -           4,232,862          4,232,862
                       -------------    -- -----------    --- -----------   ---------------    -- -------------   --- ------------

Balance, December
31, 2004                 30,679,630     $      30,679      $   9,740,831     $    (10,176)     $    28,478,505     $   38,239,839
                       =============    == ===========    === ===========   ===============    == =============   === ============
</TABLE>


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


                                      F-5
<PAGE>



                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
                             (UNITED STATES DOLLARS)
<TABLE>

                                                                             December 31
                                                                 --------------------------------------
                                                                    2004                    2003
<S>                                                              <C>                      <C>

CASH FLOWS FROM OPERATING ACTIVITIES
    Net income                                                      $4,232,862              $6,410,853
    Adjustments to reconcile net income to
       net cash provided by operating activities:
    Depreciation and amortization                                      760,692                 874,417
    Impairment loss                                                     53,517                 300,000
    Stock issued for compensation                                      647,600                       -
(Increase) decrease in assets:
    Inventories                                                      2,110,947               (981,781)
    Accounts receivable                                            (1,538,313)               4,483,855
    Other receivable                                                 3,399,995             (3,399,995)
    Receivable due from related companies                              617,825                       -
    Prepayment and deposit                                             144,588                   1,525
Increase (decrease) in liabilities:
    Accounts payable for construction work                                   -               (348,193)
    Accounts payable and accrued expenses                              393,133                 771,693
    Account payable to related parties                               (145,152)                       -
    Advances by related parties                                              -                  26,809
    Account payable to related company                               (205,957)                  49,692
                                                                 --------------        ----------------
Net cash provided by operating activities                           10,471,737               8,188,875
                                                                 --------------        ----------------
CASH FLOW FROM INVESTING ACTIVITIES
    Construction in progress                                                 -               (649,087)
    Cash received from sale of property held for sale                  620,482                       -
                                                                 --------------        ----------------
Net cash provided by investing activities                              620,482               (649,087)
                                                                 --------------        ----------------
CASH FLOW FROM FINANCING ACTIVITIES
    Capital contributed                                                 78,671                       -
    Issuance of common stock                                                 -               1,627,117
                                                                 --------------        ----------------
    Net cash provided by financing activities                           78,671               1,627,117
                                                                 --------------        ----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                           11,170,890               9,166,905
    Cash and bank balances, beginning of period                     16,302,464               7,135,559
                                                                 --------------        ----------------
    Cash and bank balance, at end of period                        $27,473,354             $16,302,464
                                                                 ==============        ================
SUPPLEMENTAL CASH FLOWS DISCLOSURES
    Interest paid                                                        $   -                   $   -
                                                                 ==============        ================
    Taxes paid                                                           $   -                   $   -
                                                                 ==============        ================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
    Issuance of common stock for payments of notes payable              60,491                 278,976
    Issuance of common stock for payment of accrued liabilities              -                 175,031
    Conversion of accrued liabilities to paid-in capital                     -                 174,770
    Inventory received for settlement of property held for sale      1,518,073                       -

</TABLE>


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

                                      F-6
<PAGE>

                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
  -----------------------------------------------------------------------------

NOTES

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Pursuant to an exchange agreement, Eternal Technologies Group, Inc., ("Company")
formerly known as Waterford Sterling Corporation, completed its acquisition of
100% interest of Eternal 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% interest in Inner
Mongolia Aershan Agriculture & Husbandry Technology Co., Ltd ("Aershan").

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

2. BASIS OF PRESENTATION

The consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America.

3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

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

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

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

At December 31, 2004 the Company maintains bank accounts in the PRC of
approximately $27,473,354, of which substantially all of the amount is to be
exclusively used for operations in the PRC.

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

Inventory
Livestock inventories that are purchased for embryo transplanting, resale, or
meat processing are recorded at historical cost. Estimated costs of raised
livestock prior to use for embryo transplanting, sale, or meat processing are
accumulated and capitalized as inventory at the balance sheet date. Embryo
inventories are recorded at historical cost.
                                      F-7
<PAGE>

Inventories  are  measured at lower of cost and net  realizable  value using the
first-in  first-out  ("FIFO") or weighted  average  cost  formulas.  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
principal annual rates used for this purpose are as follows:

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

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 value
may not be recoverable.

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

Amortization expense during 2004 and 2003 was $248,400 and $248,400
respectively.

Income taxes
Income taxes are determined under the liability method as required by Statement
of Financial Accounting Standard No.109, "Accounting for Income Taxes".

Foreign currency translation
The Company's reporting currency is the US$. The Company maintains no material
accounts in currency of the United States of America. One of the subsidiaries
maintain their books and accounts in the People's Republic of China currency,
which is called Renminbi ("RMB"). Translation of the financial statements of
amounts from RMB into US$ has been made at the single rate of exchange on
December 31, 2004 and 2003 of US 1.00: RMB 8.30. No representation is made the
RMB amounts could have been, or could be, converted into US$ at that rate on
December 31, 2004 or 2003 or at any other date.

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

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

Revenue recognition
In accordance with Staff Accounting Bulletin No. 104 (SAB 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
collectibility is reasonably assured.

                                      F-8

<PAGE>

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

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

Stock compensation expense for stock granted to employees has been determined in
accordance with SFAS 123.

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

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

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

Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share" effective December
31,1997. Under SFAS 128, basic earnings per share is computed by dividing income
available to common shareholders by the weighted-average number of common shares
assumed to be outstanding during the period of computation. Diluted earnings per
share is computed similar to basic earnings per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive.

Recent accounting pronouncements
In December 2004, the Financial  Accounting  Standards  Board,  or FASB,  issued
Statement of Financial Accounting Standards No. 123R "Share-Based Payment" (SFAS
123R). This statement revises SFAS No. 123,  supercedes APB No. 25, and requires
companies to recognize  the cost of employee  stock  options and other awards of
stock-based  compensation  based on the fair  value of the award as of the grant
date.  Currently,  this type of  compensation  expense is not  reflected  in the
Company's  Consolidated  Statements of  Operations.  The effective  date of this
pronouncement  is as of the beginning of the first interim or annual period that
begins after December 15, 2005. The Company plans to adopt the  requirements  of
SFAS 123R effective January 1, 2006.

In December 2004, FASB published the following two final FASB Staff Positions,
effective immediately. FAS 109-1, "Application of FASB Statement No. 109,
Accounting for Income Taxes, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004," giving guidance
on applying FASB Statement No. 109, Accounting for Income Taxes, to the tax
deduction on qualified production activities provided by the American Jobs
Creation Act of 2004. FAS 109-2 "Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004" provides guidance on the Act's repatriation provision. The Company is in
the process of reviewing FAS 109-1 and FAS 109-2; however, at this time the
Company does not believe that the adoption of FAS 109-1 or FAS 109-2 will have a
material impact on its consolidated financial position, results of operations or
cash flows.

In November 2004, FASB Emerging Issues Task Force (EITF) reached a consensus in
applying the conditions in Paragraph 42 of SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report
Discontinued Operations" (EITF 03-13). Evaluation of whether operations and cash
flows have been eliminated depends on whether (1) continuing operations and cash
flows are expected to be generated, and (2) the cash flows, based on their
nature and significance, are considered direct or indirect. This consensus
should be applied to a component that is either disposed of or classified as
held for sale in fiscal periods beginning after December 15, 2004. The Company
does not believe that the adoption of EITF 03-13 will have a material impact on
its consolidated financial position, results of operations or cash flows.

                                      F-9
<PAGE>

In November 2004, FASB issued SFAS No. 151, "Inventory Costs - An Amendment of
ARB No. 43, Chapter 4" (SFAS No. 151). SFAS No. 151 amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, handling costs, and wasted material
(spoilage). Among other provisions, the new rule requires that items such as
idle facility expense, excessive spoilage, double freight, and rehandling costs
be recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal" as stated in ARB No. 43. SFAS No. 151 is effective
for fiscal years beginning after June 15, 2005 and is required to be adopted by
the Company in the first quarter of fiscal 2006, beginning on January 1, 2006.
The Company is currently evaluating the effect that the adoption of SFAS No. 151
will have on its consolidated financial position, results of operations and cash
flows but do not expect SFAS No. 151 to have a material impact.

4. RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 2002

The Company has restated its consolidated financial statements for the year
ended December 31, 2002 as previously reported on Form 10-KSB. The adjustments
giving rise to the Company's need to restate its consolidated financial
statements for the year ended December 31, 2002 relate to the restatement of the
negative equity position of Waterford Sterling Corporation on the date of the
acquisition. $867,411 has been recorded as a post-acquisition merger cost
reducing retained earnings and a corresponding increase of $867,411 has been
recorded as paid in capital.

Management assessed the impact of this error on the Company's consolidated
financial statements and concluded that it was required to restate its
consolidated financial statements. As a result, the Company restated its
consolidated financial statements for the year ended December 31, 2002. The
effect of the restatement had no net impact on shareholders' equity or cash flow
and the following impact on shareholders' equity, net income and net income per
share for the year ended December 31, 2002:

                       As previously reported   Restatement    As restated
                       ------------------------ -------------- ----------------
Retained Earnings      $    18,702,201          $   (867,411)  $   17,834,790

Paid in capital        $     5,825,735          $    867,411   $    6,693,146

Net Income             $     6,812,484          $   (867,411)  $    5,945,073

Basic and diluted net
    income per share   $          0.27          $      (0.03)  $         0.24

5. INVENTORY

Inventory consists of the following at December 31:

                                      2004                      2003
                                     -----                     -----
Sheep and cows                    $231,325                   $76,193
Sheep and cow embryos              364,126                 1,137,989
Other raw materials                 25,856                         -
                                    ------                 ---------
Total inventory                   $621,307                $1,214,182
                                   =======                 =========


6. DAIRY COW PURCHASE AGREEMENT AND OTHER RECEIVABLE

During August 2003, the Company entered into a contract with Xinjiang
Bayinguoleng Husbandry Center (Xinjiang) for the purchase of 2000 dairy cows at
a cost of $2,750 each or a total cost of $5,500,000. The dairy cows were
purchased under an agreement to sell them back to Xinjiang during 2004. The cows
were used during the fourth quarter of 2003 for the production of dairy cow
embryos. Both parties have agreed to a buy back amount of at least approximately
$1,700 per cow and at December 31, 2003, the Company has recorded approximately
$3,400,000 as "Other receivable" which represents the total estimated buy back
amount of the cows during 2004. The total cost allocated to the embryos was
approximately $2,100,000, which is the difference between the total cost of the
cows of $5,500,000 and the total buy back amount of approximately $3,400,000.
The Company collected the other receivable of approximately $3,400,000 during
2004.

                                      F-10
<PAGE>

7. PROPERTY HELD FOR SALE AND IMPAIRMENT

During the fourth quarter of 2003, the Company began formal negotiations with a
local government entity for the sale of the Company's reception center and
certain equipment. The Company had included the reception center and equipment
as "CONSTRUCTION IN PROGRESS" as construction of the building and installation
of the equipment had not been completed. On February 29, 2004, the Company and a
local government entity signed a letter of intent to sell the reception center
to the local government entity no later than April 30, 2004. The Company
recorded an impairment loss of approximately or $300,000 and reclassified the
remaining "CONSTRUCTION IN PROGRESS" of $2,192,071 to "Property held for sale"
for the year ended December 31, 2003, based on the book value of the reception
center and equipment of approximately $2,492,000. On April 30, 2004, the Company
and the local government entity reached an agreement on the final purchase price
of $2,138,554 and terms related to the sale of the reception center and
equipment and recorded an additional impairment loss of $53,517. The agreement
calls for cash payments of $620,482 and the remainder to be paid in livestock of
$1,518,072. All cash and livestock related to the agreement were received during
2004. The Company accounts for non-monetary transactions in accordance with APB
Opinion No. 29.

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

                                   2004                2003
                                  ------              ------
Infrastructure                   $226,506            $226,506
Building                        6,244,561           6,244,561
Equipment                       1,221,837           1,262,598
Other                             626,506             626,506
                                  -------             -------
                                8,319,410           8,360,171
Accumulated Depreciation      (2,415,361)         (1,943,830)
                              -----------         -----------
                               $5,904,049          $6,416,341
                               ==========          ==========

Depreciation expense during 2004 and 2003 was $471,531 and $622,923
respectively.

9. NOTES PAYABLE

Notes payable consisted of the following at December 31, 2004 and 2003:

                                                          2004          2003
Promissory note to Market Management LLC, due            ------        ------
December 11, 2005, interest payments are due
semi-annually Commencing 180 days after the date
of the note (December 11, 2002) at 8% per annum         $401,942     $462,433

Promissory note to Thomas Tedrow due December 11,
2005 interest payments are due semi-annually
Commencing 180 days after the date of the note
(December 11, 2002) at 8% per annum.                      41,424       41,424
                                                          ------       ------
                                                        $443,366     $503,857
                                                        ========     ========

Each of the notes listed above are repayable from the first dollars received
from any proceeds of any offering subsequent to the acquisition of Eternal
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 elected to stop accruing interest effective
October 1, 2004 and at December 31, 2004 the notes payable are in default. The
Company is performing additional detailed review of all expenditures prior to
the merger. The balances of the notes and related interest are the subject of
current litigation and may change pending the outcome of the litigation as
described further in note 19.
                                      F-11
<PAGE>

10. COMMON STOCK AND WARRANTS

During 2003, pursuant to subscription agreements with various investors, the
Company received a total of $1,627,117, net of associated offering costs for the
issuance of 2,934,581 shares of common stock. In conjunction with certain
subscription agreements, the Company and certain investors executed stock
purchase warrant agreements, which provided 1,181,205 warrants with exercise
prices ranging from $1.11 to $1.54 per share. The warrants are exercisable for a
period of five years with expiration dates ranging from September 4, 2008 to
October 8, 2008 and may be exercised in full or in part. The warrants include
certain registration rights and a cashless exercise provision. On October 26,
2004 the Company amended the warrants reducing the exercise price to $0.40.

11. STOCK COMPENSATION PLANS

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

Stock compensation plan
On October 6, 2004, the Company adopted Eternal Technologies Group, Inc. 2004
Compensation Plan ("Plan"). The purpose of the Plan is to encourage ownership of
common stock of the Company by eligible employees, consultants and directors of
the Company and its Affiliates and to provide an incentive for such employees,
consultants and directors who render services to exert maximum effort for the
business success of the Company and strengthen the identification of employees,
consultants and directors with the shareholders. The aggregate number of shares
of Common Stock that may be issued under this Plan is 1,300,000. In connection
with the Plan, the Company issued 1,292,250 shares of common stock at a price
per share of $0.40 on November 12, 2004. The aggregate value of these shares was
$516,900.

Stock Option Plan
In 2004, the Company adopted the 2004 Stock Option Plan (the "2004 Plan"),
approved by shareholders on July 27, 2004. The purpose of the 2004 Plan is to
provide a means whereby directors and selected employees, officers, agents,
consultants and independent contractors of the Company or of any parent or
subsidiary thereof, each as defined through reference to a 50% ownership
threshold, may be granted incentive stock options and/or nonqualified stock
options to purchase shares of Common Stock in order to attract and retain the
services or advice of such directors, employees, officers, agents, consultants,
and independent contractors and to provide an additional incentive for such
persons to exert maximum efforts for the success of the Company and its
affiliates by encouraging stock ownership in the Company.

The maximum number of shares of Common Stock with respect to which awards may be
granted pursuant to the 2004 Plan will be 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.

As of December 31, 2004, the Company has not granted any stock options in
connection with the 2004 Plan and therefore recorded no expense for this plan
for the year ended December 31, 2004.

12. INCOME TAXES

The companies operate in several jurisdictions and may be subject to taxation in
those jurisdictions.

It is management's intention to reinvest all the income attributable to the
Company earned by its operations outside of the United States of America.
Accordingly, no United States corporate taxes have been provided in these
consolidated financial statements. The Company has a U.S. net operating loss
carry forward of $1,756,960 which will begin expiring in 2022. 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, 2004. 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 provide certain
exemptions from taxation. Under current PRC law, Aershan is exempt from taxation
as Aershan's operations currently benefit from a tax holiday. The tax holiday,
granted by Xilingol League, which is the local government, and the central PRC
government, commenced on the incorporation of Inner Mongolia Aershan Agriculture
and Husbandry Technology Co., Ltd., in July 2000. The Company has benefited from
this holiday since inception and anticipates that the holiday will extend
through July 2008.

                                      F-12
<PAGE>

The tax holiday resulted in tax savings of $1,656,935 and $2,328,699 for the
years ended December 31, 2004 and 2003 respectively. Net income per share
increased approximately $0.05 and $0.09 for the years ended December 31, 2004
and 2003 respectively as a result of the tax holiday.


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


                            Years Ended December 31,
                                                     2004            2003
                                                     ----            ----
Computed expected tax expense                    $1,608,048      $2,436,124
Add back effect to U.S. losses                      299,498         245,409
Income tax exemption                             (1,656,935)     (2,328,699)
Difference in foreign subsidiary rates             (250,611)       (352,834)
                                                   ---------       ---------
                                                     $    -              $-
                                                     =======              ==

13. PUBLIC RELATIONS AGREEMENTS

During June 2003, the Company entered into a six month public relations
agreement (the "Agreement") with Piranha, Inc. (the "Consultant"). The services
of the Consultant included assisting the Company in providing information
concerning the company's business to the investing public by the use of internet
and many other media tools to bring the Company exposure. As consideration for
these services, the Company agreed to issue 250,000 freely tradable and
unrestricted shares of the Company's common stock. A shareholder of the Company
transferred 250,000 shares to the Consultant during 2003 and the Company
originally agreed to reimburse the shareholder for these shares during 2004. In
accordance with SFAS 123 and EITF 96-18, the Company has accounted for the
Agreement based on the fair market value of the Company's stock at the
commencement date of the Agreement. For the year ended December 31, 2003, the
Company recorded an expense with an offsetting liability to the shareholder of
$250,000. On December 14, 2004, the Board of Directors determined there was no
evidence of services rendered for this agreement and will dispute the liability
of $250,000 that the Company continues to carry at December 31, 2004 and until
the dispute is fully resolved.

During January 2004, the Company entered into a six-month public relations
agreement with PMR and Associates, LLC (PMR). As consideration for public
relations services, the Company shall compensate PMR the equivalent of $90,000
in shares subject to Rule 144. During February 2004, the Company issued 100,000
shares to PMR for these services. The Company expensed $90,000 associated with
this agreement in 2004.

On August 1, 2004, the Company entered into a six-month public relations
agreement with Empire Relations Group, Inc. ("Empire"). As consideration for
public relations services, the Company shall compensate Empire 100,000 shares of
the Company's common stock. The Company expensed $40,700 associated with this
agreement in 2004.

14. 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.

                                      F-13
<PAGE>

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of financial instruments are set out as follows:

(i) Cash deposits. The cash deposits are stated at cost, which approximates
market value.

(ii) Trade receivables, other receivables and amounts due from related
companies. Trade receivables, other receivables and the amounts due from related
companies are stated at their book value less provision for doubtful debts,
which approximates the fair value.

(iii) Accounts payable, accrued expenses, and amounts due to related companies
and directors are stated at their book value which approximates their fair
value.

16. 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.

17. ADDITIONAL RELATED PARTY BALANCES AND TRANSACTIONS

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

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

The Company has a payable to Ji Jun Wu, Chairman of the Board and President, of
approximately $106,000 at December 31, 2004 and 2003. The balance represents
advances made to the Company for various expenses in previous years.

The Company has a receivable from CCI of approximately $618,000 at December 31,
2003. The balance represents payments made by the Company on behalf of CCI in
previous year for various operating expenses. The Company has a net payable to
Shang Jia Ji of approximately $123,000 at December 31, 2003. The Company has
payables of approximately $210,000 at December 31, 2003 to other entities
controlled by Shang Jia Ji. These balances represent advances made to the
Company for various operating expenses. These balances were settled and paid
during 2004.

The Company has a payable to a former employee of approximately $160,000 at
December 31, 2004 and 2003. The balance represents advances made to the Company
for various expenses in previous years.

During 2002 the Company entered into an investor relations agreement with
Stoneside Development Limited ("Stoneside"). Stoneside is controlled by Thomas
L. Tedrow a former principal shareholder and former officer of the Company. The
agreement was for $10,000 per month for twenty-four months commencing June 2002.
Thomas L. Tedrow also received a $90,000 fee from the Company. During January
2003, the investor relations agreement with Stoneside Limited was terminated and
the Company entered into a consulting agreement with Market Management, LLC
pursuant to which consulting services were to be provided over a 24 month
period. Payments for those services total $10,000 per month. Market Management,
LLC is also controlled by Thomas L. Tedrow. The total amount expensed in 2004
and 2003 related to the contract with Market Management, LLC is $60,000 and
$120,000 respectively. On July 12, 2004, the Company's Board of Directors
determined these services were no longer rendered and cancelled the agreement
effective July 1, 2004. The Company believes it has meritorious defenses to any
claims related to this agreement.

                                      F-14
<PAGE>

18. 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.

         Purchases:                              2004           2003
                                                ------         ------
                           Company A              -             53%
                           Company B             30%            21%
                           Company C             16%            17%
                           Company D             35%             -
         Sales:
                           Company E             16%            25%
                           Company F             24%            31%
                           Company G             39%            31%
                           Company H              -             13%
                           Company I             20%             -


19. CONTINGENCIES AND COMMITMENTS

Legal proceedings
As of March 1, 2005, we were a party to two legal proceedings. The first is a
lawsuit brought by Western Securities Corporation. This cause of action seeks
payment of $500,942 on two outstanding promissory notes, one to Market
Management, Inc. and one to Thomas L. Tedrow plus accrued interest since July
11, 2004, attorney's fees, cost of collection and other court costs. This cause
of action was filed in Federal Court in the Eastern District of Louisiana. The
Company has filed a Motion to Dismiss for lack of personal jurisdiction or
alternatively a Motion to Dismiss for lack of venue. Both motions are currently
pending before the court. At December 31, 2004, the Company has recorded
$443,366 plus accrued interest of $77,234 related to the promissory notes. In
management's opinion, after taking into account the liabilities accrued, no
further liabilities should be accrued and the ultimate outcome of the lawsuit
should not have a material adverse effect on the Company's consolidated
financial statements in any given year. The second cause of action was filed in
State Court in New York City by Bristol Investments Limited against the company
and is seeking the payment of the penalty due under their original investment
for failure to have a registration effective within a stated period of time.
Bristol is currently seeking $53,000 in damages. A settlement is pending in this
cause of action and documents are being drafted to reflect this settlement
agreement. Under this settlement agreement a Convertible Debenture Note will be
issued in lieu of a cash payment. This Debenture is convertible into shares of
the company's common stock at a 20% discount to the five trading day closing bid
price prior to the date of settlement. Debentures have a maturity of two years
from the date of closing and any unconverted non-redeemed debentures outstanding
on the second anniversary of the closing date will be paid in cash to the
investor. At December 31, 2004, the Company has recorded approximately $53,000
related to this penalty.

Research and development contracts
On January 6, 2001, the Company entered into a research and development contract
with Towering International Trade Corp., (Towering) which is controlled by Shang
Jia Ji, a former company officer and former director and major shareholder.
According to the contract entered into with Towering, there are two stages.
Stage I of the contract with Towering began and was completed during 2002, and
the Company expensed $400,000 in connection with the research and development
work performed. The contract with Towering calls for the remainder of the
research and development services to be performed during 2002, however there
were delays in research work and no further research and development work was
performed during 2002 and 2003. On February 27, 2001, the Company entered into a
four year research and development contract with Shen Yang Institute of Applied
Ecology of Chinese Academy of Science (Shen Yang). According to the contract
entered into with Shen Yang, there are two stages. Stage I of the contract with
Shen Yang began during 2002 but was not complete. The Company expensed $600,000
in connection with the contract with Shen Yang during 2002 and no further work
was performed during 2003. The commitments related to the research and
development projects totaled $1,600,000 at December 31, 2003. On September 20,
2004 the Company and Towering mutually agreed to rescind the contract and waived
all enforcement rights against the parties to the contract. On September 24,
2004 the Company and Shen Yang mutually agreed to rescind the contract and
waived all rights and obligations stipulated in the contract.

Penalties
In conjunction with certain subscription agreements entered into during 2003,
the Company has agreed to register the shares issued under a Form SB-2
registration statement. There are penalties for not timely meeting filing and
effectiveness deadlines, and the Company has received claims related to these
penalties. As of December 31, 2004, the Company has accrued expenses for
penalties of $276,768.

                                      F-15
<PAGE>

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.

Lease Contracts
The Company leases its corporate facility under a lease contracts expiring
through April 30, 2005. Future payments under non--cancellable operating lease
obligations at December 31, 2004 total $3,259.

Rent expense under operating lease obligations was $11,807 and $8,891 for the
years ended December 31, 2004 and 2003, respectively.

20. SEGMENT REPORTING

The Company has identified one reportable segment: Agricultural Genetics/Animal
Husbandry. The Agricultural Genetics/Animal Husbandry segment activities include
a breeding center, embryo-transplantation, and propagating quality sheep meat
and other livestock breeds in Inner Mongolia, PRC.

                                                        Agricultural
                                                      Genetics/Animal
                                                         Husbandry
                                                    ---------------------
                                                    ---------------------
Year ended December 31, 2004

Revenue                                                     $ 16,834,759
Operating income (loss)                                        4,894,967
Research and development                                               -
Depreciation and amortization expense                            760,690
Impairment loss                                                   53,517
Identifiable assets                                           40,482,266
Capital expenditures                                                   -

Year ended December 31, 2003

Revenue                                                      $15,495,966
Operating income (loss)                                        6,684,540
Research and development                                               -
Depreciation and amortization expense                            874,417
Impairment loss                                                  300,000
Identifiable assets                                           35,481,107
Capital expenditures                                             649,087

21. SUBSEQUENT EVENTS

On February 1, 2005, the Company entered into a six-month public relations
agreement with Empire Relations Group Inc. ("Empire"). As consideration of
public relations services the Company shall compensate Empire 150,000 free
trading shares of Eternal.

On October 31,  2004,  as  previously  disclosed  in a Form 8-K  Securities  and
Exchange  Commission  filing, the Company had entered into an Exchange Agreement
to acquire a 100% interest in E-Sea  Biomedical  Engineering Co.  International,
Ltd.  (E-Sea) for 14 million shares of the Company's  stock.  On April 26, 2005,
the  Company   rescinded  the   acquisition  of  E-Sea.   The   termination  was
retroactively effective as of October 31, 2004 the original date of the original
acquisition.  All the certificates  representing the 14 million shares issued to
E-Sea shareholders have been returned to the Company and cancelled.  The Company
will deliver to E-Sea all the  documents of E-Sea now in the  possession  of the
Company. The Company has no further commitments from this termination.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

None

                                       29
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

We strive to maintain  disclosure  controls and procedures  that are designed to
ensure that information  required to be disclosed in our Exchange Act reports is
recorded,  processed,  summarized and reported within the time periods specified
in the SEC's  rules and forms,  and that such  information  is  accumulated  and
communicated to our management,  including our chief executive officer and chief
financial  officer,  as  appropriate,  to allow for timely  decisions  regarding
required  disclosure.  In designing and evaluating  the disclosure  controls and
procedures,  management  recognizes that any controls and procedures,  no matter
how well  designated  and  operated,  can provide only  reasonable  assurance of
achieving the desired control objectives and management  necessarily is required
to apply its judgment in evaluating the  cost-benefit  relationship  of possible
controls. Our independent  accountants,  Thomas Leger & Co. LLP conducted audits
of our financial  statements  for 2002,  2003 and 2004.  In connection  with the
issuance of its report of the independent  registered  public  accounting  firm,
Thomas  Leger  & Co.  LLP  reported  to our  Board  of  Directors  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 material deficiencies:


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

(ii) The Company has restated its consolidated financial statements for the year
     ended   December   31,  2002  to  reflect   merger  costs  of  $867,411  as
     post-acquisition  activity.  This  restatement  adjustment  is considered a
     material weakness over financial reporting as defined by the PCAOB.

We have conducted a review of the errors requiring restatement, including a
separate review by our board of directors to determine what remedial measures
were necessary. We believe our management has taken or is in the process of
taking the steps necessary to correct the errors and avoid similar errors in the
future.

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

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

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

                                    PART III

ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS

The following table sets forth the names, ages and offices of the executive
officers of the Company as of March 1, 2005. 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.

                                       30
<PAGE>

    Name               Age             Position

    Jijun Wu            68    Chairman of the Board
    Jiansheng Wei       52    President, Chief Executive Officer and Director
    XingJian Ma         58    Chief Financial Officer and Director
    Garfield W. Hu      30    Secretary
    Tielian Liu         42    Director
    Xingfa Xu           59    Director
    Shien Zhu           48    Director
    James Wang          35    Director
    Genchang Li         65    Director
    Shicheng Fu         41    Director

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
and President 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.

Xiangjian Ma has served as our Chief Financial Officer since the Reorganization.
From 2000 to the Reorganization, Mr. Ma served as Chief Financial Officer of
Eternal Technology Group, Ltd. From 1990 to 2000 Mr. Ma served as Chief of the
Financial Department of Tianjin Electronic Instrument Corporation.

Garfield W. Hu has served as our Secretary since the  Reorganization.  From 2001
to the Reorganization,  Mr. Hu was employed by Eternal Technology Group, Ltd. as
a  manager.  From  1997 to 2001,  Mr. Hu was an  instructor  at  Tianjin  Normal
University and at Nankai University and a translator and advisor for the largest
Chinese  professional  IT  web  site,  yesky.com.  Mr.  Hu  is  responsible  for
coordination of our internal affairs and external contacts.

Tielan Liu was  appointed to the Board of Directors in 2003  following the E-Sea
Biomedical Engineering Co. International Ltd. acquisition.  Mr. Liu is the Chief
Executive Officer of E-Sea, a position he has held since 2003. From 1989 to 2003
he served as an officer and  director of the  Shenzhen  Food Trade Group Co. Mr.
Liu has an MBA from Zhongnan University of Finance and Politics.

Xingfa Xu was appointed to the Board of Directors in 2005. From 1994 to 2004 Mr.
Xu was Vice  Chairman of Huihua  Group Corp.  and senior  advisor to the finance
committee for the Guangchang  Nuclear Power Group and Galaxy  Securities Co. Mr.
Xu is a graduate of Hubei University with a degree in finance.

Shien Zhu has served as a Director since 2002. 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 vitrification
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.

                                       31
<PAGE>

James Wang has served as director since 2002. Mr. Wang founded, and serves as
President of DNS Technologies Group Inc. (Canada), a position he has held since
1999, an internet technologies company involved in outsourcing between North
America and Asia. Mr. Wang began his professional career as an engineer with NEC
where he published a technical innovation proposal and was honored with Awards
of Excellence at NEC's headquarters in Tokyo. Mr. Wang was transferred to the
marketing department of NEC where he was in charge of marketing and sales in the
eastern region of Mainland China. Mr. Wang is a Canadian citizen and received
his Master of Applied Science from the University of Ottawa.

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 Collefe Institute
Administrative Law Research Center, Consultant to the Standing Cmmittee of
Tianjin Municipal People's Congress for legal affairs, Legal Consultant to
Tianjin Municipal Government, and Arbitrator of Tianhin Arbitrator Committee.
Prof. Fu attended Nankai University, Law Department from September 1981 to July
1985. He has been teaching ant Nankai University since 1985. He has participated
in international academic exchanges since 1998.

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 XingJian Ma is the audit
committee financial expert.

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.

ITEM 10. 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, 2004 of each person who served as the
Company's Chief Executive Officer during fiscal 2004 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, 2003 (the "Named Officers").
<TABLE>

                                                                        Long-Term Compensation
                               Annual Compensation                      Awards           Payouts
  Name and                                                     Restricted   Securities
 Principal                                     Other Annual    Stock        Underlying   LTIP         All Other
  Position     Year     Salary       Bonus     Compensation    Awards       Options      Payouts    Compensation
<S>            <C>     <C>          <C>        <C>            <C>          <C>          <C>        <C>

 JiJun Wu,     2004     20,000         -                -      80,000             -          -               -
 President     2003     27,299         -                -      80,000             -          -               -
   and CEO     2002      7,299         -                -           -             -          -               -

</TABLE>


                                       32
<PAGE>

Equity Compensation Plan Information

The maximum number of shares of Common Stock with respect to which awards may be
granted pursuant to the 2004 Plan will be 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 shall be 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 2004 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:

(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.

                                       33
<PAGE>

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.

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.

The following table gives information about equity awards under the Company's
existing plan as of December 31, 2004:
<TABLE>


                                                                                                     Number of securities
                                                                                                  remaining available for
                                                                         Weighted-average          future issuance under
                                     Number of securities to be        exercise price of        equity compensation plans
                                       issued upon exercise of        outstanding options,        (excluding securities
                                        outstanding options,          warrants and rights        reflected in column (a))
Plan Category                          warrants and rights (a)                (b)
-----------------------------------  ----------------------------    -----------------------    ---------------------------
<S>                                   <C>                            <C>                         <C>

Equity compensation plans approved
by security holders                                            0                         --                              0
Equity compensation plans not
approved by security holders                                   0                         --                              0
                                     ----------------------------    -----------------------    ---------------------------

Total                                                          0                         --                              0
                                     ============================    =======================    ===========================
</TABLE>

Employment Contracts

The Company has an employment agreement with Zhai, Rui. This contract runs from
February 20, 2005 to February 19, 2006 and pays annual compensation of $60,000.

                                       34
<PAGE>

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.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

The following table is furnished as of December 31, 2004 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.

<TABLE>

              Name and Address of Beneficial Owner (1)           Shares (2)        Percent of Class (2)
         ------------------------------------------------  -------------------    ----------------
         <S>                                                 <C>                   <C>

         Shang Jiaji (3)                                            4,500,450              14.67%
         Jijun Wu                                                   2,405,000               7.84%
         Xingjian Ma                                                  125,100                   *
         James Q. Wang                                              1,102,500               3.59%
         Tielian Liu                                                  700,000               2.28%
         Jiansheng Wei                                                727,500               2.37%
         Shien Zhu                                                     50,000                   *
         Genchang Li                                                   50,000                   *
         Shicheng Fu                                                   50,000                   *
         Garfield Hu                                                   75,100                   *
                                                                       ------         -------------
         All executive officers and directors as a group
         (8 persons)                                                9,785,650              31.90%
                                                                    =========              ======
</TABLE>

*........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.

(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 2004. Based solely on a review of such
reports and written statements of its directors, executive officers and
shareholders, the Company believes that all of the filing requirements were
satisfied on a timely basis in 2004.

                                       35
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Certain Relationships and Transactions

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

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

The Company has a payable to Ji Jun Wu, Chairman of the Board and President, of
approximately $106,000 at December 31, 2004 and 2003. The balance represents
advances made to the Company for various expenses in previous years.

The Company has a receivable from CCI of approximately $618,000 at December 31,
2003. The balance represents payments made by the Company on behalf of CCI in
previous year for various operating expenses. The Company has a net payable to
Shang Jia Ji of approximately $123,000 at December 31, 2003. The Company has
payables of approximately $210,000 at December 31, 2003 to other entities
controlled by Shang Jia Ji. These balances represent advances made to the
Company for various operating expenses. These balances were settled and paid
during 2004.

The Company has a payable to a former employee of approximately $160,000 at
December 31, 2004 and 2003. The balance represents advances made to the Company
for various expenses in previous years.

During 2002 the Company entered into an investor relations agreement with
Stoneside Development Limited ("Stoneside"). Stoneside is controlled by Thomas
L. Tedrow a former principal shareholder and former officer of the Company. The
agreement was for $10,000 per month for twenty-four months commencing June 2002.
Thomas L. Tedrow also received a $90,000 fee from the Company. During January
2003, the investor relations agreement with Stoneside Limited was terminated and
the Company entered into a consulting agreement with Market Management, LLC
pursuant to which consulting services were to be provided over a 24 month
period. Payments for those services total $10,000 per month. Market Management,
LLC is also controlled by Thomas L. Tedrow. The total amount expensed in 2004
and 2003 related to the contract with Market Management, LLC is $60,000 and
$120,000 respectively. On July 12, 2004, the Company's Board of Directors
determined these services were no longer being rendered and cancelled the
agreement effective July 1, 2004. The Company believes it has meritorious
defenses to any claims related to this agreement.

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

    (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).

                 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)).

                                       36
<PAGE>

     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

     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

                                       37
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

Fees Paid to Independent Public Accountants

The following table presents fees for  professional  audit services  rendered by
Thomas  Leger & Co.,  L.L.P.  for the audit of the  Company's  annual  financial
statements  for the years ended December 31, 2004 and December 31, 2003 and fees
billed for other services  rendered by Thomas Leger & Co.,  L.L.P.  during those
periods.

                                         Fiscal 2004             Fiscal 2003
                                         ------------            ------------
          Audit fees (1)                     $111,271              $95,581
          Audit related fees (2)               39,162               25,156
          Tax fees                              5,000                    -
          All other fees                            -                    -
                                         -------------          -----------
                                         -------------          -----------
          Total                              $155,433             $120,737
                                         =============          ===========

(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 Thomas
         Leger & Co., L.L.P. 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.



                                       38
<PAGE>

                                   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.
Dated:   May 12, 2005

                                  By:/s/ Jianshang Wei
                                     Jianshang Wei
                                     Chief 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.
<TABLE>
<S>                         <C>                                 <C>

         Signatures                   Title                          Date

/s/ JIJUN WU               Chairman of the Board                 May 12, 2005
JIJUN WU


/s/ JIANSHENG WEI          Chief Executive Officer and           May 12, 2005
JIANSHENG WEI              Director

/s/ XINGJIAN MA            Chief Financial Officer (Principal    May 12, 2005
XINGJIAN MA                Financial and Accounting Officer)
                           and Director

/s/ TIELIAN LIU            Director                              May 12, 2005
TIELIAN LIU

/s/ JAMES Q. WANG          Director                              May 12, 2005
JAMES Q. WANG


/s/ XINGFA XU              Director                              May 12, 2005
XINGFA XU

/s/ GENCHANG LI            Director                              May 12, 2005
GENCHANG LI

/s/ SHICHANG FU            Director                              May 12, 2005
SHICHANG FU

/s/ SHIEN ZHU              Director                              May 12, 2005
SHIEN ZHU

</TABLE>

                                       39
<PAGE>

                                 CERTIFICATIONS

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 annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures 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 annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

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

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Dated: May 12, 2005

By:/s/ Jiansheng Wei
Jiansheng Wei Chief Executive Officer


                                       40
<PAGE>


I, Xingjian Ma,  certify that:

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

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:

         a) designed such disclosure controls and procedures 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 annual report is being prepared;

         b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

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

         a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Dated: May 12, 2005

By:/s/ Xingjian Ma
Xingjian Ma
Chief Financial Officer

                                       41
<PAGE>


  CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
                   AS ADOPTED PURSUANT TO SECTION 906 OF TEHE
                           SARBANES-OXLEY ACT OF 2002

I, Jiansheng Wei, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Eternal Technologies Group, Inc. on Form 10-KSB for the annual period
ended December 31, 2004 fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
such Form 10-KSB fairly presents in all material respects the financial
condition and results of operations of Eternal Technologies Group, Inc.

By:Jiansheng Wei
----------------------------
Name: Jiansheng Wei
Title: Chief Executive Officer
May 12, 2005


                                       42
<PAGE>



  CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350,
            AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
                                  ACT OF 2002


I, Xingjian Ma, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of
Eternal Technologies Group, Inc. on Form 10-KSB for the annual period ended
December 31, 2004 fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and that information contained in such
Form 10-KSB fairly presents in all material respects the financial condition and
results of operations of Eternal Technologies Group, Inc.

By:Xingjian Ma
----------------------------
Name: Xingjian Ma
Title: Chief Financial Officer
May  12, 2005


                                       43