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, 2003

[  ] 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 04-06, 28/F, Block A, Innotec Tower, 235 Nanjing Road
                      Heping District, Tianjin, PRC 3000052
       ------------------------------------------------------------------
               (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, 2003 were
$15,495,996.

     The number of shares of the registrant's common stock, $.001 par value per
share, outstanding as of March 15, 2004 was 29,387,380. The aggregate market
value of the voting and non-voting common equity held by non-affiliates of the
registrant on March 15, 2004, based on the last sales price on the OTC Bulletin
Board as of such date, was approximately $13,367,572

                       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..........................        9
         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......................       11
         ITEM 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS.............       12
         ITEM 7.      FINANCIAL STATEMENTS.............................       16
         ITEM 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURE...........       29
         ITEM 8A.     CONTROLS AND PROCEDURES..........................       29

PART III

         ITEM 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
                      CONTROL PERSONS; COMPLIANCE WITH
                      SECTION 16(a) OF THE EXCHANGE ACT................       29
         ITEM 10.     EXECUTIVE COMPENSATION...........................       29
         ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT............................       32
         ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...       32
         ITEM 13.     EXHIBITS AND REPORTS OF FORM 8-K.................       32
         ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES...........       32

SIGNATURES


<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 and
bio-pharmaceutical company operating in China and focused on the development and
application of advanced animal husbandry and pharmaceutical techniques to
produce improved and novel food and pharmaceutical products.

Our agricultural genetics/animal husbandry operations are focused on the
application of advanced embryonic biotechnology 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. We expect to expand the market
share of lamb meat and dairy cattle breeding in 2004.

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

Our principal executive offices are located at Suite 04-06, 28/F, Block A,
Innotec Tower, 235 Nanjing Road Heping District, Tianjin, PRC 3000052 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 subsidiary,
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>

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

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

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


                                       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, 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 design to produce superior breeding stock. The
primary techniques we presently employ are (1) peritoneal endoscope technique,
(2) vitrification freezing technique, (3) embryo splitting and cleavage ball
techniques, and (4) external fertilization technique.

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

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

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

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

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

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

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

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

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

                                       6
<PAGE>

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. 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.

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

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

Pharmaceutical Operations

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

Our initial proposed pharmaceutical product, known as Thrombreaker, was
developed using gene-cloning techniques of thrombin-like enzymes from adder
venom. The drug is used to break up fibers and clots that exist in the blood
vessels. By using gene-cloning techniques, the thrombin like enzymes
(an enzyme extracted from snake venom) needed for this drug is produced in large
quantities, making production more cost effective. The thrombreaker is
undergoing initial clinical tests to determine its potential, if any, as
treatment for thrombosis, a leading cause of death.

A second proposed pharmaceutical product under development is an anti-cancer
drug utilizing enterotoxins. Exterotoxins is a form of bacteria that causes
infections, but are also effective in killing tumors. By combining this with
interlukin-2, a substance that has a targeting function, a product is produced
which kills tumors without harming normal cells. Using genetic recombination
techniques, this product has shown potential for targeting and tumors without
harming surrounding normal cells. We have filed an initial patent application in
China covering the anti-cancer drug, but we do not expect formal approval of the
patent for 2-3 years.

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

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

Potential Acquisitions

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

                                       7
<PAGE>

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

Competition

The agriculture and pharmaceutical industries are highly competitive. While
animal genetics is a relatively new field in China 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.

In the pharmaceuticals market, companies, (such as Bristol-Myers, Squibb,
Novataris and Glaxo-Wellcome) are in competition with us. Each has far more
financial resources, distribution channels and expertise than we have and offer
very significant competition and competitive pricing.

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

Intellectual Property

We currently rely on a combination of patents, trademark, trade secret laws and
contractual provisions to protect our proprietary rights in our product. As of
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 and pharmaceutical industries in general are
subject to extensive laws and regulations, including environmental laws and
regulations. As such, we may be required to make large expenditures to comply
with environmental and other governmental regulations.

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

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

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

                                       8
<PAGE>

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

Employees

As of December 31, 2003, we had 35 full-time employees, including employees
performing administrative functions, animal husbandry services and farming
functions. Bioscience research and related services (including pharmaceutical
research and development) are performed by third parties on a contract basis.
The employees are not covered by a collective bargaining agreement, and we do
not anticipate that any of our future employees will be covered by such
agreement.

ITEM 2.  DESCRIPTION OF PROPERTY

The Company operates from two separate facilities, its administrative offices in
Tinjain, 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 Tinjain, PRC. The Company rents these facilities under a
2 year lease, running through December 31, 2004, at $13,012 per year.

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, 2004, we were not party to any pending litigation and were not
aware of any threatened litigation.

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

None

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EXECUTIVE OFFICERS

The following table sets forth the names, ages and offices of the executive
officers of the Company as of March 1, 2004. Each officer serves at the
discretion of the board of directors, but generally for a one-year term. The
periods during which such persons have served in such capacities are indicated
in the description of business experience of such persons below.

   Name                  Age                Position
  -------               -----              ----------
   Jijun Wu               67       Chairman of the Board and President
   Jiansheng Wei          51       Chief Operation Officer and Director
   XingJian Ma            57       Chief Financial Officer
   Dr. Wenli Yu           39       Chief Technology Officer
   Garfield W. Hu         29       Secretary

The following is a biographical summary of the business experience of the
executive officers of the Company. Each officer of the Company devotes fulltime
to their respective positions.

Jijun Wu has served as our Chairman of the Board and President 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 our Chief Operation Officer and a Director since the
Reorganization. From March 2000 to the Reorganization, Mr. Wei served as Chief
Operation Officer of Eternal Technology Group Ltd. From 1998 to 2000, Mr. Wei
was the vice-general manager of Towering Industrial Group Ltd. He has been
engaged in animal husbandry practices and management for over 30 years and has
been responsible for operations of several large farms in Inner Mongolia and
Hebei Province.

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.

Dr. Wenli Yu has served as our Chief Technology Officer since the
Reorganization. From 2000 to the Reorganization, Dr. Yu served as Chief
Technology Officer of Eternal Technology Group Ltd. From 1998 to 2000 he was
the Senior Technician for Inner Mongolia Livestock Improvement Center.
Previously, Dr. Yu served as a lead research scientist for various Chinese
government agriculture projects presiding over key projects in China including:
"Development and Application of Bovine/Ovine Embryo Transfer Technology",
"Setting up Breeding and Production System of Purebred Beef by Embryo
Biotechnology," "Establishing a State Center for Beef Breeding," and "Research
on Ovine Artificial Insemination and Embryo Transfer with the Application of
Endoscope." Dr. Yu has published over 20 papers in professional journals, such
as China Animal Husbandry, China Veterinarian Journal, and Animal Husbandry
Veterinarian Journal. Dr. Yu received her Ph.D from China Agriculture
University, Biology Department, and is a Research Fellow.

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.


                                       10
<PAGE>

                                     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 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

Calendar Year 2002

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

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

At March 15, 2004, the closing bid price of the Common Stock was $0.91.

As of March 15, 2004, 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 $277,304.84. In September and October 2003, we
issued 1,749,288 shares of common stock and 874,644 warrants to seven accredited
investors for $1,316,643.75. The warrants issued during 2003 are exercisable to
purchase common stock at $1.34  and $1.54 per share and expire between September
4 and October 8, 2008.

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.

                                       11
<PAGE>


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

History and Development of the Company

Our current operations are conducted through our wholly-owned subsidiary,
Eternal Group Ltd. ("Eternal Technology - 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 1.

Historically, our business has been highly seasonal with nearly all of our
revenues being generated in the fourth quarter. This seasonality occurs because
the embryo sales occur only during the fourth quarter when animals are
impregnated as births occur in the Spring. While we have had sale of forage
grasses in the past, we do not expect them to continue in the future because of
certain government restrictions on the mowing of grasses. Other periods, other
than the fourth quarter, should benefit in the future from the sale of milk and
lamb meat, thereby making our overall business less seasonal.

During 2001, we had a one-time sale of forage grass to a third party. We had
purchased the forage grass from China Continental, Inc., a related party. We do
not expect any sales of forage grass in the future.

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.

                                       12
<PAGE>

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

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.

Research and Development

Research and development costs are charged to operations as incurred.

Results of Operations

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, lamb meat and dairy cattle embryo transfer projects in 2003.

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 increase 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.

Research and Development Costs

During 2002, we incurred $1,000,000 of research and development costs.
Although research is on going, no material additional costs were incurred during
2003. We do not conduct research, but contract with two outside parties who
perform research on our behalf. During 2002, $400,000 was incurred and paid to
Towering International, and $600,000 was incurred and paid to the Chinese
Science Bureau. Our contract with Towering International requires total payments
of $1,400,000 and our contract with the Chinese Science Bureau requires total
payments of $1,200,000.

                                       13
<PAGE>

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  form  $6,812,484  for the year ended December 31,
2002.

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

Revenues.

       For the year ended December 31, 2002, our revenues were primarily derived
from the sale of embryos during the fourth quarter. The majority of the revenue
is generated in the fourth quarter as the breeding season for sheep and dairy
cattle in North china is in the fall and winter seasons and therefore embryo
transplantation can only be done after the third quarter. For the year ended
December 31, 2001, our revenues were primarily derived from the sale of embryos
and a one time sale of forage grass. We do not expect any future sales of forage
grass.

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

Cost of Sales.

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

Depreciation and Amortization.

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

Selling and Administrative Expenses.

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

                                       14
<PAGE>


Research and Development Costs.

         For the year ended December 31, 2002, we incurred $1,000,000 of costs
in our research and development program. This compares with $0 for the year
ended December 31, 2001. We do not conduct research, but contract with two
outside parties who perform research on our behalf. During 2002, $400,000 was
paid to Towering International for research, and $600,000 was paid to the
Chinese Science Bureau. Our contract with Towering International requires total
payments of $1,400,000 and our contract with the Chinese Science Bureau requires
total payments of $1,200,000.

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 $8,188,874 for the year ended
December 31, 2003. This compares with cash provided by operating activities of
$1,275,472 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 $2,289,561 and
overall decreases in liabilities of $4,636,860.

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
$0 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 are $1.34 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 which reduced the balance on the notes
$278,876. Although these notes are recorded at $503,857, the Company's auditors
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.


                                       15
<PAGE>

Capital Expenditures and Commitments

At December 31, 2003, we had total non-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.

The following table details our contractual obligations as of December 31, 2003:
<TABLE>

                                                        Payments due by period
                                   -----------------------------------------------------------------
                                       Total     2004     2005 - 2006    2007 - 2008   Thereafter
<S>                                   <C>       <C>      <C>     <C>     <C>    <C>    <C>

Long-term debt                            0
Capital lease obligations                 0
Operating lease commitments
Other contractual purchase        1,600,000
  Obligations
Other long-term liabilities               0
     Total                        1,600,000
</TABLE>


Management anticipates that our current financing strategy of private debt and
equity offerings, combined with an expected increase in revenues, will meet our
anticipated objectives and business operations for the next 12 months.
Management continues to evaluate producing property acquisitions as well as a
number of drilling prospects. Subject to our ability to obtain adequate
financing at the applicable time, we may enter into definitive agreements on one
or more of those projects.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements or guarantees of third party
obligations at December 31, 2003.

Inflation

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


ITEM 7.  FINANCIAL STATEMENTS

                        ETERNAL TECHNOLOGIES GROUP, INC.

                          INDEX TO FINANCIAL STATEMENTS




Independent Auditors Report..............................................  17
Consolidated Balance Sheets as of December 31, 2003 and 2002.............  18
Consolidated Statements of Income For the Years ended December 31,
2003 and 2002............................................................  19
Consolidated Statements of Changes in Shareholders' Equity For the
Years ended December 31, 2003 and 2002...................................  20
Consolidated Statements of Cash Flows For the Years Ended December 31,
2003 and 2002............................................................  21
Notes to Financial Statements............................................  22


                                       16
<PAGE>

                          INDEPENDENT AUDITOR'S REPORT


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, 2003 and 2002, and
the related consolidated  statements of income, changes in shareholders' equity,
and  cash  flows  for  the  years  ended  December  31,  2003  and  2002.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly in all material respects,  the financial position of Eternal Technologies
Group,  Inc. and  Subsidiaries as of December 31, 2003 and 2002, and the results
of their  operations  and their cash flows for the years ended December 31, 2003
and 2002 in conformity  with  accounting  principles  generally  accepted in the
United States of America.


/s/ Thomas Leger & Co., L.L.P.
Thomas Leger & Co., L.L.P.
Houston, Texas
March 15, 2004

                                       17
<PAGE>

                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2003 AND 2002
                             (UNITED STATES DOLLARS)

                                     ASSETS
<TABLE>


                                                                 2003                 2002
                                                             -------------        -------------
<S>                                                         <C>                   <C>

CURRENT ASSETS
  Cash and cash equivalents                                  $ 16,302,464        $  7,135,559
   Accounts receivable                                                  -           4,483,855
   Inventories                                                  1,214,182             232,401
   Other receivable                                             3,399,995                   -
  Receivable due from related company                             617,825             617,825
   Prepayments and deposits                                       145,190             146,715
   Property held for sale                                       2,192,071                   -
                                                            --------------      --------------

TOTAL CURRENT ASSETS                                           23,871,727          12,616,355


FIXED ASSETS (net of accumulated depreciation)                  6,416,341           4,226,603
CONSTRUCTION IN PROGRESS                                                -           4,658,697
LAND USE RIGHTS
   (net of accumulated amortization of $806,961
   in 2003 and $558,620 in 2002)                                5,193,039           5,441,381
                                                            --------------      --------------

TOTAL ASSETS                                                $  35,481,107        $ 26,943,036
                                                            ==============      ==============
        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable for construction                        $           -        $    348,193
   Notes payable                                                  503,857             782,733
   Accounts payable and accrued expenses                        1,133,462             711,572
   Payable to related companies                                   205,957             156,265
   Amounts due to related parties                                 417,617             390,806
                                                            --------------      --------------

TOTAL CURRENT LIABILITIES                                       2,260,893           2,389,569
                                                            --------------      --------------


SHAREHOLDERS' EQUITY
   Preferred shares - 5,000,000 authorized $.001 par -
      none issued                                                     -                   -
   Common shares - 95,000,000 authorized at $.001
   par - 29,177,396 and 25,531,316 shares issued
   and outstanding at December 31, 2003 and 2002
   respectively                                                    29,177              25,531
   Paid - in capital                                            8,088,159           5,825,735
   Stock subscription receivable                                  (10,176)                  -
   Retained earnings                                           25,113,054          18,702,201
                                                            --------------      --------------
TOTAL SHAREHOLDERS' EQUITY                                     33,220,214          24,553,467
                                                            --------------      --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                   $ 35,481,107        $ 26,943,036
                                                            ==============      ==============
</TABLE>





                                       18

<PAGE>




                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
                             (UNITED STATES DOLLARS)


                                                 2003             2002
                                             ------------     -------------

SALES                                        $ 15,495,966     $ 12,040,964

RELATED PARTY SALES                                     -          600,000
                                             -------------    --------------
TOTAL SALES                                    15,495,966       12,640,964

COST OF SALES                                   6,550,582        2,752,811
                                             -------------    --------------

GROSS PROFIT                                    8,945,384        9,888,153


DEPRECIATION AND AMORTIZATION                     874,417          862,052

GENERAL,SELLING, AND ADMINISTRATIVE EXPENSES    1,391,945        1,204,081

RESEARCH AND DEVELOPMENT COST
  (including $400,000 to a related party)               -        1,000,000

OTHER INCOME (EXPENSE)
  Interest income                                  83,272            1,432
   Interest expense                              ( 51,441)       (  10,968)
   Impairment loss                               (300,000)               -
                                             -------------    --------------

NET INCOME BEFORE INCOME TAXES                  6,410,853         6,812,484

INCOME TAXES                                            -                -

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

NET INCOME                                    $ 6,410,853       $ 6,812,484
                                             =============   ===============

EARNINGS PER SHARE
  Basic and diluted
  Net income                                       $ 0.24            $ 0.27
                                             =============   ===============

Weighted average number of common
  shares outstanding
   Basic and diluted                            26,968,121        25,289,600
                                              =============   ===============

                                       19
<PAGE>




                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
                             (UNITED STATES DOLLARS)
<TABLE>


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


Balance, December 31, 2001          1,000         $     1      $ 6,645,070        $       -      $ 11,889,717       $ 18,534,788

Capitalization for merger
   December 12, 2002           25,530,316           25,530        (819,335)               -                 -           (793,805)

Net income year ended
  December 31, 2002                    -                -               -                 -         6,812,484          6,812,484
                            --------------    -------------   -------------  ----------------  ---------------     --------------
Balance December 31, 2002      25,531,316           25,531       5,825,735                         18,702,201         24,553,467

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

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

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

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     $ 8,088,159         $ (10,176)    $  25,113,054      $ 33,220,214
                            ==============     ============   =============  ================   ===============     =============
</TABLE>


                                       20
<PAGE>



                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASHFLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
                             (UNITED STATES DOLLARS)
<TABLE>


                                                            2003              2002
                                                       -------------   ---------------
<S>                                                     <C>            <C>

CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                               $ 6,410,853       $ 6,812,484
Adjustments to reconcile net income to
   net cash provided by operating activities:
     Depreciation and amortization                           874,417           862,052
     Impairment loss                                         300,000                 -
(Increase) decrease in assets:
     Accounts receivable                                   4,483,855        (1,771,349)
     Inventories                                            (981,781)           53,175
     Receivable due from related company                           -          (518,212)
     Other receivable                                     (3,399,995)                -
     Receivable due from related parties                           -           456,052
     Prepayments and deposits                                  1,525            18,126
Increase (decrease) in liabilities:
     Accounts payable for construction work                 (348,193)       (2,209,423)
     Accounts payable and accrued expenses                   771,693           412,517
     Amounts advanced by related parties                      26,809        (1,280,552)
     Account payable to related company                       49,692        (1,559,398)
                                                        -------------   ---------------

     Net cash provided by operating activities             8,188,875         1,275,472
                                                        -------------   ---------------

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchase of fixed assets                                      -          (854,320)
     Construction in progress                               (649,087)       (1,039,045)
                                                        -------------   ---------------

   Net cash used in investing activities                    (649,087)       (1,893,365)
                                                        -------------   ---------------

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from issuance of common stock                1,627,117                 -
                                                        -------------   --------------
     Net cash provided by financing activities             1,627,117                 -
                                                        -------------   --------------

NET INCREASE IN CASH AND
     CASH EQUIVALENTS                                      9,166,905          (617,893)

     Cash and cash equivalents, beginning of period        7,135,559          7,753,452
                                                        -------------   ---------------

     Cash and cash equivalents, at end of period         $16,302,464        $ 7,135,559
                                                        =============   ===============

SUPPLEMENTARY CASH FLOWS DISCLOSURES

1. Interest paid                                                   -                 -
   Taxes paid                                                      -                 -

</TABLE>



                                       21
<PAGE>



                ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003
 -----------------------------------------------------------------------------

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"), a company incorporated in the British Virgin Island with limited
liability on May 16, 2000.

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

Aershan was incorporated in the People's Republic of China ("the PRC") with
limited liability on July 11, 2000 and its principal activities are to run a
breeding center, transplant embryos, and to propagate quality 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. This basis of
accounting differs from that used in the statutory financial statements of the
subsidiaries which are prepared in accordance with the accounting principles
generally accepted in the relevant country. There were no material adjustments
to reconcile the subsidiary statutory financials statements to U.S. GAAP.

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, 2003 the Company maintains bank accounts in the PRC of
approximately $16,082,000, of which approximately $15,284,000 is arbitrarily
restricted by management for operations in the PRC.

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


                                       22
<PAGE>

Inventory
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.

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

Foreign currency translation
The Company's reporting currency is the US$. The Company maintains no material
accounts in currency of the United States of America. One of the subsidiaries
maintains their books and accounts in the People's Republic of China currency,
which is called Renminbi ("RMB"). Translation of the financial statements of
amounts from RMB into US$ has been made at the single rate of exchange on
December 31, 2003 and 2002 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, 2003 or 2002 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
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.

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


                                       23
<PAGE>

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.

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

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

Earnings per share
The Company adopted SFAS No. 128, "Earnings Per Share" effective December
31,1998. 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.

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

Recent accounting pronouncements

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No.45 ("FIN 46") "Consolidation of Variable Interest Entities."
Until this interpretation, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interest. FIN 46 requires a variable interest entity, as defined, to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns. Certain provisions of FIN 46 were
deferred until the period ending after March 15, 2004. The adoption of FIN 46
for provisions effective during 2003 did not have a material impact on the
Company's financial position, cash flows or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" ("SFAS 149"), which amends SFAS
133 for certain decisions made by the FASB Derivatives Implementation Group, In
Particular, SFAS 149: (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, (2) clarifies
when a derivative contains a financing component, (3) amends the definition of
an underlying to conform it to language used in FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," and (4) amends certain other
existing pronouncements. This Statement is effective for contracts entered into
or modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. The adoption of SFAS 149 did not have a material impact on the
Company's financial position, cash flows or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
SFAS 150 changes the accounting for certain financial instruments that under
previous guidance issuers could account for as equity. It requires that those
instruments be classified as liabilities in balance sheets. The guidance in SFAS
150 is generally effective for all financial instruments entered into or
modified after May 31, 2003, and otherwise is effective on July 1, 2003. The
adoption of SFAS 150 did not have a material impact on the Company's financial
position, cash flows or results of operations.


Reclassification
Certain reclassifications have been made to the December 31, 2002 financial
statements in order to conform to the classification in the current year.

4. INVENTORY
   Inventory consists of the following at December 31:

                                                 2003           2002
                                                ------         ------
               Sheep and cows            $      76,193     $  192,241
               Sheep and cow embryos         1,137,989         40,160
                                             ---------      ----------
               Total inventory           $   1,214,182     $  232,401
                                            ==========      ==========

5. 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.

6. PROPERTY HELD FOR SALE AND IMPAIRMENT

During the fourth quarter, 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 has 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. A final purchase
price has not been reached, however management estimates a 10-15% loss based on
the book value of the property. 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.

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


                                          2003                    2002
                                         ------                  ------
           Infrastructure           $   226,506            $   226,506
           Buildings                  6,244,561              3,428,537
           Equipment                  1,262,598              1,265,961
           Other                        626,506                626,506
                                      ----------             ----------
                                      8,360,171              5,547,510
           Accumulated Depreciation  (1,943,830)            (1,320,907)
                                     -----------            -----------
                                    $ 6,416,341            $ 4,226,603
                                     ===========            ===========

At December 31, 2002 the Company had recorded $1,000,000 as estimated future
construction cost under contract with an offsetting liability of estimated
payable for construction under contract not invoiced. During 2003 the Company
reversed these amounts as all construction contracts were completed or
incomplete projects are held for sale. These amounts at December 31, 2002 have
also been reversed to conform with the current year presentation.

                                       24
<PAGE>

8. NOTES PAYABLE

Notes payable consisted of the following at December 31, 2003 and 2002:

                                                  2003               2002
                                                 ------             ------
Promissory note to Market Management LLC,
due December 11, 2005, interest
payments are due semi-annually commencing 180
days after the date of the note
(December 11, 2002)
at 8% per annum.                              $ 462,433           $ 616,753

Promissory note to Thomas I. Tedrow due
December 11, 2005, interest payments are
due semi- Annually commencing 180 days after
the date of the note (December 11,
2002) at 8% per annum.                           41,424             165,980
                                             ------------       ------------
                                               $503,857           $ 782,733
                                             ============       ============

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

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

9. 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 1,049,575 warrants with exercise
prices ranging from $1.34 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.

10. INCOME TAXES

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

It is management's intention to reinvest all the income attributable to the
Company earned by its operations outside of the United States of America.
Accordingly, no United States corporate taxes have been provided in these
financial statements.

Under current law of the British Virgin Islands, any dividends and capital gains
arising 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 the operating company
is exempt from taxation. Accordingly, no PRC corporate taxes have been provided
in these financial statements.


                                       25
<PAGE>

11. CONSULTING AGREEMENT

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 will
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.

12. CONCENTRATION OF CREDIT RISKS

Financial instruments which potentially subject the Group 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 Group places its cash deposits with banks in
the PRC.

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

13. 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.

14.               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.

15. ADDITIONAL RELATED PARTY BALANCES AND TRANSACTIONS

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

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

                                       26
<PAGE>

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

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

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

The Company has a receivable from CCI of approximately $618,000 at December 31,
2003 and 2002. The balance represents payments made by the Company on behalf of
CCI in previous year for various operating expenses.

The Company has a payable to a former employee of approximately $160,000 at
December 31, 2003 and 2002. The balance represents advances made to the Company
for various expenses in previous years.

The Company has a payable to Ji Jun Wu, Chairman of the Board and President, of
approximately $106,000 at December 31, 2003 and 2002. The balance represents
advances made to the Company for various expenses in previous years.

The Company has a net payable to Shang Jia Ji of approximately $120,000 and
$117,000 at December 31, 2003 and 2002, respectively. In addition the Company
has payables of approximately $210,000 and $156,000, respectively at December
31, 2003 and 2002 to other entities controlled by Shang Jia Ji. These balances
represent advances made to the Company for various operating expenses.

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 2003
related to the contract with Market Management, LLC is $120,000.

16. MAJOR CUSTOMERS AND SUPPLIERS

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

         Purchases:                                  2003           2002
                                                    ------         ------
                           Company A                  53%                -
                           Company B                  21%               40%
                           Company C                  17%                -
                           Company D                    -               40%
         Sales:
                           Company E                  25%               49%
                           Company F                  31%                -%
                           Company G                  31%               44%
                           Company H                  13%                -



                                       27
<PAGE>


17. WATERFORD STERLING CORPORATION FINANCIAL STATEMENTS

Presented below is the unaudited condensed Balances Sheet as of December 12,
2002 and the unaudited condensed Statement of Income of Waterford Sterling
Corporation for the period January 1, 2002 through December 12, 2002 and prior
to the merger discussed in Note 1.

                         WATERFORD STERLING CORPORATION
                       CONDENSED BALANCE SHEET (UNAUDITED)
                                DECEMBER 12, 2002

Office equipment, net                                         $    14,286
Business acquisition cost                                         104,783
                                                                ----------
   Total assets                                               $   119,069
                                                                ==========

Accrued expenses                                              $    28,965
Notes payable                                                     782,733
Stockholders deficit                                             (692,629)
                                                                ----------
   Total liabilities and stockholders deficit                 $   119,069
                                                                ==========


                         WATERFORD STERLING CORPORATION
                    CONDENSED STATEMENT OF INCOME (UNAUDITED)
            FOR THE PERIOD JANUARY 1, 2002 THROUGH DECEMBER 12, 2002

Revenue
   Interest income                                            $    2,521
                                                                ----------
Expenses
   General and administrative                                    240,769
   Interest expense                                               49,294
   Depreciation                                                    6,721
                                                                -----------
Total expenses                                                $  296,784
                                                                -----------
NET LOSS                                                      $ (294,263)
                                                                ===========

18. CONTINGENCIES AND COMMITMENTS

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.

                                       28
<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.

19. NON-CASH INVESTING AND FINANCING ACTIVITIES

For the year ended December 31, 2003, there were issuances of common stock for
the payment of notes payable and accrued liabilities of $278,976 and $175,031,
respectively. For the year ended December 31, 2003 there were accrued
liabilities of $174,770 converted to paid-in capital.

For the year ended December 31, 2002, there was stock issued pursuant to an
exchange agreement and there were accrued expenses and notes payable of $25,360
and $782,733, respectively which represent the non-cash portion of the
transaction.

20. SUBSEQUENT EVENTS

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 as compensation for these services.


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

None

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures under the supervision and with the participation of our chief
executive officer ("CEO") and our chief financial officer ("CFO"). Based on this
evaluation, our management, including the CEO and CFO, concluded that our
disclosure controls and procedures were effective. There have been no
significant changes in our internal controls or in other factors that could
significantly affect internal control subsequent to the evaluation.

                                       29
<PAGE>


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of the Company's fiscal year. Such information is incorporated herein
by reference.

ITEM 10. EXECUTIVE COMPENSATION

The information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of the Company's fiscal year. Such information is incorporated herein
by reference.

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

The information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of the Company's fiscal year. Such information is incorporated herein
by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of the Company's fiscal year. Such information is incorporated herein
by reference.

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)).

                 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).

                                       30
<PAGE>


       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)).

       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

    *        Filed herewith

    (b) Reports on Form 8-K

             None


                                       31
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item will be included in a definitive proxy
statement, pursuant to Regulation 14A, to be filed not later than 120 days after
the close of the Company's fiscal year. Such information is incorporated herein
by reference.





                                   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:   March 30, 2004

                                    By:/s/ Jijun Wu
                                       --------------------
                                             Jijun Wu
                                             President

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

         Signatures                     Title                    Date

/s/ JIJUN WU           Chairman of the Board and            March 30, 2004
------------------
JIJUN WU               President (Principal Executive
                       Officer)

/s/ JIANSHENG WEI      Chief Operation Officer and          March 30, 2004
------------------
JIANSHENG WEI          Director

/s/ XINGJIAN MA        Chief Financial Officer (Principal   March 30, 2004
------------------
XINGJIAN MA            Financial and Accounting Officer)

/s/ SHIEN ZHU          Director                             March 30, 2004
------------------
SHIEN ZHU

/s/ JAMES Q. WANG      Director                             March 30, 2004
------------------
JAMES Q. WANG


                                       32
<PAGE>


                                 CERTIFICATIONS

I, JiJun Wu, 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: March 30, 2004

By: /s/ JiJun Wu
   ---------------
JiJun Wu
Chief Executive Officer


                                       33
<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: March 30, 2004

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


                                       34
<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, JiJun Wu, 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,
2003 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: /s/JiJun Wu
----------------------------
Name: JiJun Wu
Title: Chief Executive Officer
March 30, 2004

                                       35
<PAGE>



CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS
       ADOPTED PURSUANT TO SECTION 906 OF TEHE 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, 2003 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:/s/ Xingjian Ma
----------------------------
Name: Xingjian Ma
Title: Chief Financial Officer
March 30, 2004

                                       36