10QSB 1 fm10qsb_33106.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2006 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________to__________. Commission File No. 0-27929 ETERNAL TECHNOLOGIES GROUP, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Nevada 62-1655508 ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) Sect D, 5/F, Block A, Innotec Tower, 235 Nanjing Road Heping District, Tianjin, 300052 ----------------------------------------------------------------- (Address of principal executive offices) 011-86-22-2721-7020 ------------------------- (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO As of May 15, 2006, 40,567,300 shares of Common Stock of the issuer were outstanding. Eternal Technologies Group, Inc. INDEX Page Number PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets - March 31, 2006 (unaudited)and December 31, 2005 3 Unaudited Consolidated Statements of Income - For the three months ended March 31, 2006 and 2005 4 Unaudited Consolidated Statements of Cash Flows- For the three months ended March 31, 2006 and 2005 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management Discussion and Analysis or Plan of Operations 9 Item 3. Controls and Procedures 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities and Small Business Issuers 10 Purchaser of Equity Securities 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 10 Certifications 12 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2006 (UNITED STATES DOLLARS) ASSETS March 31 December 31 2006 2005 --------------- -------------- (Unaudited) (Audited) CURRENT ASSETS Cash and Cash equivalents 22,955,677 18,224,488 Short-term Investment 9,956,193 9,909,084 Accounts receivable 3,459,777 7,137,018 Inventories 168,484 135,341 Prepayments and deposits 259,472 257,624 ------------ ------------ TOTAL CURRENT ASSETS 36,799,603 35,663,555 Advances to Distributors 522,700 520,227 Property and Equipment, Net 7,188,147 7,317,502 LAND USE RIGHTS, Net 4,786,857 4,828,051 Intangible Assets 1,232,079 1,263,409 ------------ ------------- TOTAL ASSETS 50,529,386 49,592,744 ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable 443,366 $ 443,366 Accounts payable and accrued expenses 649,100 706,717 Amounts due to related parties 240,368 240,368 Derivitive Financial instrument liabilities 493,774 562,830 ----------- ------------ TOTAL CURRENT LIABILITIES 1,826,608 1,953,281 SHAREHOLDERS' EQUITY Preferred shares - 5,000,000 authorized $.001 par - none issued Common shares - 95,000,000 shares authorized, at $.001 par, 40,567,300 and 39,854,026 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively 40,567 39,854 Paid - in capital 13,507,866 13,217,874 Stock subscription receivable (10,176) (10,176) Retained earnings 33,756,540 33,215,741 Accumulative Other Comprehensive Income 1,407,981 1,176,170 ------------- TOTAL SHAREHOLDERS' EQUITY 48,702,778 47,639,463 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 50,529,386 49,592,744 ============ ============ See Notes to Consolidated Financial Statements
3 ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNITED STATES DOLLARS) March 31 ------------------------------- 2006 2005 ------------- ------------- (Unaudited) (Unaudited) SALES $ 4,216,359 $2,108,747 COST OF SALES 2,789,689 1,566,434 ----------- ------------ GROSS PROFIT 1,426,670 542,313 DEPRECIATION AND AMORTIZATION 264,946 190,167 SELLING AND ADMINISTRATIVE EXPENSES 400,649 433,232 ----------- ------------- Income From Operations 761,075 (81,086) OTHER INCOME (EXPENSE) Interest Income 40,728 48,842 Change in value of dirivative financial instruments (221,649) 13,471 ----------- ------------- NET INCOME BEFORE INCOME TAXES 580,154 (45,715) INCOME TAXES 39,355 - ----------- ------------- NET INCOME (LOSS) 540,799 $ (45,715) =========== ============= EARNINGS PER SHARE Basic and diluted Net income (loss) $ 0.01 ($0.00) ============ ============= Weighted average number of common shares outstanding Basic 40,074,783 29,551,485 ============ ============= Diluted 40,086,595 29,563,297 ============ ============= 4 See Notes to Consolidated Financial Statements ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005 (UNITED STATES DOLLARS) March 31 ---------------------------- 2006 2005 ----------- ----------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income (Loss) 540,799 $(45,715) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 264,946 190,168 Stock issued for services - - Non-cash expenses for services 42,000 Changes in value of Derivative financial instruments 221,649 13,471 (Increase) decrease in assets: Inventories (33,143) - Accounts receivable 3,660,793 (1,039,470) Increase (decrease) in liabilities: Accounts payable and accrued liabilities (60,703) 153,117 Amounts payable related parties 3,082 18,000 ----------- ----------- Net cash provided (used in) by operating activities 4,597,423 (668,429) ----------- CASH FLOWS FROM FINANCING ACTIVIES Capital Contributed - 182,377 ----------- ------------ Net cash provided by financing activities - 182,377 ----------- ------------ Effect of exchange rate changes in cash 129,766 - NET INCREASE (DECREASE) IN CASH AND Cash Equivalents 4,727,189 (486,052) Cash and cash equivalents, beginning of period 18,228,488 27,473,354 ------------ ------------ Cash and cash equivalents, at end of period 22,955,677 $ 26,987,302 =========== ============= SUPPLEMENTARY CASH FLOWS DISCLOSURES 1. Interest paid - - Taxes paid 39,355 - 5 See Notes to Consolidated Financial Statements ETERNAL TECHNOLOGIES GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2006 -------------------------------------------------------------------------------- NOTES 1. Reporting entity Pursuant to an exchange agreement, Eternal Technologies Group, Inc., ("Company") formerly known as Waterford Sterling Corporation, completed its acquisition of 100% interest of Eternal Group Limited and Subsidiaries on December 12, 2002. The Company has treated the transaction as a reverse merger for accounting purposes. Following the acquisition, the former shareholders of Eternal Technology Group Limited, a British Virgin Islands limited liability company, now owns approximately 85% of the issued and outstanding common shares of Eternal Technologies Group Inc. 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 owns a cattle herd, conducts breeding operations and owns a farm in Innner Mongolia which it leases to a Chinese company for approximately $572,000 per year. As of the fourth quarter of 2005 we acquired certain assets, subject to certain liabilities of E-Sea Biomedical Engineering Co. International, Ltd. E-Sea's principal activities are the manufacture, sale and licensing of medical devices used to detect breast cancer. 6 2. Condensed financial statements and footnotes The interim consolidated financial statements presented herein have been prepared by the Company and include the unaudited accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in the consolidation. These condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and Item 310 (b) Regulation S-B. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the year ended December 31, 2005 and notes thereto included in the Company's Form 10-KSB. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2006, the results of operations for the three months ended March 31, 2006 and 2005, respectively. Interim results are not necessarily indicative of full year performance because of the impact of seasonal and short-term variations. Significant Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated condensed financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from estimates making it reasonably possible that a change in the estimates could occur in the near term. Principles of Consolidation The unaudited consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries after elimination of all significant inter-company accounts and transactions. 3. CASH AND CASH EQUIVALENTS At March 31, 2006, substantially all of the Company's cash is to be exclusively used for operations in the PRC. 4. RESTATEMENT The accompanying March 31, 2005 financial statements have been restated to properly account for derivative financial instruments associated with convertible debt. Following is the impact of the restatement: As Originally Filed ------------------------------------- Current assets $ 30,186,994 Total assets 40,845,516 Current liabilities 2,413,543 Unregistered common stock subject to registration registration rights - Stockholders' equity 38,431,973 Revenues 2,108,747 Gross profit 542,313 Income (loss) from operations (81,086) Other income and expenses 48,842 Net loss (32,244) Basic and diluted earnings (loss) per share (0.00) 7 As Restated ------------------------------------- Current assets $ 30,186,994 Total assets 40,845,516 Current liabilities 3,075,801 Unregistered common stock subject to registration registration rights 563,991 Stockholders' equity 37,205,724 Revenues 2,108,747 Gross profit 542,313 Income (loss) from operations (81,086) Other income and expenses 35,371 Net income (45,715) Basic and diluted earnings per share (0.00) 5. SEGMENT REPORTING The operating segments presented are the segments for which separate financial information is available and for which operating performance is evaluated regularly by management to decide how to allocate resources and in to assess performance. The Company evaluates the performance of the operating segments based on income from operations that is defined as total revenues less operating expenses. The Company has identified two reportable segments: agricultural genetics and medical devices. The agricultural genetics segment activities include a breeding center, embryo-transplantation, and propagating quality sheep meat and other livestock breeds in Inner Mongolia, PRC. Medical devices' operations include the manufacture, development, sales, marketing and delivery of medical devices in the PRC. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. Information regarding our reportable segments for the three months ended March 31, 2006 and 2005, is as follows: Agricultural Medical Genetics Devices Corporate Total ------------- ---------- ---------- ------- 2006 ------------------------------- Revenues $ 3,608,571 $ 607,787 $ - $ 4,216,359 Income from operations 598,399 259,513 (96,837) 761,075 Depreciation and amortization 197,021 67,925 - 264,946 Total assets 45,162,078 5,324,872 42,438 50,529,386 2005 ------------------------------- Revenues $ 2,108,747 $ - $ - $ 2,108,747 Income (loss) from operations 148,710 - (229,796) (81,086) Depreciation and amortization 190,167 - - 190,167 Total assets 40,842,789 - 2,727 40,845,516
8 Item 2. Management Discussion and Analysis or Plan of Operation The Company's business is highly seasonal, with most of the Company's revenue and income being earned during the second half of the calendar year. Accordingly, the results of operations for the calendar quarter ended March 31, 2006 are not indicative of the results for any other quarter or for the fiscal year. Three Months Ended March 31, 2006 compared to the Three Months Ended March 31, 2005 Revenues Revenues Revenues for the three months ended March 31, 2006 increased by $2,107,612 or 99% to $4,216,359 from $2,108,747 for the corresponding period of the prior year. This increase is revenue resulted primarily from one major sale of lamb meat for $3,608,571 and $607,787 of sales in the medical devices business segment Cost of Sales Cost of sales for the three months ended March 31, 2006 increased by $1,223,255 or 78% to $2,789,689 from $1,566,434 from the corresponding period of the prior year. Our gross margins increased from 26% to 34% principally because of improved margins on our sales of lamb meat. Depreciation and Amortization Depreciation and amortization expense for the three months ended March 31, 2006 totaled $264,946, an increase of $74,779 from $190,167 for the corresponding period of the prior year. This increase is substantially attributable to the acquisition of certain assets from E-Sea at the beginning of the fourth quarter of 2005. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended March 31, 2006 decreased by $32,583 or 7.5% to $400,649 from $433,232 for the corresponding period of the prior year. The decrease in the selling, general and administrative expenses is principally attributable the fact that two significant expenses occurred in the first quarter of 2005 as follows: 1) a $42,000 non-cash charge for marketing and 2) failure to register penalties of $30,441. The fact that these expenses were not recurring in 2006 was partially offset by additional expenses in the Company's medical devices business segment. Other Income (Expense) Other income decreased by $216,292 to $(180,921) for the three months ended March 31, 2006 from $35,371 for the corresponding period of the prior year. The increase resulted from a change in the value of derivative instruments ($235,120) and a decrease in interest income of $8,114. Net Income (Loss) As a result of the foregoing, the Company reported income of $540,799 for the three months ended March 31, 2006 compared to a loss of $(45,715) for the three months ended March 31, 2005. There were no income taxes recorded for the three month period ended March 31, 2005. However, the company incurred a tax liability of $39,353 for the three months ended March 31, 2006 because of the income from E-Sea which is non-agricultural income. Liquidity and Capital Resources As of March 31, 2006, the Company had cash and cash equivalents of $22,955,677 and working capital of $34,972,995. This compares with cash and cash equivalents of $18,224,488 and working capital of $33,710,274 at December 31, 2005. Cash provided by operating activities totaled $4,597,423 for the three months ended March 31, 2005. This compares with cash flows used in operating activities of $668,429 for the three months ended March 31, 2004. The increase in cash flows resulted from changes in the current accounts, particularly a decrease in accounts receivable of $3,660,783 and an increase in earnings and depreciation and an increase in accounts payable which was partially offset by a decrease in non-cash expenses and an increase in inventories. There were no investing activities by the Company during either the three months ended March 31, 2006 or 2005. For the three months ended March 31, 2005 the company had financing activities, all from the contribution of capital totalling $182,377. The company believes that it has sufficient working capital to carry out its business plan for the next twelve months. 9 Item 3. Controls and Procedures We strive to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designated and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls. Our former independent accountants, Thomas Leger & Co. LLP conducted audits of our financial statements for 2002, 2003 and 2004. In connection with the issuance of its report of the independent registered public accounting firm, Thomas Leger & Co. LLP reported to our Board of Directors two material weaknesses under standards established by the Public Company Accounting Oversight Board regarding some elements of our system of internal controls. They noted the following material deficiencies: (i) The Company's reported financial statements relating to the acquisition of E-Sea Biomedical Engineering Co. International, Ltd. were indicative of a material weakness in controls over closing procedures and the accounting for non-routine transactions. We determined the Company lacked certain procedures and required expertise needed to properly account for non-routine transactions (such as acquisitions of other businesses) and preparation of its required financial statement disclosure in accordance with U.S. G.A.A.P. and SEC rules and regulations. (ii)The Company has restated its consolidated financial statements for the year-ended December 31, 2002 to reflect merger costs of $867,411 as post acquisition activity. The restatement is considered a material weakness over financial reporting as defined by the PCAOB. We have conducted a review of the errors requiring restatement, including a separate review by our board of directors to determine what remedial measures were necessary. We believe our management has taken or is in the process of taking the steps necessary to correct the errors and avoid similar errors in the future. One important measure is to have our President also become involved in the review of our internal controls and procedures. As required by SEC rule 13a-15(b) we conducted an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, President and Vice President of Finance, the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer, President and Vice President of Finance concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us (including our subsidiaries) required to be included in our periodic SEC filings. Our new independent accountants, Ham Langston & Brezina LLP conducted an audit of our financial statements for 2005. In connection with the issuance of its report to the Board of Directors, Ham Langston & Brezina LLP reported two material weaknesses under standards established by the Public Company Accounting Oversight Board regarding some elements of our system of internal controls. They noted the following specific material deficiencies. (i) The Company lacked the required expertise needed to properly account for non-routine transactions (such as the acquisition of other businesses and preparation of its required financial statement disclosure in accordance with U.S.G.A.A.P. and SEC rules and regulations. (ii) The Company has restated its consolidated financial statements for the year-ended December 31, 2004 to reflect the accounting for derivatives. The restatement is considered a material weakness over financial reporting as defined by the PCAOB. Other than the foregoing initiatives, there were no significant changes in our internal controls or to our knowledge, in other factors that could significantly affect such internal controls subsequent to the date of their evaluation. While we have taken or are in the process of taking the foregoing steps in order to address the adequacy of our disclosure controls and procedures, and, in addition, to develop and implement a formal set of internal controls and procedures for financial reporting in accordance with SEC's proposed rules to adopt the internal control report requirements included in Section 404 of the Sarbanes-Oxley Act of 2002, the efficiency of the steps we have taken to date and the steps we are still in the process of completing is subject to continued management review supported by confirmation and testing by our internal and external auditors. As a result, it is likely that additional changes will be made to our internal controls. PART II. OTHER INFORMATION Item 1. Legal Proceedings. As of May 16, 2006, we were a party to one legal proceeding. The proceeding involves a lawsuit brought by Western Securities Corporation seeking payment of $500,942 on two outstanding promissory notes, one to Market Management, Inc. and one to Thomas L. Tedrow plus accrued interest since July 11, 2004, attorney's fees, cost of collection and other court costs. This cause of action was initially filed in Federal District Court in the Eastern District of Louisiana. The Company filed a Motion to Dismiss for lack of personal jurisdiction or alternatively a Motion to Dismiss for lack of venue. In October 2005, the Court granted the Company's motion for a change of venue and the case was moved to the Southern District Court of Texas in Houston, Texas. The Company believes that the case is without merit and the basis of the promissory note involves expenditures not made on the company's behalf. Furthermore, the Company has significant counterclaims that it plans to assert against Mr. Tedrow and Market Management, Inc.. The Company believes that this matter will be resolved during 2006 and that the Company will prevail on all counts. The State Court in New York dismissed a cause of action, filed by Bristol Investments Limited against the Company, on February 14, 2006. On March 30, 2006 without stating a new cause of action, Bristol Investments Limited re-filed the cause of action against the Company. As of May 15, 2006, there are no other causes of action pending against the Company. Item 2. Changes in Securities None Item. 3. Defaults Upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a) Exhibits None Signature Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto authorized. 10 ETERNAL TECHNOLOGIES GROUP, INC. /s/ Jiansheng Wei ------------------------------------- May 25, 2006 Jiansheng Wei, Chief Executive Officer /s/ Zheng Shen May 25, 2006 ------------------------------------- Zheng Shen, Chief Financial Officer 11 CERTIFICATIONS Certification by Jiansheng Wei Pursuant to Securities Exchange Act Rule 13a-14(a) I, Jiansheng Wei, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Eternal Technologies Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 25, 2006 /s/ JIANSHENG WEI ----------------------- Jiansheng Wei Chief Executive Officer 12 EXHIBIT 31.2 Certification by Zheng Shen Pursuant to Securities Exchange Act Rule 13a-14(a) I, Zheng Shen, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Eternal Technologies Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: May 25, 2006 /s/ ZHENG SHEN ----------------------- Zheng Shen Chief Financial Officer 13 --------------------------------------------------------------------------- EXHIBIT 32.1 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Jiansheng Wei, the chief executive officer of Eternal Technologies Group, Inc. (the "Company"), hereby certifies that, to his knowledge: (i) the Quarterly Report on Form 10-QSB of the Company for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 25, 2006 /s/ JIANSHENG WEI ----------------------- Jiansheng Wei Chief Executive Officer 14 EXHIBIT 32.2 ---------------------------------------------------------------------------- Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 For purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, Zheng Shen, the chief financial officer of Eternal Technologies Group, Inc. (the "Company"), hereby certifies that, to his knowledge: (i) the Quarterly Report on Form 10-QSB of the Company for the year ended December 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report") fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: May 25, 2006 /s/ Zheng Shen ----------------------- Zheng Shen Chief Financial Officer