UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549



|FORM
      10-KSB
|-----------------

| X |        Annual report under Section 13
or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2006

|     |Transition report under Section 13
or 15(d) of the Securities Exchange Act of 1934 for the transition period from
____ to______.



|Commission file number:
      000-51787
|---------------------------------------

Asia Electrical Power International
Group Inc.
(Name of small business
      issuer in its charter)

|Nevada                                                               | 98-0522960                                  
|-------------------------------------------------------------------- | --------------------------------------------
|(State or other
      jurisdiction of incorporation or               | (IRS Employer Identification
      No.)     
|organization)                                                        |                                             
|                                                                    
|2255 -A Renaissance Drive,
      Las Vegas, Nevada                   | 89119                                       
|(Address of principal
      executive offices)                       | (Zip Code)                                  
|                                                                    
|Issuer's telephone
    Number                                        | 702-922-1939                                
|Securities registered
      under Section 12(b) of the Exchange Act: |                                             
|                                                                    
|Common Stock, $0.001 par value
      Common                          | N/A                                         
|(Title of
      class)                                               | (Name of exchange on which
      registered)

Check whether the issuer is not required
to file reports pursuant to Section 13 or 15 (d) of the Exchange
Act.  |     |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 there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will 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.   |    |

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act. 
Yes |    |
 No  | X |

State issuer's revenue for its most recent
fiscal year: $ 512,978 for the fiscal year ended December 31, 2006

The aggregate market value of held by
non-affiliates and affiliates as of April 16, 2007 was $ 52,259,760 and $
70,140,240, respectively. For purposes of the foregoing calculation only,
directors and executive officers and holders of 10% or more of the issuer's
common capital stock have been deemed affiliates.

State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: The registrant had 51,000,000 shares of common stock outstanding as of
April 16, 2007.

DOCUMENTS INCORPORATED BY REFERENCE:
None

Transitional Small Business Disclosure
Format (Check one):   Yes  |   
|;        No   | X
|

- 1 -

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|         | TABLE OF
      CONTENTS                                                  |   
|-------- | ------------------------------------------------------------------------ | --
|PART I  
|Item 1   | Description of
      Business                                            | 4 
|Item 2   | Description of Property                                                  | 13
|Item 3   | Legal
      Proceedings                                                  | 15
|Item 4   | Submission of Matters to a Vote of Security
      Holders                | 15
|PART II 
|Item 5   | Market for Common Equity and Related
      Stockholder Matters           | 15
|Item 6   | Management's Discussion
      and Analysis or Plan of Operation          | 18
|Item 7   | Financial Statements                                                     | 26
|Item 8   | Change In and
      disagreements With Accountants on Accounting and     | 39
|         | Financial Disclosure                                                     |   
|Item 8A  | Controls and
      Procedures                                            | 39
|Item 8B  | Other Information                                                        | 40
|PART III
|Item 9   | Directors, Executive Officers, Promoters and
      Control Persons;      | 40
|         | Compliance with Section
      16(a) of the Exchange Act                  |   
|Item 10  | Executive Compensation                                                   | 42
|Item 11  | Security Ownership of
      Certain Beneficial Owners and Management and | 43
|         | Related Stockholder Matters                                              |   
|Item 12  | Certain Relationships and
      Related Transactions                     | 44
|Item 13  | Exhibits                                                                 | 45
|Item 14  | Principal Accountant Fees
      and Services                             | 46
|         | Signatures                                                               | 47

- 2 -

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|PART
      I
|------------



|Note regarding forward-looking
      statements
|-----------------------------------------------

This report contains forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting the financial condition of our business. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including, among other things:

- general economic and business conditions, both
  nationally and in our markets,
- our expectations and estimates concerning future
  financial performance, financing plans and the impact of competition,
- our ability to implement our growth
  strategy,
- anticipated trends in our business,
- advances in technologies, and
- other risk factors set forth herein.

In addition, in this report, we use words
such as "anticipates," "believes," "plans," "expects," "future," "intends," and
similar expressions to identify forward-looking statements.

Asia Electrical Power International Group
Inc. ("AEPI" or the "Company") undertakes no obligation to update publicly or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise after the date of this Form 10KSB. In light of these
risks and uncertainties, the forward-looking events and circumstances discussed
in this prospectus may not occur and actual results could differ materially from
those anticipated or implied in the forward-looking statements.

- 3 -

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|ITEM
      1.                                   DESCRIPTION
      OF BUSINESS
|-----------------------------------------------------------------------------



|History
|-------

Asia Electrical Power International Group
Inc.("AEPI")was incorporated in the State of Nevada on August 30, 2002 as
"Berita International
Corporation", for the purpose of producing
high and mid-voltage electrical switchgears in PRC. On December 24, 2003, we
changed our name to "Keiji International Group
Inc."and on September 30, 2004 we changed our
name to "Asia Electrical Power International
Group Inc.".

On January 23, 2003, we entered into an
Asset and Share Exchange Agreement (the "Agreement") with Shenzhen Naiji
Electrical Equipment Co., Ltd. ("Naiji"), a PRC Corporation whereby we
acquired all the issued and outstanding stock of Naiji for consideration of
24,000,000 shares of our common stock. Please refer to Exhibit 10.1 and
10.2.

In PRC, corporate ownership is determined
by each shareholder's proportionate cash contribution instead of proportionate
share ownership. There is no authorized capital or amount of outstanding stock
established.

As a result, Naiji became our wholly-owned
subsidiary. The shareholders of Naiji unanimously agreed to enter into the
Agreement for the purposes of restructuring itself in anticipation of becoming
listed on the OTC Bulletin Board ("OTCBB"). AEPI was formed by Naiji for
this purpose. Prior to entering into the Agreement; we had no assets,
liabilities, equity and had not issued any of our shares. As a result of
entering into the Agreement; the shareholders of Naiji became the shareholders
of AEPI in equal proportion wherein the 24,000,000 shares were allocated based
on the capital contributions, or ownership of Naiji. The Agreement therefore was
a non-arms length transaction.

Naiji has produced high and mid-voltage
electrical switchgears since its inception in 1997.

Shenzhen Naiji Science and Technology Co.
Ltd. (Science) is a corporation organized during 2006 under the laws of China by
our Presiden, Mr. Yulong Guo. It is considered a Variable Interest Entity (VIE)
under the provision of FASB Interpretation No. 46R (FIN 46R), "Variable Interest
Entities," as its sole shareholder is Mr. Guo. Its principal activity has been
raising capital and making advances to or on behalf of the Company. As of
December 31, 2006, we received a $ 375,852 capital contribution from Science.

For the years ended December 31, 2006 and
2005, we generated a profit of $ 477,435 and $ 286,134, respectively.

Naiji expects to expand its operations in
PRC and wishes to raise the necessary funds by means of attracting investment in
the public market.

We are currently listed on the OTCBB under
the trading symbol of "AEPW" effective February 12, 2007.



|Principal Products, Services
      and Their Markets
|----------------------------------------------------

We design, manufacture and market
electrical power systems designed to monitor and control the flow of electrical
energy and to provide protection to motors, transformers and other electrically
powered equipment.

We carry a wide range of products which
are generally configured together in various combinations to form a whole
electric power and management system. The combinations vary depending on the
needs of the customer and design specifications.



|Our produce line is as
      follows:
|-------------------------------------

Switchgearsare use in combination with control, measurement, protection
and command devices with which they are associated. Switchgears are commonly
used in association with the electric power system, or grid, with the
combination of electrical disconnects and/or circuit breakers used to isolate
electrical equipment. Switchgear is used both to de-energize equipment to allow
work to be done and to clear faults downstream.

- 4 -

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|SRM 16-12/24 SF6 GIS Ring Main
      Unit
|-----------------------------------------

This product is used in conjunction with
existing power systems to pass electrical current from one area to another; to
allow for continuous flow of electricity. This product uses SF6
sulphurhexaflouride, a non-poisonous electronegative gas as insulation to
protect the components. This product also has arc extinguishing properties
through the use of circuit breakers. An arc is sparking which results when there
are higher than normal levels of current and results in increased temperature in
the unit. This occurs when the level of electricity used at one time exceeds a
maximum level. The circuit breaker detects excessive power demands in a circuit
and self-interrupts the arc when high levels of current occur. It is used
primarily in connection with the generation, transmission, distribution and
conversion of electric power.

This product consists of the AFL 12/24 D
Load Break Switch, VDM6/12, VS1 12/24 and the BP1 Vacuum Circuit
Breakers.



|This product is suitable for end-user
      or network node.AGW 12/24
      Outdoor Ring Main Unit
|--------------------------------------------------------------------------------------------------

This product is the outdoor counterpart of
the SRM 16-12/24 SF6 GIS Ring Main Unit with automatic temperature control. This
product consists of the VS1-12/24, VDM6-12 and BP series vacuum circuit breakers
and the AFL 12/24D Load break switch.



|AGN 12/24 SF6 Ring Main
      Unit
|----------------------------------

This product is similar to the SRM
16-12/24 SF6 GIS Ring Main Unit however it consist of the VS1-12/24, VDM6-12 and
BP series vacuum circuit breakers and the AFL 12/24D Load break
switch.



|KYN 12/24 Metal Clad
      Switchgear
|-------------------------------------

This product is a complete set of
distribution devices with 3.6 -2KV, 24KV used mainly in power plants, and mining
industries.

Load Break Switchesinterrupts normal load currents in low voltage distribution
networks.



|EK24 GIS Load Break
      Switch
|--------------------------------

This product is an indoor high-voltage SF6
load switch and switchgear with a rated voltage of 12KV/24KV. It consists of SF6
gas as an arc-extinguishing property and insulation medium. This product
includes three switch locations for on/off switching suitable for uses requiring
controls at different locations. This product is adaptable with outdoor type
cable cabinets.



|AFL 12/24D Load Break
      Switch
|----------------------------------

This product is an indoor high-voltage SF6
load switch and switchgear with a rated voltage of 12KV. It consists of SF6 gas
as an arc-extinguishing property and insulation medium. This product includes
three switch locations for on/off switching suitable for uses requiring controls
at different locations. This product is adaptable with outdoor type cable
cabinets.



|AFW 12/24 Overhead Load Break
      Switch
|------------------------------------------

This product is an outdoor high-voltage
SF6 load switch is the outdoor overhead type distribution equipment with the
rated voltage of 12KV and the three-phase alternating current of 50Hz. It is
mainly used to make and break rated current or regulate overload current on
aerial circuit, which is suitable for systems such as electric network
transformer substations and mining and industrial enterprises.



|AFLA 12/24D SF6 Load Break
      Switch
|---------------------------------------

This product is an indoor high-voltage SF6
load switch and switchgear with a rated voltage of 12KV. It consists of SF6 gas
as an arc-extinguishing property and insulation medium. This product includes
three switch locations for on/off switching suitable for uses requiring controls
at different locations. This product is adaptable with outdoor type cable
cabinets however are mainly used indoors.

Circuit Breakersare electric device that, like a fuse, interrupts an electric
current in a circuit when the current becomes too high.



|- 5
-
|-----

---



|VDM6/12
    Vacuum
|------------------

This product is an indoor high voltage
vacuum circuit breaker with permanent magnetic mechanism with a rated voltage of
12KV and the three-phase alternating current of 50Hz and is used to switch
on/off various types of electrical load. It is suitable for various types of
electrical networks however used especially in industries requiring the
generation of higher voltages and longer operating times.



|VS1 12/24 Vacuum Circuit
      Breaker
|--------------------------------------

This product is the outdoor counterpart of
the VDM6/12 Vacuum.



|AZW 12/24 Outdoor Circuit
      Breaker
|---------------------------------------

This product is an indoor high voltage
vacuum circuit breaker with permanent magnetic mechanism with a rated voltage of
12KV-24KV and the three-phase alternating current of 50Hz and is used to switch
on/off various types of electrical load. It is suitable for various types of
electrical networks however used especially in industries requiring the
generation of higher voltages and longer operating times.



|BP1/BP2 Vacuum Circuit
      Breaker
|------------------------------------

This product is not manufactured by the
Company and is imported by suppliers in the Ukraine. It has a vacuum circuit
breaker with permanent magnetic mechanism with a rated voltage of
10KV/12KV/24KV.



|Branch
      CabinetsADF 630 Indoor
      Cable Cabinet
|-------------------------------------------------------

This product is used for the cable
connection and branching connection between various points. The cabinet crust is
made of 2 millimeters of stainless steel plate. Electrically charged parts are
structured with complete insulation and air tight seal. This product is
waterproof and widely used in conjunction with our product line mentioned above.



|ADF 630/2 Outdoor Cable
      Cabinet
|-------------------------------------

This product is the outdoor counter part
of the ADF 630 Indoor Cabinet. Please refer to Exhibit 10.3 for our standard
supplier of raw materials contract.



|Advertising and marketing
      strategy
|----------------------------------------

Our main marketing strategies to target
our markets are based on:

|1. | The efforts of our sales staff in
      our marketing department and branch offices located throughout the region
      to obtain new customers. Members of our top management oversee the efforts
      of our sales staff and make adjustments to our marketing strategy as
      appropriate in response to market conditions. Top management approves all
      marketing strategies carried out by our sales staff. Top management, on a
      monthly basis, reviews regional market reports of each branch office and
      makes adjustments to marketing strategies as market conditions vary in
      each region if necessary. In addition to marketing to tradition
      commercial/residential customers, we also keep abreast of news and
      development in rural areas where contracts will be awarded to supply
      equipment for all aspects of electrical network implementation by the
      PRC.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | Effective client relations
      management directed through top management to maintain current customer
      base and to encourage referrals through these customers. In maintaining
      customer relations, our sales staff in our branch offices offer technical
      support, tend to customer service matters and arrange for on site visits
      from our technical staff to follow up on questions or concerns the
      customer may have.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|3. | Continuous enhancement product
      quality and new product development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|4. | Marketing campaigns launched
      throughout the PRC through promotional materials, advertising in trade
      magazines and billboards and at trade exhibitions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  

Management believes that such marketing
strategies have been effective in our achieving desired levels of revenues and
therefore implementation of these strategies has been consistent.

- 6 -

---

We also participate in industry
exhibitions and trade fairs to be held in Harbin, Shenyang, Beijing, Guangzhou,
Jinan, Nanning and Shanghai.



|Our target markets
  are:
|-------------------------

- Residential and commercial developers or
  contractors which may require expansion of existing power systems to new
  areas.-    
  Our sales staff regularly keep in contact with developers and contractors for
  future referrals to service any new development projects.-     Sales staff also seek new developers and contractors
  within their region via referrals from existing customers, or community
  resources (newspapers, trade magazines, etc.).



- Wholesale manufactures who may make bulk
  purchases.-      We may offer a discount on bulk purchases and
  or discounts if we receive referrals from new customers. Manufacturers may
  keep promotional materials of ours in efforts to promote our products to their
  customer base.



- Electrical equipment installation companies who
  may refer us to potential customers.-      Installation companies who are also licensed
  electricians appointed by government authorities also have their own customer
  base from which we may receive referrals-   
    We use a variety of installation companies as our products require
  installation by these licenses electricians and by disbursing our installation
  hires throughout the region; we introduce our products to these electricians
  who may refer our products to their customers.



- Electrical Bureaus of urban and rural cities who
  may award contracts to us to service various existing or new transportation
  developments such as airports, subway stations, etc. They may also require
  certain areas to be networked in order to distribute power to these
  areas.-     
  We keep abreast on new rural and urban developments and bid on contracts to
  service these areas which require development or expansion.



The majority of our marketing efforts are
tended to generate referrals from existing customers. We place an emphasis on
providing what we believe to be a higher lever of customer service, specifically
relating to our on site visits, and technical support.



|Sales
Network:
|--------------

We have developed an integrated sales
network in PRC outside of Guangdong unless otherwise stated:

Branch Office Location
    Kilometres from Principal Office in
      ShenzhenGuangzhou (Inside Guangdong)
    137Nanning
    864Changsha
    1,306Huizhou (Inside
      Guangdong)
    92Kunming
    1,867Changchun
    3,554Shanxi
    655Jinan
    2,188Beijing
    2,639Yinchuan
    and
    2,874




- 7
-



---



Xi-an
    1,980Hefei (Anhui)
    *Lanzhou (Ganshu)
    *Zhengzhou
      (Henan)
    *


*Our branch offices in Chongqing,
Shijiazhuang, Wuhan, Tangshan are located in Hebei province which is
approximately 2000 KM from Shenzhen.

Branch offices are solely responsible for
all sales and marketing efforts. All sales orders are directed to the operations
office in Shenzhen whereby the products are manufactured and
assembled.

The rent for the principal offices is
approximately $ 10,227 per month plus common area costs. The rent for the branch
offices are $ 150 per month for each office.

Please refer to Exhibit 10.4 for our
standard sales contract.



|Distribution
|------------

Within the Guangdong province, we
distribute our products through our own fleet of vans. Approximately 30% of
deliveries and sales are within the Guandong province. With sales orders outside
of the Guangdong province, we contract out to freight forwarders to deliver our
products. The remaining 70% of deliveries and sales are outside of the Guangdong
province.

We have a contract with freight forwarders
for periods of 1 year. The freight forwarding industry is highly competitive and
widely disbursed throughout PRC. We can easily engage other forwarding companies
if there is a need.



|Competition
|-----------

We expect to encounter significant
competition from other power transmission/distribution equipment companies that
have been in the industry for a longer period of time and have a more extensive
line of products than us. These industries are populated by many national or
international companies, with significantly greater resources than
ours.

The major companies in the power
transmission/ distribution equipment market are ABB, Siemens, and Schneider
Electric. In addition, other smaller manufacturers exist in this market
throughout the region.

There are also competitors that carry
copyright infringed products, or pirated products which are of lesser quality,
resulting in a lower selling price. Pricing is an important factor in methods of
competition; however, we believe that customer service from inception of the
customer relationship throughout the life of the product purchased is an equal
factor in our methods of competition.

Our competitors may offer a lower price
given they may have stronger purchasing power due to economies of scale of their
raw materials.

Our selling price includes not only the
product, but also encompasses the customer service we provide throughout the
life of our product, and consequently our relationship with our customer(s). Our
products expected life averages over 20 years and throughout this time we
maintain our relationship with our customers and build new relationships through
referrals.

Our methods of competition is focused on
providing on-site visits to address any questions or concerns the customer may
have or just to follow up on whether the customer is satisfied with our product.
Most of our competitors, to the best of our knowledge, do not follow up with
their customers in this fashion.



|Trends in the
    market
|------------------------

We expect a high volume of new domestic
business from electricity infrastructure investments as a result of the PRC's
11thfive year plan which will:

- 8 -

---

"Build new socialist rural areas, optimize
and upgrade industrial structures, promote concordant development of regions,
build a conservation-minded and environment-friendly society, further system
reform and enhance opening-up, efficiently practice strategies to invigorate
China through science and education and through human resource development, and
give impetus to constructing a socialist harmonious society." - Source,www.China.org

With new developments in rural areas, the
PRC will be accepting bids to service such areas to establish electrical
networks. We anticipate such new developments will increase our sales by 40% per
year for fiscal 2007 and 2008 year ends and 30% by fiscal 2009 year end. A
majority of our sales are generated through existing customer base by referrals
however with these new developments, we expect a substantial amount of our sales
to be generated by fulfilling PRC contract bids to service rural areas in 2007
though 2009.



|Intellectual
    Property
|-------------------------



|Patents
|-------

We carry one patent for our SRM 16-12/24
SF6 GIS Ring Main Unit. We obtained this patent from the National Intellectual
Property Bureau in April 2000. The patent life is 10 years and expires April
2010.

The significance of carrying a patent on
this product is that at the time, we expected to generate the majority of our
revenues from this model and wanted protection from any loss of revenue from the
pirating of this product by various sources and from sales in illegal markets.
However, this product has continuously been pirated despite the
patent.

We do not carry any patents for our other
products because the cost of obtaining a patent outweighs the benefits as
copyright infringement laws in PRC are relatively new and enforcement to our
knowledge is rare.

Since PRC joined the World Trade
Organization, the Trademark Law was amended in 2001 and Implementing Rules in
late 2002, and amended its copyright law.

Enforcement of copyright infringement in
PRC has also been addressed, including recent changes that stiffened penalties
for patent, trademark or copyright infringement, and the use of preliminary
injunctions, and added criminal liability as an available remedy to trademark
infringement.

In light of these new amendments, we may
apply for patents on the remainder of our products in 2007.



|Trademarks
|----------

We do not have any trademarks on our trade
name or logo.



|Employees
|---------



|Principal Business
      Office
|-------------------------------

We have 108 full time employees in our
Principal Business Office, filling positions in our Marketing, Quality Control,
Research and Development, Productions, Purchasing/Transportation, Administration
and Finance Departments. Manufacturing facilities are on this site as
well.

The Marketing Department is disbursed
throughout the region in both our Principal Business Office and Branch Offices.
In our Principal Business Office, there are approximately 70 people, responsible
for launching advertising campaigns, market research and customer
service.

The Quality Control Department is located
in the Principal Business Office and responsible for outer and inner design
specifications, input and output inspection, inventory management, product
testing and after installation service support. This department also supervises
the production department. There are 7 employees in this department, consisting
of engineers and other technical staff.

The Research and Development Department is
located in the Principal Business Office and is responsible for innovation of
new and improved technologies. The department works closely with the Quality
Control Department to ensure new products are constructed within specifications.
There are 15 employees in this department consisting of engineers and other
technical staff.



|- 9
-
|-----

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The Production Department is located in
the Principal Business Office and is responsible for production, assembly and
packaging. The department receives all specifications from the quality control
department. There are 3 employees in this department.

The Purchasing and Transportation
Department is located in the Principal Business Office and is responsible for
fulfilling inventory orders from the quality control department, inventory
management and co-ordination of delivery and installation. There are 5 employees
in this department.

The Administration Department is located
in the Principal Business Office and is responsible for human resources,
training, and payroll. The department also evaluates all processes to ensure
certain levels of efficiency are maintained. There are 4 employees in this
department.

The Finance Department is located in the
Principal Business Office and is responsible for compliance with accounting
principles and national tax laws, bookkeeping, preparing budgets and analysis of
financial reports. There are 4 employees in this department consisting of senior
and junior staff accountants.



|Branch
  Offices
|----------------

We have a total of 40 employees in our 35
Branch offices located throughout the region. Branch offices were established to
integrate an extensive sales network, directly solely for sales and marketing
efforts.



|Administrative Branch
      Office
|----------------------------------

We have 2 consultants in our
Administrative Branch Offices. Our consultants provide translation and EDGAR
filing services. Mr. Guo provides this office space for our consultants rent
free.

Management believes that relations with
its employees are good.



|RISK
  FACTORS
|--------------

Any of the following risks could
materially adversely affect our business, financial condition, or operating
results.

Compliance and enforcement of
environmental laws and regulations may cause us to incur significant
expenditures and resources of which we may not have.

Extensive national, regional and local
environmental laws and regulations in PRC affect our operations. These laws and
regulations set various standards regulating certain aspects of health and
environmental quality, which provide for user fees, penalties and other
liabilities for the violation of these standards. We believe we are currently in
compliance with all existing PRC environmental laws and regulations. However, as
new environmental laws and legislation are enacted and the old laws are
repealed, interpretation, application and enforcement of the laws may become
inconsistent. Compliance in the future could require significant expenditures,
which may adversely effect our operations. The enactment of any such laws, rules
or regulations in the future may have a negative impact on our projected growth,
which could in turn decrease our projected revenues or increase our cost of
doing business.

We face intense competition which could
decrease our market share and result in an inability to maintain our working
capital needs indefinitely.

We expect to encounter significant
competition from other power transmission/distribution equipment companies,
which have been in the industry for a longer period of time and have a more
extensive line of products. These industries are populated by many national or
international companies, with significantly greater resources than
ours.

The major companies in the power
transmission/ distribution equipment market are ABB, Siemens, and Schneider
Electric. In addition, other smaller manufacturers exist in this market
throughout the world.



|These competitors could
    have:
|---------------------------------



|
|



|- 10
-
|------

---

- substantially greater financial and technical
  resources, which may allow them to expand their operations more quickly, offer
  a broader range of services and offer services at more competitive
  prices;
- more extensive and well developed marketing and
  sales networks, which may allow them to grow their subscriber bases more
  quickly and efficiently;
- greater brand recognition, which may influence a
  subscriber's purchase decision;
- larger subscriber bases, which may provide
  economies of scale and operating efficiencies not available to us;
- longer operating histories; and
- more established relationships with government
  officials, equipment specialists and/or other strategic partners.

We are dependent on a few key
personnel, being our officers and directors and the loss of any key personnel
could have a material adverse effect on our ability to carry on
business.

We are substantially dependent upon the
efforts and skills of our executive officers, Mr. Guo and Mrs. Chen. We do not
have employment contracts with either Mr. Guo or Ms. Chan and thus they have no
obligation to fulfill their capacities as executive officers for any specified
period of time. The loss of the services of either of the executive officers
could have a material adverse effect on our business.

Our shareholders may not be able to
enforce U.S. civil liabilities claims.

Our assets are located outside the United
States and are held through a wholly-owned subsidiary incorporated under the
laws of Nevada. Our current operations are conducted in PRC and Canada. In
addition, our directors and officers are residents of countries other than the
United States. All or a substantial portion of the assets of these persons are
located outside the United States. As a result, it may be difficult to effect
service of process within the United States upon these persons. In addition,
there is uncertainty as to whether the courts of PRC and Canada would recognize
or enforce judgments of United States courts obtained against us or such persons
predicated upon the civil liability provisions of the securities laws of the
United States or any state thereof, or be competent to hear original actions
brought in these countries against us or such persons predicated upon the
securities laws of the United States or any state thereof.

We do not carry patents for the
majority of our products which may result in a continuing decrease in our market
share due to existing pirated products on the market.

Through our experience, obtaining a patent
has not prevented our products from being pirated, and enforcement in the
industry is considered rare. As a result, we see insufficient value from
obtaining patents on our line of products. Currently our products are not used
in the US and, thus, obtaining a US patent is unnecessary. In the event that our
products are used in the US, we will consider applying for a patent at that
time.

When PRC joined the World Trade
Organization, it also amended its patent law to expand its scope to deter the
infringement of all types of intellectual property. An enforcement organization
was created (State Intellectual Property Office) for the purpose of coordinating
all enforcement efforts by merging the patent, trademark and copyright offices
under one authority. To date, this has not occurred. Until an enforcement
structure is in place under one distinct authority, we do not foresee that
enforcement of any type of copyright infringement will be achieved.

There will continue to be pirated products
in the market until penalties are enforced by the authorities. To our knowledge,
enforcement is considered rare and until this perception is changed, industries
will continue to lose market share such as we have experienced. As a result, we
have focused on providing and maintaining good client relations for our existing
and new customers, however, our efforts may not materialize into increased
market share.

We carry no insurance policies and are
at risk of incurring personal injury claims from our employees and
subcontractors, and incurring loss of business due to theft, accidents or
natural disasters.

We currently carry no policies of
insurance to cover any type of risk to our business except vehicle insurance. It
is common practice in PRC not to carry such insurance.

We are required to renew our business
license every 10 years and if we do not pass certain government inspections to
ensure environmental laws are not breached, as required in the process of
obtaining



|- 11
-
|------

---

renewal, our business may be discontinued until we have implemented necessary recommendations as a result of inspections.

We obtained our business license on June 20, 1997 for a period of 10 years ended June 20, 2007. After this period expires, we are subject to another inspection in order to extend our business license for another 10 years.
The extension of our business license is not guaranteed and we may not have the resources necessary to implement the changes in our business processes to comply with environmental laws in place. This will delay granting of our license and, as a
result, our operations would be ceased, causing us to lose not only profits but also irreparable damage to our reputation.

We require the approval for all new products from independent research institutes appointed by government authorities and this process may be delayed due to the need for product refinement requiring additional resources
of which we may not have and also delaying the launch of new products which would otherwise generate profits.

All of our products are tested by the Xi-An High Voltage Apparatus Research Institute located in Shenzhen and must pass all the required tests to obtain a clearance certification granting us approval to launch the product
into market. The process of obtaining a clearance certificate is approximately 8 weeks and may be longer depending on the type of product. Delays in obtaining a clearance certificate will impact our cash flows as recouping product development costs
and profits generated from the new product will be delayed.

The process of product testing and obtaining a clearance certificate costs up to $60,000 per product; however, we may incur additional costs and resources to refine our product as required. We may not have these
resources and we may not be able to obtain the clearance certificate until such resources are available.

If we do not continue to receive shareholder loans we may be unable to meeting our minimum funding requirements.

We have no formalized agreements with our shareholders guaranteeing that certain amounts of funds will be available to us. We may exhaust this source of funding anytime.

If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of its stockholders will be reduced, stockholders may experience additional dilution and such securities
may have rights, preferences and privileges senior to those of our common stock. There can be no assurance that additional financing will be available on terms favorable or at all. If adequate funds are not available on acceptable terms, we may not
be able to fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. In addition, we may be required to lay-off employees. Such inability could have a
material adverse effect on its business, results of operations and financial condition.

We are required to commence construction of new office facilities on land we have made deposits on within 6 months of transfer of title and complete construction within 2 years.

On September 7, 2004, we entered into an agreement with the PRC to lease land for 50 years for the purpose of constructing new office facilities. We have made deposits and have received title to this property late 2006 when
the PRC fulfilled its obligation to make improvements to the property. We are required to commence construction within 6 months of which such obligation has been fulfilled and also complete construction within 2 years. A substantial amount of
funding for construction will be loaned to us by shareholders of whom we do not have contracts with for commitment of specified amounts to be loaned to us. As mentioned above in If we do not continue to
receive shareholder loans we may be unable to meeting our minimum funding requirements., we may exhaust this source of funding anytime and may not be able to complete construction or fulfill our terms of
the contract. If we do not complete construction within this time frame, we are subject to penalties of approximately $ 3,800 per month (RMB1.00 per m2of
area-30,573.55 m2total area) until completion of construction.

The average selling price of our product may decrease which will reduce our gross margin.

The industry which we operate in has traditionally experienced a rapid erosion of average selling prices due to a number of factors, including competitive pricing pressures, promotional pricing, technological progress and a
slowdown in the economy that has resulted in excess inventory and lower prices as companies attempt to liquidate this inventory. We anticipate that the average selling prices of its products will decrease in the future



|- 12 -
|------

---

in response to competitive pricing
pressures, excess inventories, increased sales discounts and new product
introductions by it or its competitors. We may experience substantial decreases
in future operating results due to the erosion of its average selling
prices.

Our performance will depend on the
introduction and acceptance of newly developed products.

Our future performance will depend on the
successful development, introduction and market acceptance of new and enhanced
products that address customer requirements in a timely and cost-effective
manner. The introduction of new and enhanced products may cause our customers to
defer or cancel orders for existing products. Such actions would substantially
hurt sales and negatively affect future profitability.

We must continuously increase the
productivity of our distribution and marketing channels to increase
revenues.

Our distribution strategy focuses
primarily on developing and increasing the productivity of indirect distribution
channels through resellers and distributors. If we fail to develop and cultivate
relationships with significant resellers, or if these resellers are not
successful in their sales efforts, sales of our products may decrease and its
operating results could suffer. Many of our resellers also sell products from
other vendors that compete with our products. We cannot assure that we will be
able to enter into additional reseller and/or distribution agreements or that it
will be able to successfully manage its product sales channels. Our failure to
do any of these could limit our ability to grow or sustain revenue.

RISKS RELATING TO THE OUR COMMON
STOCK

Broker-dealers may be discouraged from
effecting transactions in our shares because they are considered penny stocks
and are subject to the penny stock rules.

Rules 15g-1 through 15g-9 promulgated
under theSecurities Exchange Act of 1934(the "Securities Exchange Act") impose sales
practice and disclosure requirements on NASD broker-dealers who make a market in
"penny stocks". A penny stock generally includes any non-NASDAQ equity security that
has a market price of less than $5.00 per share. Under the penny stock
regulations, a broker-dealer selling penny stock to anyone other than an
established customer or "accredited
investor" (generally, an individual with net
worth in excess of $1,000,000 or an annual income exceeding $200,000, or
$300,000 together with his or her spouse) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.

In addition, the penny stock regulations
require the broker-dealer to deliver, prior to any transaction involving a penny
stock, a disclosure schedule prepared by the SEC relating to the penny stock
market, unless the broker-dealer or the transaction is otherwise exempt. A
broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer's account and information with respect to the limited market in penny
stocks.

Our stock is substantially controlled
by directors, officers and principal shareholders for the foreseeable future and
as a result, will be able to control our overall direction.

Our insiders, being the directors,
officers and 5% shareholders, own an aggregate of approximately 66.32% of our
outstanding shares. Our President holds 100% of 5,000,000 units of our preferred
shares with entitles each preferred share to 100 votes. As a result, the
insiders will be able to control the outcome of all matters requiring
stockholder approval and will be able to elect all of our directors. Such
control, which may have the effect of delaying, deferring or preventing a change
of control, is likely to continue for the foreseeable future and significantly
diminishes control and influence which future stockholders may have in the
Company. See

"Item 11. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters".



|ITEM
      2                                 
      DESCRIPTION OF PROPERTY
|---------------------------------------------------------------------------



|Principal Business
      Office
|-------------------------------

Our Principal Business Office is located
at 28thBuilding, Lishan Industrial Zone, Xinghai Road, Nanshan District,
Shenzhen, PRC 518052.



|- 13
  -
|--------

---

Our office space is 4 floors, with each
floor being 2,750 square feet, total 11,000 square feet and is kept in good
condition. We lease the operations office from an unrelated and unassociated
party for approximately $ 122,725 gross per year which includes an approximation
of additional common area costs or recoveries incurred. The lease term is from
July 31, 2004 to April 30, 2009. Our manufacturing facilities take up 3 floors
and our Marketing, Quality Control, Research and Development, Productions,
Purchasing/Transportation, Administration and Finance Departments occupies the
remaining floor.



|Purchase of
      Land
|----------------------

On September 7, 2004, we entered into an
agreement with the PRC Government to purchase approximately 3.77 hectares of
land ("Leased Land") for the purpose of constructing new manufacturing facilities and office
space. The total purchase price is approximately $ 1,111,554 with deposits to be
made in intervals. Mr. Guo provided us with shareholder loans for payment of
these deposits. The PRC Government is currently making improvements to the
property and implementing sewage systems. Improvements will be made to
surrounding roads, drainage, electrical and communication systems. Currently the
PRC Government has made all such improvements.

As the PRC Government required
improvements to the Leased Land and implementation of sewage systems where such
work extended beyond the November 30, 2004 deadline, we signed an addendum to
the agreement of September 7, 2004 to reflect changes in circumstances affecting
the cost and use of the Leased Land.

On January 20, 2006, we entered into an
agreement with Shenzhen Land Resource and Real Estate Management Bureau
("Land Resource Bureau"), a division of the PRC Government, for compensation of loss
of business to the previous users of the Leased Land. The Leased Land was
previously used as farmland for cultivating various crops. The compensation is
based on a calculation of area of land use of which the Land Resource Bureau
determined to be $ 1,355,566 USD. Full payment was made in June 2006. We
received shareholder loans from Mr. Guo for payment of this
compensation.

Upon entering into this agreement with the
Land Resource Bureau, 2 terms in lease agreement we entered into on September 7,
2004 were changed.

The 1stterm relates the period of the
lease which was originally to commence September 7, 2004 was extended to January
20, 2006 for 50 years expiring 2056. The 2ndterm relates to the area of usage
of the Lease Land. The original area was 3.77 hectares and has been revised to
3.06 hectares to reflect new city planning agendas for development of expanded
transportation routes surrounding the Leased Land. We are currently in
negotiations with the PRC Government to request compensation for the decrease in
area.

A lease from the PRC Government grants use
of land by obtaining a State Owned Land Usage Certificate and a lease obtained
through previous lease holders grants use of land by obtaining a Collective Land
Usage Certificate. In our case, we were granted a Collective Land Usage
Certificate. Land in PRC cannot be owned and the only form of ownership is by
way of lease for a period of up to 90 years. A regulation which we must comply
with in order to keep the lease is the use of the land as specified in the
business license. Any changes in use must be approved by the PRC
Government.



|New Manufacturing
      Facilities
|----------------------------------

As of December 31, 2006, we incurred
construction costs in the amount of $ 1,191,776 for excavation and land
leveling, surrounding roadwork and design/architectural fees. We estimate the
total cost of this development to be $ 10,000,000 with an expected completion
date to be September 2007. Funding for this project will be through shareholder
loans and bank loans. Our new facilities will occupy 300,000 square foot with
158,000 square foot of new manufacturing facilities. New facilities will be
approximately 5 times the size of existing facilities and as such will have the
capabilities of meeting production requirements based on our projected levels of
sales in the next 3 years.

We will be occupying our office space at
28thBuilding, Lishan Industrial Zone, Xinghai Road, Nanshan District,
Shenzhen, until construction of our facilities is completed.

- 14 -

---



|Branch
  Office
|---------------

We also have branch offices throughout PRC
developed for integrating our sales network with 35 sales and marketing branch
offices in Guangzhou, Nanning, Changsha, Huizhou, Kunming, Changchun, Shanxi,
Jinan, Beijing, Yinchuan,Xi-an, Chongqing, Shijiazhuang, Wuhan, Hefei, Lanzhou,
Tangshan, and Zhengzhou.

Each office employs 2-5 employees and is
rented on a month to month basis. The cost per office per month is approximately
$150.

We do not have policies regarding the
acquisition or sale of real estate assets for the purposes of capital gain or
for income. We do not hold any investments or interests in real estate,
investments in real estate mortgages or securities of or interests in persons
primarily engaged in real estate activities nor do we expect to do so in the
future.



|Administrative Branch
      Office
|----------------------------------

Our administrative branch office for North
American investor relations and U.S. regulatory reporting is located at 2255 -
CA Renaissance Drive, Las Vegas, Nevada, 89119.

Our filing agent is located at 610-1112
West Pender Street, Vancouver, BC, Canada V6E2S1 of which provides us with
answering and English/Chinese translation services, EDGAR filing services, fax
services, reception area and shared office, and boardroom meeting facilities.
This office is provided rent free by our President, Yulong Guo and is kept in
good condition. There are currently no proposed programs for the renovation,
improvement or development of the facilities that we currently use. We believe
that this arrangement is suitable given the nature of our current operations,
and also believe that we will not need to lease additional administrative
offices for at least the next 12 months.

|ITEM
      3. | LEGAL
      PROCEEDINGS                                  
|------------- | ---------------------------------------------------------
|None.         |                                                          
|ITEM
      4. | SUBMISSION OF
      MATTERS TO A VOTE OF SECURITY
HOLDERS

At our Annual Meeting of Stockholders held
on September 1, 2006, the following individuals were elected unanimously to the
Board of Directors to serve until the next Annual Meeting of
Stockholders:

|Name             | Position                  | Period Serving          | Term (1) |             
|---------------- | ------------------------- | ----------------------- | -------- | ------------
|                
|Yulong Guo       | CEO, President, Director, | September 1, 2006 -     |          | 1
      year
|                 | Treasurer                 | August 31, 2007         |          |             
|                
|Xiaoling Chen    | Secretary,
    Chief      | September 1,
    2006 - |          | 1
      year
|                 | Accounting Officer        | August 31, 2007         |          |             
|                
|Dudley Delapenha | Director                  | September 1, 2006 -     |          |             
|                 |                           | August 31, 2007         |          | 1
      year
|                 |                           |                         |          |             

We approved the appointment of Robert G.
Jeffrey as our independent accountants for the fiscal year ended December 31,
2006.



|PART
      II
|-------------

ITEM
5.                    
         MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTER



|MARKET FOR COMMON
      EQUITY
|------------------------------

As of April 16, 2007, we had 335
registered shareholders and 51,000,000 commons shares outstanding and 5,000,000
preferred shares outstanding.

- 15 -

---



|Rule 144
  Shares
|-----------------

Under Rule 144 as currently in effect, a
person who has beneficially owned shares of a company's common stock for at
least one year is entitled to sell within any three month period a number of
shares that does not exceed the greater of:

|1. | 1% of the number of shares of the company's common stock
      then outstanding which, in our case, will equal 240,000 shares as of the
      date of this prospectus; or        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. | the average weekly trading volume of the company's
      common stock during the four calendar weeks preceding the filing of a
      notice on form 144 with respect to the sale.
|  

Sales under Rule 144 are also subject to
manner of sale provisions and notice requirements and to the availability of
current public information about the company.

Under Rule 144(k), a person who is not one
of the company's affiliates at any time during the three months preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
two years, is entitled to sell shares without complying with the manner of sale,
public information, volume limitation or notice provisions of Rule
144.



|Stock Option
  Grants
|---------------------

There are no outstanding options or
warrants to purchase, or securities convertible into shares or equity
compensation plans. Our issued and outstanding shares could be sold at the
appropriate time pursuant to Rule 144 of the Securities Act.

Securities Authorized For Issuance
Under Equity Compensation Plans

The Company did not have an equity
compensation plan in place as of December 31, 2006.



|DIVIDEND
  POLICY
|-----------------

We have not declared or paid any cash
dividends on its common stock or other securities and does not anticipate paying
any 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, and such other factors as the Board of Directors deem
relevant.



|Recent Sales of Unregistered
      Securities
|---------------------------------------------

Except as reported in previous filings, we
did not sell any securities in transactions which were not registered under the
Securities Act in the quarter ended December 31, 2006.



|DESCRIPTION OF
      SECURITIES
|-------------------------------

As of April 16, 2007, our total authorized
capital is 150,000,000 common shares with a par value of $0.001 per
share.

24,000,000 common shares are issued to 21
shareholders on January 23, 2003 wherein we entered into an Asset and Share
Exchange Agreement (the "Agreement") Naiji whereby we acquired
all its issued and outstanding stock for consideration of 24,000,000 shares of
our common stock. Please refer to Exhibit 10.1 and 10.2.

Of this total, 7,290,000 shares of common
stock are were registered under Regulation S on Form SB2 effective January 27,
2006. The offered selling price was $0.02 per share.

On December 21, 2006, the company approved
a stock split wherein the number of authorized common stock with a par value
$0.001 was to be increased on a two for one basis. The total authorized capital
increased from 75,000,000 to 150,000,000. Accordingly, the number of issued
common stock increased from 24,000,000 to 48,000,000. The Company also approved
the establishment of a new class of preferred shares with a $ 0.001 par value
with an authorized capital of 5,000,000 preferred shares.

- 16 -

---

On December 22, 2006, 5,000,000 shares of preferred stock, par value $0.001, were allotted and issued to our President, Yulong Guo for repayment of shareholder loans.

A further 2,500,000 shares of common stock were allotted and issued to Yulong Guo and 500,000 shares issued to Xiaoling Chen. These shares were issued for repayment of shareholder loans.

As a result of the aforesaid share issuances, the issued and outstanding share capital of the Company is now 51,000,000 shares of common stock and 5,000,000 shares of preferred stock.

The offer and sale of the shares were exempt from registration pursuant to section 4(2) of the Securities Act, Rule 701 and Rule 506 of Regulation D promulgated thereunder. We limited the manner of the offering and provided
disclosure regarding the offering and our company to the stockholders. Both of the stockholders are our officers and directors.  We believe that these sales were also exempt under Regulation S under the Securities Act, as such sales were made in
offshore transactions to non-U.S. persons.

All of our authorized common shares are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets.  Holders of shares are entitled to one vote for each share held of record
on all matters to be acted upon by the shareholders.

All of our authorized preferred shares are of the same class and once issued, are restricted from being publicly traded, have no dividend rights and are not entitled to the participation in assets in the event of
dissolution of the Company. Preferred shares are entitled to 100 votes per share.

Dividends may be declared from time to time by the Board of Directors, in its discretion, out of funds legally available. However, our present intention is not to pay any cash dividends to holders of shares but to reinvest
earnings, if any. In the event of our liquidation, dissolution or winding up the holders of shares are entitled to share pro-rata in all assets remaining after payment of liabilities.

Our common and preferred shares have no pre-emptive, conversion or other subscription rights. There are no redemption or sinking fund provisions applicable to the shares.

Our articles and by-laws do not contain any provisions that would delay, defer or prevent our change in control.

- 17 -

---

ITEM
6.                          
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Cautionary Notice Regarding Forward
Looking Statements

We desire to take advantage of the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995. This
filing contains a number of forward-looking statements which reflect
management's current views and expectations with respect to our business,
strategies, products, future results and events, and financial performance. All
statements made in this filing other than statements of historical fact,
including statements addressing operating performance, events, or developments
which management expects or anticipates will or may occur in the future,
including statements related to distributor channels, volume growth, revenues,
profitability, new products, adequacy of funds from operations, statements
expressing general optimism about future operating results, and non-historical
information, are forward looking statements. In particular, the words "believe,"
"expect," "intend," "anticipate," "estimate," "may," variations of such words,
and similar expressions identify forward-looking statements, but are not the
exclusive means of identifying such statements, and their absence does not mean
that the statement is not forward-looking. These forward-looking statements are
subject to certain risks and uncertainties, including those discussed below. Our
actual results, performance or achievements could differ materially from
historical results as well as those expressed in, anticipated, or implied by
these forward-looking statements. We do not undertake any obligation to revise
these forward-looking statements to reflect any future events or
circumstances.

Readers should not place undue reliance on
these forward-looking statements, which are based on management's current
expectations and projections about future events, are not guarantees of future
performance, are subject to risks, uncertainties and assumptions (including
those described below), and apply only as of the date of this filing. Our actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors which
could cause or contribute to such differences include, but are not limited to,
the risks to be discussed in our next Annual Report on form 10-KSB and in the
press releases and other communications to shareholders issued by us from time
to time which attempt to advise interested parties of the risks and factors
which may affect our business. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise.



|OVERVIEW.
|---------



|Critical Accounting
      Estimates
|-----------------------------------

The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. The application of GAAP
involves the exercise of varying degrees of judgment. The resulting accounting
estimates will not always precisely equal the related actual results. Management
considers an accounting estimate to be critical if:

- assumptions are required to be made; and
- changes in estimates could have a material effect
  on our financial statements.

The following table presents information
about our most critical accounting estimates and the effects of hypothetical
changes in the assumptions used when making such estimates:

- 18 -

---

|Balance      |                                 |                                    |                                          |                                  
|------------ | ------------------------------- | ---------------------------------- | ---------------------------------------- | ---------------------------------
|Sheet        | There is a risk of
      Change | How did we arrive at
      these   | How Accurate have we been
      in       | How Likely to change
      in    
|Account      | because?                        | estimates?                         | the past?                                | the future?                      
|            
|Accounts     | We provide an Allowance         | AFDA are made on accounts          | These estimates of AFDA
      have       | This method
      of             
|Receivable   | For Doubtful Accounts           | older than 2 years. It is          | been accurate in the past
      as the   | determining AFDA
      will      
|             | (AFDA) based on the             | common in the industry for         | majority of accounts older
      than    | likely not change as
      we    
|             | credit ratings of customers     | accounts less than 2 years to be   | 2 years belong to
      customers        | have been able to
      collect  
|             | and age of the account.         | considered current. Collection     | who have become
      bankrupt.          | on the majority
      of         
|             | Uncollectible accounts are      | mostly occurs within 1.5 years.    | Collection continues to
      occur      | accounts within 1.5
      years  
|             | also written off,               | Accounts older than 2 years are    | within 1.5 years. There
      are        | and write off
      uncollectible
|             | particularly when               | reasonably likely to be            | situations where
      bankruptcy        | account which
      normally     
|             | bankruptcy occurs. The          | uncollectible and AFDA are         | occurs on more
      current             | occurs on accounts
      older   
|             | allowance we provide is         | provided for the sum of these      | accounts where the
      account         | than 2 years. We
      may       
|             | an estimate based on            | accounts.                          | will be written off.
      Current       | adjust the method
      of       
|             | historical information and      |                                    | accounts of which
      become           | determining AFDA
      on        
|             | may not reflect current         |                                    | bankrupt would not have
      been       | potential bankrupt
      clients 
|             | conditions as to whether        |                                    | included in previous
      estimates     | however to date; we
      do     
|             | the account may be              |                                    | of AFDA.                                 | not foresee the need as
      we 
|             | collectible.                    |                                    |                                          | expect to collect
      account  
|             |                                 |                                    |                                          | within the normal
      time     
|             |                                 |                                    |                                          | period of 1.5
      years.       
|            
|            
|Inventory    | We review the net               | The cost of our inventory          | Our selling prices
      have            | We do not foresee
      to       
|             | realizable value of our         | (including manufacturing           | remained stable and, as a
      result;  | decrease our selling
      price 
|             | inventory to ensure that it     | overhead) is compared to net       | we have not required
      writing       | to a level that would
      cause
|             | is recorded at a lower of       | realizable value in the market.    | down of inventory.
      Market          | net realizable value to
      be 
|             | cost or market value. At        | Selling prices have remained       | conditions may force
      the           | less than cost of
      our      
|             | this time, any obsolete         | stable despite market              | selling price down
      amongst         | inventory. We
      have         
|             | inventory is written off.       | conditions.                        | competitors; however; we
      will      | continued to
      generate      
|             | The market value could          |                                    | continue to maintain our
      selling   | sales based on
      these       
|             | change due to the success       |                                    | prices as we compensate
      the        | selling prices
      despite     
|             | of technical innovation on      |                                    | difference in price by
      provided    | fluctuation in
      market      
|             | our part or by competitors      |                                    | technical support
      after            | conditions.                      
|             | within the switchgear           |                                    | installation and what
      we           |                                  
|             | market.                         |                                    | believe to be a higher
      lever of    |                                  
|             |                                 |                                    | customer
      service.                  |                                  
|            
|            
|Fixed Assets | We calculate our                | The estimated lives of fixed       | Our fixed assets are
      currently     | We do not foresee
      any      
|             | depreciation using the          | assets are based on guidelines     | being utilized last for
      the length | changes.                         
|             | straight line method based      | provided by Chinese tax            | of the lives we are using
      for      |                                  
|             | on useful lives of the          | authorities. These guidelines      | depreciation.                            |                                  
|             | assets. The useful lives of     | reflect the actual useful lives of |                                          |                                  
|             | the asset could change due      | the assets.                        |                                          |                                  
|             | to technical innovation         |                                    |                                          |                                  
|             | and or other factors and        |                                    |                                          |                                  
|             | we may write off or write       |                                    |                                          |                                  
|             | down obsolete assets.           |                                    |                                          |                                  
|            
|Accrued      | We are subject to income        | Income tax provision is            | Our estimates currently
      have       | Taxes payable
      calculations 
|Liabilities  | taxes in China. The             | calculated based on the            | been in line with the
      actual       | are based on a fixed
      rate  
|(Income Tax) | determination of the tax        | statutory tax rate and level of    | assessment in our tax
      liability.   | which we do not
      foresee    
|             | liability is based on           | operating income. Operating        | Income tax provisions
      are          | to be changed.
      However,    
|             | calculations which are          | income is based on various         | calculated
      monthly.                | our estimates may
      change   
|             | further based on estimates      | estimates we make regarding        |                                          | from time to time and
      this 
|             | such as, for example            | the above mentioned items          |                                          | may affect the income
      tax  
|             | allowances for bad debt.        | which may differ from actual       |                                          | provision. We may
      under    
|             | These estimates may             | results. This calculation is       |                                          | or over remit
      our          
|             | change from time to time        | provided monthly and               |                                          | installments based on
      how  
|             | and the final tax outcome       | installments are made toward       |                                          | our estimates differ
      from  
|             | may increase or decrease        | the tax liability.                 |                                          | actual
      results.            
|             | our income tax expense          |                                    |                                          |                                  
|             | provision made.                 |                                    |                                          |                                  

- 19 -

---

Management's Discussion and Analysis
of Financial Condition and Results of Operation

The following is an analysis of our
revenues and gross profit, details and analysis of components of expenses, and
variance from December 31, 2006 compared to December 31, 2005.

|                         | 2006              | % Sales | 2005              | % Sales
|------------------------ | ----------------- | ------- | ----------------- | -------
|Sales                    | $
      8,080,641 | 100%    | $
      6,840,242 | 100%   
|Cost of Goods
      Sold | 6,654,826         | 82%     | 5,884,153         | 86%    
|Gross Profit             | $ 1,425,815       | 18%     | $ 956,089         | 14%    

Our revenues increased as a result of
marketing strategies we initially implemented in 2003 as a result of losing
significant market share. During this time, the switchgear market was being over
supplied with lower grade, pirated products which were in turn, lower in price.
These products are substantially lesser not only in quality but also in price,
sometime as much as 50% of industry average selling prices. As pricing is an
important method of competition, during this time, we were unable to complete
with others offering a lower price; especially amongst consumers who are first
time purchasers or not familiar with the market.

The increase in revenues granted us
greater purchasing power, enabling us discounts on bulk purchases, thereby
increasing our gross profit. So as long as we sustain our marketing strategies
at currently levels which consist also of providing what we believe to be a
higher level of customer service, we foresee we will continue to receive
referrals through our customers, and resulting increase in revenues. The
effectiveness of our strategies also allows us to maintain our selling prices at
levels which sustain our working capital needs.

We intend on maintaining our marketing
strategies and will monitor, review, and adjust such marketing strategies as
market conditions change.

The following is a summary of the expenses
we incurred during the period. Most expenses increased in line with the increase
in sales except as otherwise noted:

|                                    |          |         | %        |          |         | %       
|----------------------------------- | -------- | ------- | -------- | -------- | ------- | --------
|                                    | 2006     | % Sales | Expenses | 2005     | % Sales | Expenses
|                                   
|Transportation                      | $128,157 | 2%      | 14%      | $83,359  | 1%      | 11%     
|Travel &                            |          |         |          |          |         |         
|Entertainment/Promotion             | 150,092  | 2%      | 17%      | 127,191  | 2%      | 16%     
|Technical Support
      and         |          |         |          |          |         |         
|warranty                            | 23,980   | *       | 3%       | 54,633   | 1%      | 7%      
|Marketing                           | 51,323   | 1%      | 6%       | 17,707   | *       | 2%      
|Salaries, benefits and dues         | 253,899  | 3%      | 28%      | 226,183  | 3%      | 29%     
|Depreciation and
      amortization | 64,653   | 1%      | 7%       | 64,208   | 1%      | 8%      
|Occupancy                           | 101,962  | 1%      | 6%       | 94,007   | 1%      | 12%     
|Office and
      Utilities          | 31,768   | *       | 4%       | 38,407   | 1%      | 5%      
|Other                               | 86,628   | 2%      | 15%      | 86,376   | 1%      | 11%     
|Total
      Expenses                | $897,626 | 11%     | 100%     | $792,071 | 12%     | 100%    

- 20 -

---



|* Less than
1%
|--------------

Transportation costsconsist of delivery to customers and
travel to and from such locations for follow up and on call visits for technical
support. Such costs increased as a result of the PRC imposing further taxes on
fuel and new fees per transportation unit based on the vehicle weight. These
fees were imposed to generate the funds for improvements of roads.

Traveling and
entertainment/promotioncosts increased
as a result of the increase in the number of sales staff hired and their
respective travel to promote our product line to prospective customers. Sales
staff traveled mostly to regions outside of the Guangdong province. Promotion
costs consist of functions held for current and prospective customers for the
purpose of maintaining good client relations with current customers and provide
an opportunity to generate interest by prospective customers. We hope to
generate referrals through our existing customer base.

We also incurred expenses to hold staff
functions during the year in conjunction with training purposes. These expenses
are examined periodically and are reduced when deemed necessary by
management.

Technical support and warrantydecreased as a result of our efforts
expended on quality control measures. We encourage our clients to contact us
with any questions, concerns, comments they have about their product and the
level of our customer service. We have taken the input provided by our clients
and made improvements to our product line and services which has contributed to
the decrease in number of warranty claims.

Technical support costs are incurred
installation wherein we provide information that we believe to be helpful in
understanding their new system and assess and remedy and problems themselves,
should they arise.

Marketingincreased as a result of expenses we incurred consisting of
design, printing of promotional materials, advertising in trade magazines and
billboards and at trade exhibitions. We incurred such costs in the previous year
however we increased the volume of the above noted advertising strategies by
approximately double; targeting at a more dispersed market.

Salaries and benefitsincreased as a result of retaining
additional sales staff in our branch offices and also as a result of rewarding
bonuses to staff. Salary benefits consist of social insurance and union
fees.

Occupancy expensesare not expected to fluctuate as monthly payments are
predetermined as per our lease agreement and any deviation from such amounts are
as a result of increase to maintenance or common area costs. Our office and
manufacturing facilities are leased from July 31, 2004 until April 30, 2006
wherein a new lease was negotiated with our lease to expire April 30, 2009. Our
occupancy cost per month increased by approximately 30% to reflect the change in
the market conditions which have allowed occupancy costs in the area to
increase. We expect our new facilities to be completed September 2007. The
rental market for the facilities we currently occupy is expected to increase and
we will examine sub letting opportunities mind 2007.

Office and Utilitiesdecreased mainly as a result of a recovery received in utility
fees as a result of overpayment made in previous year. Our office expense
increased slightly as we incurred costs for office material for new
staff.

Over the next 12 months, we expect our
expenses to remain relatively the same with the exception of transportation,
travel and entertainment/promotion, and marketing. Given highly competitive
market conditions, we will provide more on-site visits to our customers and
provide all necessary support through either our sales staff or technicians to
provide customer satisfaction. Marketing expenses may increase depending on our
levels of revenues. We may have to alter our strategies in response to the
changing market conditions as dictated by the industry.

Interest Expense, net (2006 - $
30,007 vs. 2005 - $ 40,378)

Interest expense, net decreased as a
result of a repayment of shareholder loans by the issuance of our common and
preferred stock during the year. Interest of 6% is charged on outstanding
shareholder loans. We also incurred interest earned and bank charges on bank
balances only. No interest was incurred as a result of bank loans or other forms
of debt.

Other income, net (2006 - $ 42,613
vs. 2005 - $89,656) and Other expenses, net (2006 - $ 12,784 vs. 2005 $
11,388)



|- 21
-
|------

---

Other income consists of amounts received
from suppliers for compensation of faulty products sold to us. The compensation
consists of amounts reimbursed for defective materials and loss of business. The
matter was settled privately and there are no pending suits against such
suppliers.

Other expenses mainly consist of penalties
paid for late remittances of tax installments. Management is currently reviewing
its methods of remitting in a timely manner.



|Performance
      indicators
|----------------------------

We measure our performance per the
following indicators as set forth below. Our performance is affected by trends
and uncertainties which we have experienced thus far or that we foresee may
occur.

|1. | Achieve sales levels consistently of $ 10,500,000 each
      fiscal year. We expect our sales to increase by approximately 30% as a
      result of the PRC's 11th5 year plan implemented effective 2006. Please see
      above "Trends in the Market".                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   | We project that we will reach our goal by increasing the
      number of our branches offices by a further 10 and employing 2-5 sales
      staff in each office per year.                                                                                                                                                                                                                                                                                                                                                                                            
|  
|2. | Cash flows generated from collection of accounts
      receivables and customer advances (unearned revenues) of $450,000 per
      month.                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|3. | Age of accounts receivable average 3 months. It is
      common in the industry to consider accounts receivables within one year
      old to be current. This is a common perception not only in the industry in
      which we operate but also among other industries. Therefore, decreasing
      our collection period from its current period of approximately 1.5 years
      to three months will be a challenge. However, we may use other tactics
      such as offering discounts to encourage prepayments on contracts in order
      to meet these goals.
|  
|4. | Increase number of our customers to 500. We currently
      have approximately 400 customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|5. | Increase our referral ratio of customers to current
      customers to two. (For every two customers, we receive one
      referral.)                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  

We estimate that approximately 90% of the
customers we service retain us for future contracts. Our goal is to obtain
referrals from our customers, specifically manufacturers and electrical
instillation companies that are licensed by the government. These customers have
their own client bases and, should our products and our customer services be
satisfactory, we anticipate referrals from these sources.



|Current trends in the
      industry
|------------------------------------

Since 2003 we experienced a decrease in
our sales due to the increased supply of lower grade pirated products being
produced. We expect this trend to continue and, in order for us to regain our
market share and increase and surpass revenues levels previously achieved, we
will have to regain our competitive edge by directing resources into product
innovation and refinement, research and development, marketing and advertising.
We will also focus on maintaining good customer relations by providing what we
believe to be a higher level of customer service. We wish to attract new
customers by providing this level of service consistently throughout the life of
the contract.

We have been able to regain our market
share and expect to increase our customer base and level of sales with our
existing methods of marketing, sales staff and customer service we provide. We
view customer service as the most important factor in our marketing
mix.

As mentioned above "Trends in
the Market", with new developments in rural areas, the PRC will be accepting
bids to service such areas to establish electrical networks. We anticipate such
new developments will increase our sales by 40% per year for fiscal 2007 and
2008 year ends and 30% by fiscal 2009 year end. A majority of our sales are
generated through existing customer base by referrals however with these new
developments, we expect a substantial amount of our sales to be generated by
fulfilling PRC contract bids to service rural areas in 2007 though
2009.



|Liquidity and Capital
      ResourcesWorking Capital
      Needs:
|-----------------------------------------------------------------

As of December 31, 2006 we had a working
capital of $ 4,006,662. Not including our plans for construction of new office
facilities, over the next 12 months, we will require approximately $8,800,000 to
sustain our working capital needs as follows based on projected sales of $
10,500,000:



|- 22 -
|------

---

|Materials, Labor,
      Overhead                   | $ 7,800,000
|-------------------------------------------------- | -----------
|Selling Expenses and Administrative
      Expenses | 1,000,000  
|Total                                              | $ 8,800,000



|Sources of
  Capital:
|---------------------

We expect our revenues generated to absorb
these costs; however, if additional capital is needed, we will explore financing
options such as shareholder loans. Shareholder loans are without stated terms of
repayment with interest at the rate of 6% per annum. We will not be considering
taking on any long-term or short-term debt from financial institutions in the
next 12 months. Shareholders loans are granted from time to time as required to
meet current working capital needs. We have no formal agreement that ensures
that we will receive such loans. We may exhaust this source of funding at any
time.

In the past, we have normally been able to
sustain our working capital needs that have surpassed the revenues from sales
through shareholder loans. We expect this source of funding to continue;
however, in the event shareholder loans are no longer granted to us, we may
obtain long or short term financing. As of December 30, 2006, we have received a
total of approximately $ 4,750,000 in shareholder loans of which this balance
was repaid upon the issuance of 3,000,000 common shares and 5,000,000 preferred
shares to our shareholders.

We may also receive capital contributions
from our shareholders.

As of December 31, 2006, we received $
375,852 capital contributions from Science.



|Plans for
  Expansion:
|----------------------

Given sufficient funding, we expect to
expand our operations throughout the region by establishing up to 20 more branch
offices devoted to marketing efforts. Each branch office will have approximately
3-10 full time and part time employees. To sustain new branch offices for 12
months, we will require a total of $200,000 of which $164,000 will be allocated
to salaries and $36,000 allocated to rent. The need for the $200,000 for
expansion is not included in the $ 8,800,000 we require to meet working capital
needs.

We will be occupying our current office
space and manufacturing facilities leased until April 30, 2009 until we have
constructed a new office building on land we leased for 50 years effective
January 2006. The purchase was financed through shareholder loans. No bank loans
were taken out to fund this purchase.

We do not know of any trends, events or
uncertainties that are likely to have a material impact on our short-term or
long-term liquidity other than those factors discussed above.



|Cash
      FlowsOperating
      Activities:
|-------------------------------------------

Our cash flows consumed by operating
activities were $ 928,050 in 2006 and $ 571,656 in 2005. The following
summarizes the inflow and outflow of cash for these periods:

|                                                | 2006            | 2005           
|----------------------------------------------- | --------------- | ---------------
|Net
      Income                                | $
      477,435 | $
      286,134
|Increase in
      accounts receivable           | (355,588)       | (647,339)      
|Decrease (increase) in advances to suppliers    | (1,564,330)     | 28,190         
|Increase in
      inventory                     | (526,371)       | (100,716)      
|Increase in accounts payable                    | 1,127,580       | 541,093        
|Decrease in
      advances from customers       | (21,172)        | (529,443)      
|Other                                           | (65,604)        | (153,213)      
|Net Cash
      Consumed By Operating Activities | $ (928,050)     | $ (575,294)    

- 23 -

---

Cash flow from accounts receivable
decreased compared to 2005 as we settled several customers of which had accounts
older than 1 year. These accounts are on average outstanding for 1 year and it
is common in the industry to consider such accounts current. We normally have
these accounts settled between 1.5 years and 2 years.

Expenditures from advances to suppliers
and accounts payable increased as a result of incurring expenses relating to
construction costs for our new facilities.

We increased our levels of raw materials
in inventory to meet our current and projected production needs.

Our advances from customers decreased as
we generated larger than normal sales which were settled upon completion of
installation. This also contributed to the decrease in accounts receivable
compared with the 2005 level.



|Investing
    Activities:
|-------------------------

Our cash consumed by investing activities
was $ 1,631,464 and $ 373,928 in 2005. We purchased additional production
equipment and office equipment. Our rental deposit increased as a result of the
expiration of our lease agreement in April 2006 wherein we renewed our lease for
a further 3 years until April 2009. As a result of the renewal, we were required
to increase our rental deposit.

The acquisitions of the land use right of
$ 359,240 represents our final obligation on land we leased for a period of 50
years. The total cost of the lease is $ 1,355,566.

The remaining balance of $ 1,191,776
consists of constructing in progress costs which we incurred for constructing
new office and manufacturing facilities. Costs incurred are for land
construction costs consisting of removal of previous facilities and other
relevant costs required for preparation of the land.



|Financing
    Activities:
|-------------------------

Our cash flow provided from financing
activities was $ 4,328,135 in 2006 and $ 101,642 in 2005. In 2005 we obtained by
shareholder loans and capital contributions from Mr. Yulong Guo. These loans are
without stated terms of repayment with interest payable at the rate of 6% per
annum.

In 2006, we repaid our shareholder loans
by the issuance of 3,000,000 common shares to Mr. Guo and Mrs. Chen and
5,000,000 preferred shares to Mr. Guo.

We received $ 375,852 capital
contributions from Science.



|Material
      Commitments
|--------------------------

We do not have any material commitments
for capital expenditures other than what discussed relating to construction of
our new facilities. We have title to all our capital assets consisting of
production equipment, automobiles, and office equipment.

We have lease commitments effective July
31, 2004 through April 30, 2009 for the lease of our Principal Business Office
described below under "Description of
Property". Lease payments are approximately $
10,227 per month.

The minimum future rental payments
required under the above operating lease are as follows:

2007
    $122,7252008
    $122,7252009
    $40,908


- 24 -

---



|Seasonal
      Aspects
|----------------------

Our business is seasonal in that sales are
particularly low in February, due to the Chinese New Year holiday, during which
time our business is closed up to 2 weeks. Sales in March are usually higher
than usual levels as a result.



|Off Balance Sheet
      ArrangementsWe have no off
      balance sheet arrangements.
|------------------------------------------------------------------------------------

- 25 -

---

|ITEM 7.                                                          | FINANCIAL
      STATEMENTS |     
|---------------------------------------------------------------- | -------------------------- | ----
|                                                                
|December 31, 2006 and
      2005                                 |                           
|                                                                 |                            | Page
|                                                                
|Accountant's Audit
      Report                                  | F-1                       
|Consolidated Balance Sheets                                      | F-2                       
|Consolidated Statements of
      Operations and Earnings         |                           
|Accumulated                                                      | F-3                       
|Consolidated Statements of
      Changes in Stockholders' Equity | F-4                       
|Consolidated Statements of Cash
      Flows                      | F-5                       
|Notes to Consolidated
      Financial Statements                 | F-6                       

- 26 -

---

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM



|Board of DirectorsAsia Electrical Power International Group,
      Inc.
|-----------------------------------------------------------------------

I have audited the accompanying
consolidated balance sheet of Asia Electrical Power International Group, Inc. as
of December 31, 2006, and the related consolidated statements of Income and
comprehensive income, changes in stockholders' equity, and cash flows for the
years ended December 31, 2006 and 2005. These financial statements are the
responsibility of the Company management. My responsibility is to express an
opinion on these financial statements based on my audits.

I conducted the audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that I plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The Company is not required to have, nor was I engaged to
perform, an audit of its internal control over financial reporting. My audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate under the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, I express no
such opinion. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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.
I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the
financial position of Asia Electrical Power International Group, Inc. as of
December 31, 2006, and the results of its operations and cash flows for the
years ended December 31, 2006 and 2005 in conformity with U.S. generally
accepted accounting principles.



|/s/Robert G.
  Jeffrey
|----------------------

ROBERT G. JEFFREY, Certified Public
Accountant



|April 2, 2007Wayne, New Jersey
|------------------------------



|-F1-
|----

- 27 -

---

**ASIA ELECTRICAL POWER
INTERNATIONAL GROUP INC. CONSOLIDATED BALANCE SHEETDecember 31,
2006**

|ASSETS                                                                           |            
|-------------------------------------------------------------------------------- | -----------
|Current
      Assets:                                                            |            
|Cash                                                                             | $2,087,766 
|Accounts
      receivables, net of provision for doubtful accounts               | 1,878,453  
|Other receivables                                                                | 151,447    
|Advances to
      suppliers                                                      | 1,743,538  
|Inventory                                                                        | 1,826,681  
|Total current
      assets                                                       | 7,687,885  
|Fixed
      Assets:                                                              |            
|Land use
      right                                                             | 1,355,566  
|Production equipment                                                             | 161,682    
|Office
      equipment                                                           | 85,061     
|Vehicles                                                                         | 304,277    
|Construction
      in progress                                                   | 1,191,776  
|                                                                                 | 3,098,362  
|Less accumulated depreciation                                                    | 274,662    
|Net fixed assets                                                                 | 2,823,700  
|Other Assets:                                                                    |            
|Rental deposit                                                                   | 27,456     
|Deferred taxes
      recoverable                                                 | 40,446     
|Total other assets                                                               | 67,902     
|Total
      Assets                                                               | $10,579,487
|                                                                                
|LIABILITIES AND
      STOCKHOLDERS' EQUITY                                       |            
|                                                                                
|Current
      Liabilities:                                                       |            
|Accounts payable                                                                 | $ 2,815,319
|Advances from
      customers                                                    | 706,004    
|Accrued liabilities                                                              | 117,676    
|Other
      liabilities                                                          | 42,224     
|Total current liabilities                                                        | 3,681,223  
|                                                                                
|Minority
      interest                                                          | 373,894    
|                                                                                
|Stockholders'
      Equity:                                                      |            
|Common stock:
      authorized 150,000,000 shares of $0.001                      |            
|par value; issued and outstanding 51,000,000
      shares                        | 51,000     
|Preferred
      stock: authorized 5,000,000 shares of $ 0.001 par                |            
|value; issued and outstanding 5,000,000
      shares                             | 5,000      
|Capital in
      excess of par value of common stock                             | 1,451,260  
|Capital in excess of par value of preferred
      stock                          | 3,995,000  
|Retained
      earnings                                                          | 792,904    
|Earnings appropriated for statutory reserves                                     | 190,025    
|Accumulated
      other comprehensive income                                     | 39,181     
|Total stockholders' equity                                                       | 6,524,370  
|Total
      Liabilities and Stockholders' Equity                                 | $10,579,487
|The accompanying notes are
      an integral part of these financial statements. |            
|-F2-                                                                            

- 28 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.CONSOLIDATED STATEMENTS OF
INCOME AND COMPREHENSIVE INCOME For the Years Ended December 31, 2006 and
2005

|                                                    | 2006       | 2005      
|--------------------------------------------------- | ---------- | ----------
|                                                   
|Revenue                                             | $8,080,641 | $6,840,242
|Cost of Sales                                       | 6,654,826  | 5,884,153 
|Gross
    Profit                                    | 1,425,815  | 956,089   
|                                                   
|Expenses:                                           |            |           
|Selling and Administrative
    Expenses             | 897,626    | 792,072   
|Operating
    Income                                | 528,189    | 164,017   
|                                                   
|Other Income
      and Expense:                     |            |           
|Other
      Income                                  | 42,613     | 86,019    
|Subsidy Income                                      | -          | 112,013   
|Interest
      Expense                              | (30,007)   | (40,378)  
|Other Expense                                       | (12,784)   | (11,388)  
|Minority
      Interest                             | 1,958      | -         
|                                                   
|                                                   
|Income Before
      Income Taxes                    | 529,969    | 310,283   
|                                                   
|Provision for Income
      Taxes:                   |            |           
|Current
      Provision                             | 60,983     | 56,146    
|Less Accrual of Deferred Tax
    Asset              | (8,449)    | (31,997)  
|Net Tax Provision                                   | 52,534     | 24,149    
|                                                   
|Net income                                          | 477,435    | 286,134   
|                                                   
|Other comprehensive income - foreign
      currency |            |           
|translated
      adjustments                        | 35,543     | 3,638     
|                                                   
|Total comprehensive
      income                    | $ 512,978  | $ 289,772 
|                                                   
|Income Per
      Share -                            |            |           
|Basic and
      Diluted                             | $ .02      | $ .01     
|                                                   
|Weighted average                                    |            |           
|Number of shares                                    |            |           
|Outstanding                                         | 26,250,000 | 24,000,000

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



|-F3-
|----

- 29 -

---

|ASIA ELECTRICAL POWER INTERNATIONAL GROUP
      INC.            
|----------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN
      STOCKHOLDERS' EQUITY
|For the Years Ended December 31, 2006, and
      2005           
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Balance January 1,
      2005                                   
|                                                                
|Interest imputed
      on                                       
|shareholder loan                                                
|Additional
      capital                                        
|contributions                                                   
|Net income
      for                                            
|period                                                          
|Allocation of                                                   
|statutory                                                       
|                                                                
|Balance, December                                               
|31, 2005                                                        
|Issuance of stock split                                         
|Issuance of
      common                                        
|shares                                                          
|Issuance of
      preferred                                     
|shares                                                          
|Net income
      for                                            
|period                                                          
|Allocation of                                                   
|statutory reserve                                               
|                                                                
|Balance, December                                               
|31, 2006                                                        
|                                                                
|                                                                

-F4-

- 30 -

---

|ASIA
      ELECTRICAL POWER INTERNATIONAL GROUP INC.                                 
|-------------------------------------------------------------------------------------
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS                                          
|For the Years
      Ended December 31, 2006 and 2005                                 
|                                                                                     
|CASH FLOWS
      FROM OPERATIONS:                                                    
|Net
      income                                                                     
|Charges (credits) not
      involving the receipt or outlay                          
|Depreciation and
amortization                                                        
|Interest imputed on shareholder advances                                             
|Accrual of deferred tax
asset                                                        
|Provision for minority interest in earnings                                          
|Changes in assets and liabilities:                                                   
|Increase in accounts receivable                                                      
|Increase in other
receivables                                                        
|Decrease (increase) in advances to suppliers                                         
|Increase in inventory                                                                
|Increase in accounts payable                                                         
|Decrease in advances from
    customers                                              
|Increase (decrease) in accrued liabilities                                           
|Increase (decrease) in other
    payables                                            
|Net Cash Consumed
      By                                                           
|Operating Activities                                                                 
|                                                                                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                
|                                                                                     
|Expenditures for construction in progress                                            
|Purchases of fixed
      assets                                                      
|Increase in rental deposit                                                           
|Acquisition of land use
      right                                                  
|Net Cash Consumed By                                                                 
|Investing Activities                                                                 
|                                                                                     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                
|Capital contributions                                                                
|Issuance of common
      stock                                                       
|Issuance of preferred stock                                                          
|Advances (repayments) from
      (to) shareholder                                    
|Capital contribution to minority owned VIE                                           
|Net Cash Provided
      By                                                           
|**Financing Activities**                                                             
|                                                                                     
|Cash
      effect of other comprehensive income                                      
|Net change in
    cash                                                               
|Cash
      balance, beginning of period                                              
|                                                                                     
|Cash
      balance, end of period                                                    
|                                                                                     
|                                                                                     
|The
      accompanying notes are an integral part of these financial
      statements

-F5-

- 31 -



---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006



|1.          
      ORGANIZATION and BUSINESS
|--------------------------------------------



| | Organization of
      Company
| | -----------------------------

The Company was incorporated in the State
of Nevada on August 30, 2002 as Berita International Corporation, for the
purpose of producing high and mid-voltage electrical switchgears in the People's
Republic of China (China). On December 24, 2003, the Company changed its name to
Keiji International Group Inc. (Keiji) and on September 30, 2004 the Company
changed its name to Asia Electrical Power International Group Inc.
(AEPI).

On January 23, 2003, the Company entered
into a Share Exchange Agreement (the Agreement) to exchange 24,000,000 of it
shares for all of the equity interests of Shenzhen Naiji Electrical Equipment
Co., Ltd. (Naiji), a company incorporated in China. This transaction has been
accounted for as a reverse merger, with Naiji treated as the acquiring company.
As a result of the merger, prior financial information has been restated.
Subsequent to that date, the operations of the Company reflect the combined
operations of the Company and Naiji. The Company had no assets or liabilities on
the date of the merger, so no allocation of the purchase price was made. As a
further result of the merger, the shareholders of Naiji became the shareholders
of AIPI.

Shenzhen Naiji Science and Technology Co.
Ltd. (Science) is a corporation organized during 2006 under the laws of China.
It is considered a Variable Interest Entity (VIE) under the provision of FASB
Interpretation No. 46R (FIN 46R), "Variable Interest Entities," as its sole
shareholder is the president of Naiji and a principal shareholder of AEPI. Its
principal activity has been raising capital and making advances to or on behalf
of AEPI.



| | Business
| | --------

Naiji was incorporated in June 1997. All
of its operations and sales are within China. The Company has produced high and
mid-voltage electrical switchgears since its inception. Prior to the merger with
Naiji, the Company had no operating history and had no assets, liabilities, or
equity and had not issued any of its shares. As a result of entering into the
Agreement, the shareholders of Naiji became the shareholders of the
Company.



| | Risks and Uncertainties
| | -----------------------

The Company operates under authority of a
business license which was granted June 20, 1997. This license must be renewed
every ten years. Renewal of the license depends on the result of government
inspections which are made to ensure environmental laws are not
breeched.

The officers of the Company control,
through a combination of direct ownership and a shareholder trust, all of the
outstanding stock of the Company. As a result, insiders will be able to control
the outcome of all matters requiring stockholder approval and will be able to
elect all of the Company directors.



|-F6-
|----

- 32 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006

2.           SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



| | Consolidated
      Statements
| | -----------------------------

The consolidated financial statements
include the accounts of the Company, its wholly owned subsidiary, Naiji, and the
accounts of Science. All significant intercompany balances and transactions have
been eliminated in consolidation.



| | Cash
| | ----

For purposes of the statements of cash
flows, the Company considers all short term debt securities purchased with a
maturity of three months or less to be cash equivalents.



| | Concentrations Of Credit
      Risk
| | -----------------------------------

Financial instruments which potentially
subject the Company to concentrations of credit risk consist primarily of cash.
However all Company assets are located in China, and Company cash balances are
on deposit at a financial institution in China, the currency of which is not
free trading. Foreign exchange transactions are required to be conducted through
institutions authorized by the Chinese government and there is no guaranty that
Chinese currency can be converted to U.S. or other currencies.



| | Recognition Of
    Revenue
| | --------------------------

Revenue is recognized when product is
delivered to customers. In determining delivery, consideration is given to the
following: whether an arrangement exists with the buyer; whether delivery has
occurred; whether the price to the buyer is fixed or determinable; and that
collection is reasonably assured. No provision is made for any right of return
that may exist as the criteria specified in Statement of Financial Accounting
Standards (SFAS) No. 48 have been met.



| | Fair Value Of Financial
      Instruments
| | -----------------------------------------

The carrying amounts of the Company's
financial instruments, which include cash, accounts receivable, other
receivables, advances to suppliers, accounts payable, accrued liabilities, and
other liabilities, approximate their fair values at December 31,
2006.



|-F7-
|----

- 33 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006

2.               
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)



|Inventories
|-----------

Inventories are valued at the lower of
cost or market, with cost being determined on the first in first out
basis.

At December 31, 2006 inventories consisted
of the following:

|Raw materials        | $1,068,819
|-------------------- | ----------
|Work in process      | 381,034   
|Finished
      goods | 376,828   
|Total                | $1,826,681



|Fixed
  Assets
|--------------

Fixed assets are recorded at cost.
Depreciation is computed using the straight line method, with lives of ten years
for production equipment and five years for office furniture and equipment and
for automobiles.



|Income
  Taxes
|--------------

Naiji generates its income in China where
Value Added Tax, Income Tax, City Construction and Development Tax and Education
Surcharge taxes are applicable. Neither AEPI, Naiji, nor Science conduct any of
its operations in the U.S.; therefore, U.S. taxes are not applicable.



|Use Of
  Estimates
|------------------

The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimated.



|Advertising
  Costs
|-------------------

The Company will expense advertising costs
when the advertisement occurs. Approximately $51,000 of advertising costs were
incurred during 2006, and $15,000 were incurred in 2005.



|Allowance For Doubtful
      Accounts
|-------------------------------------

Provisions are periodically made for
doubtful accounts based on evaluation of the ages of the items making up the
accounts receivable balances and their creditworthiness.



|-F8-
|----

- 34 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006

2.               
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)



|Other Comprehensive
      Income
|--------------------------------

The Company reports as other comprehensive
income revenues, expenses, and gains and losses that are not included in the
determination of net income. Resultant gains during the years 2006 or 2005
amounted to $31,905 and $3,638, respectively.



|Foreign Currency
      Translation
|----------------------------------

All Company assets are located in China.
These assets and related liabilities are recorded on the books of the Company in
the currency of China (Renminbi). They are translated into US dollars as
follows:

|(a) | Current assets, current
      liabilities and long term monetary assets and liabilities, at the rate of
      exchange in effect as at the balance sheet date;  
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) | Non-monetary assets and
      liabilities at the exchange rates prevailing at the time of the
      acquisition of the assets or assumption of liabilities; and,
|   
|(c) | Revenues and expenses, at the
      average rate of exchange for the year.                                                                                      
|   

Gains and losses arising from this
translation of foreign currency will be included in other comprehensive
income.



|Product
  Warranties
|--------------------

The Company provides product warranties
for approximately ten percent of the products sold. The cost of servicing these
warranties has not been significant and it is recorded only as
incurred.



|Net Income Per
    Share
|------------------------

The Company computes net income (loss) per
common share in accordance with SFAS No. 128, "Earnings Per Share" and SEC Staff
Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and
SAB 98, basic and diluted net income per common share are computed by dividing
the net income available to common shareholders for the period by the weighted
average number of shares of common stock outstanding during the period. The
number of weighted average shares outstanding as well as the amount of net
income per share are the same for basic and diluted per share calculations for
all periods reflected in the accompanying financial statements. At December 31,
2006, there were no options outstanding.



|Segment
  Reporting
|-------------------

Management will treat the operations of
the Company as one segment.



|-F9-
|----

- 35 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006

2.              
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Research and Development

Research costs are expensed as incurred.
Development costs are also expensed unless, in the Company's view, they meet
specific criteria related to technical, market and financial feasibility, in
which case they are deferred and amortized. Amortization is calculated on a
straight-line basis over the expected lives of the related products. Through
December 31, 2006, the Company had not incurred any research costs which would
be required to be amortized. Research and development expenses in 2006 were
approximately $16,000 and in 2005 were approximately $12,000.

3.               
STATUTORY RESERVE

The Company allocates 10% of its previous
year's after tax profits, if any, to the Statutory Reserve Fund and 5% to the
Statutory Public Welfare Fund as determined from year to year. These funds are
allocated appropriately until reserves reach 50% of Paid in Capital.



|4.                
      ACCOUNTS RECEIVABLE
|--------------------------------------------

The balance of accounts receivable has
been reduced by a provision for doubtful accounts in the amount of
$302,973.



|5.                
      LAND USE RIGHT
|---------------------------------------

On September 7, 2004, Naiji entered into
an agreement to lease 3.77 hectares of land from the Government of China for a
period of 50 years. The total lease price at the time was $ 1,074,420. Later,
Naiji was required to make additional payment to compensate the former owners
for loss of business use of the land. As a result, the total cost was increased
to $1,355,665. This amount has been fully paid.



|6.               
       RELATED PARTY TRANSACTIONS
|---------------------------------------------------

Our shareholders advanced $2,816,513 to
Naiji, $2,018,797 of it during 2006 and $39,723 during 2005. These advances were
subsequently repaid by the issuance of 3,000,000 common shares and 5,000,000
preferred shares.

The president of Naiji provides office
space in Vancouver without charge. If rent were charge for this space, it would
be insignificant.

-F10-

- 36 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006

7.                  
RENTALS UNDER OPERATING LEASES

The Company conducts its operations from
its principal business office in Shenzhen China. This space is leased under an
operating lease which expires in April 2009. The Company also has administrative
branch offices throughout the China region and this space is rented from month
to month. Rental expense during 2006 and 2005 was $101,962 and $94,007,
respectively.

A Vancouver office is provided by the
president of Naiji, which to date has been rent free. If rent were charged for
this space, it would be insignificant.

The minimum future rental payments
required under the above operating lease are as follows:

2007
    $122,7252008
    $122,7252009
    $40,908


8.                 
INCOME TAXES

A reconciliation of the tax calculated by
applying the Chinese statutory tax rate to pretax income with the provisions for
income taxes is presented below.

|                                               | 2006    | 2005    
|---------------------------------------------- | ------- | --------
|Tax calculated using
      statutory rate      | $79,202 | $47,088 
|Increase attributable to nondeductible expense | 8,411   | 9,058   
|                                              
|Tax provision                                  | 87,613  | 56,146  
|Less accrual of deferred
      tax asset       | (8,449) | (31,997)
|                                              
|Net provision                                  | $52,534 | $24,149 

Under Statement of Financial Accounting
Standards No. 109, recognition of deferred tax assets is permitted unless it is
more likely than not that the asset will not be realized. The Company has
provided in 2006 for a number of expenses on the books which are different in
timing from their deductibility for income taxes. The principal item among them
is a provision for bad debts. The tax effects of these expenses have been
accrued as deferred tax assets.

-F11-

- 37 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2006



|9.                
      EXPENSES
|---------------------------------

Major items included in Selling &
Administrative expenses were the following:

|                                     | 2006     | 2005    
|------------------------------------ | -------- | --------
|                                    
|Transportation                       | $128,157 | $ 83,359
|Travel and Promotion                 | 150,092  | 127,191 
|Technical Support and
      warranty | 23,980   | 54,633  
|Marketing                            | 51,323   | 17,707  
|Salaries, benefits and
      dues    | 253,899  | 226,183 
|Depreciation and amortization        | 64,653   | 64,208  
|Occupancy                            | 101,962  | 94,007  
|Office and Utilities                 | 31,768   | 38,407  
|Other                                | 86,628   | 86,376  
|Total Expenses                       | $892,462 | $792,071

10.                SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS INFORMATION

There was no cash paid for interest during
either of the periods presented.

Cash was paid for income taxes in the
amounts of $ 22,355 in 2006 and $62,350 in 2005. There were no non cash
investing or financing activities during either of the periods
presented.

11.               
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

None of the recently adopted accounting
pronouncements will have a material affect on the Company financial position,
results of operations, or cash flows.



|12.              
      CONTINGENCIES
|-------------------------------------

Consistent with business practices in
China, the Company carries no insurance except for auto insurance.



|-F12-
|-----

- 38 -

---

|ITEM
      8  | **CHANGES IN AND
      DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      STATEMENTS**
|------------- | ----------------------------------------------------------------------------------------------------
|              |                                                                                                     
|None.         |                                                                                                     
|             
|ITEM
      8A | CONTROLS AND
      PROCEDURES                                                                       

Evaluation of Disclosure Controls
and Procedures.The Securities and Exchange Commission defines the term
"disclosure controls and procedures" to mean a company's controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the time periods
specified in the Commission's rules and forms. Our chief executive officer and
chief financial officer have concluded, based on the evaluation of the
effectiveness of the disclosure controls and procedures by our management, with
the participation of our chief executive officer and chief financial officer, as
of the end of the period covered by this report, that our disclosure controls
and procedures were effective for this purpose, except as noted below under
"Changes in Internal Controls."

Changes in Internal
Controls.As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Accounting Officer, of the
effectiveness of the design and operation of our disclosure and procedures (as
defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that
evaluation, our Chief Executive Officer and Chief Accounting Officer concluded
that as of the end of the period covered by this Annual Report on Form 10-KSB
our disclosure controls and procedures were effective to enable us to accurately
record, process, summarize and report certain information required to be
included in the Company's periodic SEC filings within the required time periods,
and to accumulate and communicate to our management, including the Chief
Executive Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosure.

There were no changes in our internal
control over financial reporting that occurred during the most recent fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

Prior to the issuance of our financial
statements, we completed the account reconciliations, analyses and our
management review such that we can certify that the information contained in our
financial statements for the year ended December 31, 2005, fairly presents, in
all material respects, the financial condition and results of operations of the
Company.

Limitations on Effectiveness of
Controls and Procedures.Our management, including our Chief Executive
Officer and Chief Accounting Officer, does not expect that our disclosure
controls and procedures or our internal controls will prevent all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include, but are not limited to, the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions, or the degree
of compliance with the policies or procedures may deteriorate. Because of the
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

- 39 -

---

|ITEM
      8B.                                     | OTHER
      INFORMATION                                            
|-------------------------------------------------- | -------------------------------------------------------------------
|None.                                              |                                                                    
|PART III                                          
|ITEM
      9.                                      | DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
|COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE
ACT

The following table sets forth certain
information regarding our directors, executive officers and certain key
employees as of December 31, 2006:

|Name                  | Age | Position                        | Period
      Serving      | Term (1) |       
|--------------------- | --- | ------------------------------- | ------------------------- | -------- | ------
|Yulong
      Guo      | 45  | CEO, President,
      Director, | September 1,
      2006 - |          | 1 year
|                      |     | Treasurer                       | August 31,
    2007       |          |       
|                     
|****Xiaoling
Chen**** | 41  | Secretary, Chief                | September 1, 2006 -       |          |       
|                      |     | Accounting Officer              | August 31, 2007           |          | 1 year
|                     
|**Dudley Delapenha**  | 74  | Director                        | September 1,
      2006 - |          |       
|                      |     |                                 | August 31, 2007           |          | 1 year
|                      |     |                                 |                           |          |       



|Duties, Responsibilities and
      Experience
|---------------------------------------------

Yulong Guo is our CEO, President, Director, and Treasurer. Mr. Guo was
appointed as President in August 2002 and is responsible for implementing our
investment projects, financial budgets and forecasts, overseeing research and
development and human resources and marketing.

Mr. Guo is also responsible for our
overall direction and various initiatives as needed from time to time in
maintaining our company. Mr. Guo is currently overseeing our marketing and
public relations efforts in maintaining current customers and attracting new
clientele.

From our inception in 1997 to August 2002,
Mr. Guo was our General Manager and was responsible for research and
development.

From November 1983 through May 1992 Mr.
Guo worked with Shenzhen Far East Biscuit (China) Company as the Manager of
Delivery and Storage Department responsible for logistics. The company was
engaged in production and sales of the "Kangyuan" brand biscuit.

From March 1993 through May 1997 Mr. Guo
worked with Shenzhen Tongke Real Estate Co., Ltd. as General Manager and was
responsible for running day-to-day operations and the company's financial
management.

Mr. Yulong Guo received his associate
degree in Electrical Mechanisms in 1980 from the Military Collage of the Chinese
People's Liberation Army.

Xiaoling Chen is our Secretary and Chief Accounting Officer. Mrs. Chen has
been our Administrative Manager since 2000. Her responsibilities include general
and administrative work, marketing and communications, and human resources. Mrs.
Chen also manages the staff and is also responsible for ensuring that operations
are run efficiently.

From September 1995 to September 2000 Mrs.
Chen worked for Shenzhen Libao Electronic Equipment Development Co., Ltd. as the
General Office Director. The company was engaged in production, assembling and
sales of closed-circuit monitor equipment. Her responsibilities included general
administrative work, marketing and communications and human
resources.

- 40 -

---

From August 1985 to August 1995 Mrs. Chen
worked for Shenzhen Far East Biscuit (China) Co. Ltd., as the General Office
Director along with Mr. Guo. Her responsibilities included general
administrative work, communications-specifically with government agencies, and
human resources.

Mrs. Chen received an associate degree in
Business Administration from the University of Zhongshang in 1994. In 1995 Mrs.
Chen held the "Political and
Ideological" post, a certification of Office
Administration Procedures and Communications and continues to hold this post to
date.

There are no arrangements or
understandings between any of our directors or executive officers, pursuant to
which either was selected to be a director or executive officer, nor are there
any family relationships among any of our directors and officers. Directors and
executive officers are elected by the Board of Directors on an annual
basis.

Dudley Delapenha
was appointed as a director effective December 21, 2006.
Mr. Delapenha is currently performing the equivalent functions of an audit
committee, who has not been determined to be an "audit committee financial
expert." See below.

From 1998 to 2000, Mr. Delapenha was the
marketing director for Avani Water Corporation, of Vancouver, British Columbia,
a bottled water manufacturer company, where he was responsible for all marketing
initiatives for the organization. From 2001 through 2003, Mr. Delapenha was the
President of Key Elements Consulting, specializing in marketing and business
plans preparation for various clients.

Mr. Delphenha is the director, CEO and CFO
of one other reporting issuer, being Smokers Lozenge Inc.

Mr. Delphenha does not have a family
relationship with any other director or executive officer of the
Company.



|Family
  Relationships
|----------------------

There are no family relationships among
any of our directors and executive officers.



|Involvement In Legal
      Proceedings
|--------------------------------------

To the best of our knowledge, there is no
material proceeding to which any director, officer or affiliate of the Company,
any owner of record or beneficially of more than 5% of any class of voting
securities of the Company, or security holder is a party adverse to the Company
or has a material interest adverse to the Company or any of its
subsidiaries.

To the best of our knowledge, during the
past five years, none of our directors or executive officers were involved in
any of the following: (1) any bankruptcy petition filed by or against any
property or business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that
time; (2) any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (3)
being subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending, or otherwise limiting his
involvement in any type of business, securities or banking activities; or (4)
being found by a court of competent jurisdiction (in a civil action), the SEC,
or the Commodities Futures Trading Commission to have violated a federal or
state securities or commodities law, and the judgment has not been reversed,
suspended, or vacated.

Investor
Relations

We have engaged an investor
relations professional, Equicom Management Corporation ("Equicom"). EquiCom is a
consultancy specializing in financial communications and investor information
for emerging growth companies, headquartered in Vancouver, B.C., Canada, with an
office in New York, N.Y. EquiCom is assisting the preparation of its required
English-language documents including all communications submitted to the NASD
through our market maker and ongoing liaison with broker-dealers. The
professional services of EquiCom were engaged by us July 2005 for a contract fee
of US$5,000 per month commencing on August 15, 2005. EquiCom is preparing a
program on behalf of us to generate awareness across the investment community
including producing all appropriate due diligence documentation necessary and
will be our ongoing representative North America for purposes of corporate
liaison with shareholders and investors.



|Audit
  Committee
|-----------------

We do not currently have a standing audit
committee. The Company's Chief Executive Officer is actively researching
candidates for membership on the Board of Directors who would be "independent"
and who, accordingly, could serve on an audit committee. The board member who is
currently performing the equivalent functions of an audit committee is Dudley
Delapenha, who has not been determined to be an "audit committee financial
expert."

- 41 -

---



|Audit Committee Financial
      Expert
|--------------------------------------

We do not have an audit committee
financial expert serving on the audit committee. Under the applicable Securities
and Exchange Commission standard under Item 401(e) of Regulation S-B, an audit
committee financial expert means a person who has the following
attributes:

- An understanding of generally accepted accounting
  principles and financial statements;
- The ability to assess the general application of
  such principles in connection with the accounting for estimates, accruals and reserves;
- Experience preparing, auditing, analyzing or
  evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally
  comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's
  financial statements, or experience actively
  supervising one or more persons engaged in such activities;
- An understanding of internal controls and
  procedures for financial reporting; and
- An understanding of audit committee
  functions.

Compliance with Section 16(a) of the
Securities Exchange Act of 1934

Section 16(a)of the Exchange Act requires
our officers and directors, and persons who own more than 10% of the its common
stock, to file reports of ownership and changes of ownership of such securities
with the United States Securities and Exchange Commission. As of the year ended
December 31, 2006, our officers and directors and person who own more than 10%
of our common stock filed timely section 16 related forms.



|Code of
  Ethics
|----------------

We do not have a code of ethics and expect
to develop a code of ethics in the next 12 months.

Material Changes to Nominations by
Security Holders of Director Candidates

In the past fiscal year, there has been no
material change to the procedures by which security holders may recommend
nominees to the small business issuer's board of directors.



|DIRECTORS'
  COMPENSATION
|-------------------------

Our Directors are paid on a salary basis
and do not receive compensation for serving on the Board of Directors. Directors
are reimbursed for any expenses incurred on behalf of the Company.



|ITEM
      10.                   
      EXECUTIVE COMPENSATION
|--------------------------------------------------------------

The table below summarizes all
compensation awarded to, earned by, or paid to our executive officers by any
person for all services rendered in all capacities to us for the fiscal year
ended December 31, 2006 and December 31, 2005.

- 42 -

---

|         |               |      | LONG TERM
      COMPENSATION |       |              |                |     
|-------- | ------------- | ---- | ---------------------------- | ----- | ------------ | -------------- | ----
|         |               |      |                              |       |              | RESTRICTED     |     
|         |               |      |                              |       |              | OPTION         |     
|         |               |      |                              |       | OTHER ANNUAL | STOCKS/PAYOUTS | SARS
|NAME     | TITLE         | YEAR | SALARY                       | BONUS | COMPENSATION | AWARDED        | ($) 
|        
|Yulong   | President,    | 2006 | $5,800                       | -0-   | -0-          | -0-            | -0- 
|Guo      | CEO and       |      |                              |       |              |                |     
|         | Director      |      |                              |       |              |                |     
|         |               | 2005 | $5,800-                      | -0-   | -0-          | -0-            | -0- 
|        
|Xiaoling | Secretary,    | 2006 | $4,400                       | -0-   | -0-          | -0-            | -0- 
|Chen     | CAO
      and |      |                              |       |              |                |     
|         | Director      |      |                              |       |              |                |     
|         |               | 2005 | $4,400                       | -0-   | -0-          | -0-            | -0- 

We presently do not have any compensation
agreement with either Mrs. Guo or Ms. Chen.We do not pay to ourdirectors any compensation for each director serving as a
director on our board of directors.

The salaries paid to Mr. Guo and Mrs. Chen
were initially based upon salary industry guidelines determined by the market;
however, as market rates for such salaries increased over time, Mr. Guo and Mrs.
Chen waived their salary increases for the purpose of retaining funds in the
Company in order to meet working capital needs.



|Stock Option
Grants
|-------------------

We have not granted any stock options to
our executive officers since our incorporation.



|Consulting
  Agreements
|-----------------------

We do not have any employment or
consulting agreement with any of our officers or directors and we will not pay
our directors any amount for acting on the Board of Directors.

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

The following table sets forth as of April
16, 2007 certain information regarding the beneficial ownership of our common
stock by:

|1. | each person who is known us to be
      the beneficial owner of more than 5% of the common stock,
|-- | -------------------------------------------------------------------------------------------------
|  
|2. | each of our directors and
      executive officers, and                                          
|  
|3. | all of our directors and
      executive officers as a group.                                    
|  

- 43 -

---

The persons or entities listed below have
sole voting and investment power with respect to all shares of common stock
beneficially owned by them, except to the extent such power may be shared with a
spouse. No change in control is currently being contemplated.

As of April 16, 2007, 51,000,000 shares
with a par value of $0.001 per share were issued and outstanding. We are
authorized to issue 150,000,000 shares with a par value of $0.001 per
share.

|                                                                       | Name and Address                  | of Amount and Nature of |            
|---------------------------------------------------------------------- | --------------------------------- | ----------------------- | -----------
|Title of Class                                                         |                                   |                         | % Class (1)
|                                                                       | Beneficial Owner                  | Beneficial Owner        |            
|Officers and
      Directors:                                          |                                   |                         |            
|Common Stock                                                           | XiaoLing Chen                     | 5,300,000               | 10.39%     
|                                                                      
|                                                                       | No.
      16, Nanhai Rose Garden, |                        
|                                                                       | Shekou, Nanshan District,         |                         |            
|                                                                       | Shenzhen, Guangdong               |                         |            
|                                                                       | Province, China                   |                         |            
|                                                                      
|Common Stock                                                           | YuLong Guo                        | 23,925,100              | 46.91%     
|                                                                      
|                                                                       | No. 9
      Nanhai Rose Garden,   |                         |            
|                                                                       | Shekou, Nanshan District,         |                         |            
|                                                                       | Shenzhen, Guangdong               |                         |            
|                                                                       | Province, China                   |                         |            
|                                                                      
|Officers and Directors as a Group                                      |                                   | 29,225,100              | 57.3%      
|                                                                      
|5%
      Shareholder:                                                  |                                   |                         |            
|Common Stock                                                           | Ying Yang                         | 4,600,000               | 9.02%      
|                                                                       | A201,
      Xiangjingge, Xianqi   |                         |            
|                                                                       | Garden, Baishizhou, Shenzhen      |                        
|                                                                       | City,
      Guangdong Province,   |                         |            
|                                                                       | China                             |                         |            
|                                                                      
|Total
      Officers, Directors and                                    |                                   | 33,825,100              | 66.32%     
|5%
      shareholder                                                   |                                   |                         |            
|                                                                      
|(1)
      Based on 51,000,000 shares outstanding as of April 16, 2007. |                                  

ITEM
12.               
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On January 23, 2003, we entered into the
Agreement with Naiji, whereby we acquired all the issued and outstanding stock
of Naiji in return for 24,000,000 shares of our common stock. As a result, Naiji
became our wholly-owned subsidiary. The shareholders of Naiji unanimously agreed
to enter into the Agreement for the purposes of restructuring itself in
anticipation of becoming listed on the OTC Bulletin Board. AEPI was formed by
Naiji for this purpose and prior to entering into the Agreement; we had no
assets, liabilities, equity and had not issued any of our shares. As a result of
entering into the Agreement; the shareholders of Naiji became the shareholders
of AEPI in equal proportion wherein the 24,000,000 shares were allocated based
on the capital contributions, or ownership of Naiji. The Agreement therefore was
a non-arms length transaction.

On December 22, 2006, 5,000,000 shares of
preferred stock, par value $0.001, were allotted and issued to our President,
Yulong Guo for repayment of shareholder loans.

- 44 -

---

A further 2,500,000 shares of common stock
were allotted and issued to Yulong Guo and 500,000 shares issued to Xiaoling
Chen. These shares were issued for repayment of shareholder loans.

As of December 31, 2006, we received a $
375,852 capital contribution from Science.



|Corporate Governance - Director
      Independence
|--------------------------------------------------

The Company's stock is quoted on the Over
The Counter Bulletin Board, which does not have director independence
requirements. Under Item 407(a) of Regulation S-B, the Company has chosen to
measure the independence of its directors under the definition of independence
used by the American Stock Exchange, which can be found in the AMEX Company
Guide, 121(A)(2) (2007). Under such definition, none of the directors of the
Company is independent, because the Company's board of directors cannot
affirmatively determine that any of its directors does not have a relationship
that would interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.

|ITEM
      13.     **EXHIBITS** |                                                                                              
|------------------------------- | ---------------------------------------------------------------------------------------------
|Exhibit
      Number            | Description                                                                                  
|3.1                             | Certificate of
      Incorporation, dated August 30, 2002-Berita International Corporation(1)
|3.2                             | Certificate of Incorporation, dated December
      24, 2003-Keiji International Group Inc.(1)
|3.3                             | Certificate of
      Incorporation, dated September 30, 2004-Asia Electrical Power           
|                                | International Group Inc.(1)                                                                  
|3.4                             | Articles of Incorporation,
      dated August 26, 2002-Berita International Corporation(1)   
|3.5                             | Certificate Amending Articles of
      Incorporation dated December 24, 2003 changing our    
|                                | name to "Keiji
      International Group Inc."(1)                                            
|3.6                             | Certificate Amending Articles of
      Incorporation dated September 30, 2004 changing our   
|                                | name to "Asia
      Electrical Power International Group Inc."(1)                            
|3.7                             | Bylaws, effective September 3, 2002(1)                                                       
|10.1                            | Share Exchange Agreement
      between Shenzhen Naiji Equipment Co., Ltd and Asia            
|                                | Electrical Power International Group Inc.,
      dated January 23, 2003.(1)                  
|10.2                            | Letter from Shenzhen Naiji
      Electrical Equipment Co. Ltd confirming shares issued in the
|                                | Share Exchange Agreement were exchanged in
      equal proportion, dated January 23, 2003.   
|                                | (1)                                                                                          
|10.3                            | Standard Supplier Contract(2)                                                                
|10.4                            | Standard Sales Contract(2)                                                                   
|23.1                            | Consent Letter from Robert Jeffrey,
      CPA                                                
|31.1                            | CEO Section 302
      Certification                                                          
|31.2                            | CAO Section 302 Certification                                                                
|32.1                            | CEO Section 906
      Certification                                                          
|32.2                            | CAO Section 906 Certification                                                                

- 45 -

---

|(1) | Incorporated by reference from
      our Form SB-2 that was originally filed with the SEC on October 29,
      2004.                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) | Incorporated by reference from
      our Form SB -2, Amendment No. 1 that was originally filed with the SEC on
      February 14th, 2005.
|   

ITEM
14.                
PRINCIPAL ACCOUNTANT FEES AND SERVICES



|Pre-Approval Policies and
      Procedures
|------------------------------------------

Prior to engaging our accountants to
perform a particular service, our board of directors obtains an estimate for the
service to be performed. All of the services described above were approved by
the board of directors in accordance with its procedures.

Below is the aggregate amount of fees
billed for professional services rendered by our principal accountants with
respect to the Company's last two fiscal years:

|                       | 2006                  | 2005                  
|---------------------- | --------------------- | ----------------------
|Audit
      fees       | $   
         24,000  | $        
      24,000
|Audit-related
    fees | 5,000                 | 5,000                 
|Tax
      fees         | -                     | -                     
|All other
    fees     | 5,000                 | 5,000                 
|                      
|Total                  | $       
      34,000 | $        
      34,000

All of the professional services rendered
by principal accountants for the audit of the our annual financial statements
that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for last two fiscal years were approved by our
board of directors.



|Maintaining Principal Accountant's
      Independence
|-----------------------------------------------------

The board of directors has considered
whether the provision of the services described below are compatible with
maintaining the principal accountant's independence and believes that such
services do not compromise that independence.

- 46 -

---

SIGNATURES

In
accordance with section 13 and 15 (d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|      |                    | **ASIA
      ELECTRICAL POWER INTERNATIONAL GROUP INC.**
|----- | ------------------ | --------------------------------------------------------
|      |                    |                                                         
|Date: | April 16,
    2007 |                                                         
|      |                    | /s/ Yulong Guo                                          
|      |                    | By:                                                     
|      |                    | Yulong
  Guo                                            
|      |                    | President, Chief Executive Officer and
      Director   
|     
|      |                    | /s/ Xiaoling Chen                                       
|      |                    | By:                                                     
|      |                    | Xiaoling
    Chen                                       
|      |                    | Secretary, Chief Accounting
    Officer                 

In
accordance with the Securities Exchange Act of 1934, this Annual Report on Form
10-KSB has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|SIGNATURE               | TITLE                                      | DATE              
|----------------------- | ------------------------------------------ | ------------------
|                       
|/s/ Yulong
    Guo      | President, Chief Executive
      Officer   | April 16,
    2007
|                        | and
    Director                           |                   
|Yulong Guo              |                                            |                   
|                       
|/s/ Xiaoling
      Chen | Secretary & Chief
      Accounting Officer | April 16,
    2007
|Xiaoling
    Chen       |                                            |                   

- 47 -

---