U.S. SECURITIES AND EXCHANGE
COMMISSION



|Washington, D.C.
      20549________________FORM
      10-QSB
|-------------------------------------------------------------

| X |  **QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT**
OF 1934



|For the quarterly period
      ended September 30, 2006
|-------------------------------------------------------

|    | **TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**



|For the transition period
      from 
      to Commission file number 000-51787________________
|-----------------------------------------------------------------------------------------------

ASIA
ELECTRICAL POWER INTERNATIONAL GROUP INC.

(Exact name of small business issuer
as specified in its charter)

________________

|NEVADA                                |                          
|------------------------------------- | -------------------------
|(State or other
      jurisdiction of | (IRS
    employer        
|incorporation or
      organization)  | Identification
      No.)



|2255 -A Renaissance Drive,
      Las Vegas, Nevada, 89119(Address of
      principal executive offices)
|-------------------------------------------------------------------------------------------------------



|702-922-1939(Issuers
      telephone number)________________
|-------------------------------------------------------------

Check whether the issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes | X |  No
|    |

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

As of September 30, 2006, 24,000,000
shares of the issuers Common Stock, $.0001 par value per share, were
outstanding.

Transitional Small Business Disclosure
Format Yes |    |    No | X |

- 1 -

---

|INDEX         
|--------------
|PART I.       
|Item 1.       
|              
|              
|              
|              
|Item 2.       
|Item 3.       
|              
|PART
      II.
|Item 1.       
|Item 2.       
|Item 3.       
|Item 4.       
|Item 5.       
|Item 6.       
|              

- 2 -

---



|Item 1. FINANCIAL
      STATEMENTS
|----------------------------------

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.



|Consolidated Financial
      StatementsSeptember 30,
      2006(Prepared Without
      Audit)
|---------------------------------------------------------------------------------------------

- 3 -

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ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.

CONSOLIDATED FINANCIAL
STATEMENTS

September 30, 2006

(PREPARED WITHOUT
AUDIT)

|CONTENTS                                                 |     
|-------------------------------------------------------- | ----
|                                                         | Page
|Consolidated Balance
      Sheet                         | F1  
|Consolidated Statements of Operations and
      Earnings |     
|Accumulated                                              | F2  
|Consolidated Statements of Cash
      Flows              | F3  
|Notes to Consolidated
      Financial Statements         | F4  

- 4 -

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**ASIA ELECTRICAL POWER
INTERNATIONAL GROUP INC.CONSOLIDATED BALANCE SHEETS**

|                                                                                 | September
    30, |  | December
  31,
|-------------------------------------------------------------------------------- | ----------------- |  | --------------
|ASSETS                                                                           | 2006              |  | 2005          
|Current
      Assets:                                                            | (Unaudited)       |  | (Audited)     
|Cash                                                                             | $ 629,460         |  | $283,601      
|Accounts
      receivables, net of provision for doubtful accounts               | 1,863,119         |  | 1,522,865     
|Other
    receivables                                                            | 182,874           |  | 65,998        
|Advances to
      suppliers                                                      | 223,035           |  | 179,208       
|Inventory                                                                        | 1,558,571         |  | 1,300,310     
|Total current assets                                                             | 4,457,059         |  | 3,351,982     
|Fixed
    Assets:                                                                |                   |  |               
|Production
      equipment                                                       | 163,827           |  | 130,878       
|Office
    equipment                                                             | 75,805            |  | 75,345        
|Vehicles                                                                         | 276,436           |  | 276,436       
|Construction in
      Progress                                                   | 163,795           |  | -             
|                                                                                 | 679,863           |  | 482,659       
|Less
      accumulated depreciation                                              | 256,694           |  | 194,600       
|Net fixed assets                                                                 | 423,169           |  | 288,059       
|Other
    Assets:                                                                |                   |  |               
|Deposit
      on Land                                                            | 2,362,958         |  | 996,326       
|Rental
    Deposit                                                               | 15,370            |  | 15,370        
|Deferred taxes recoverable                                                       | -                 |  | 31,997        
|Total other
    assets                                                           | 2,378,328         |  | 1,043,693     
|Total
    Assets                                                                 | $7,258,556        |  | $4,683,734    
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                         |                   |  |               
|Current
      Liabilities:                                                       |                   |  |               
|Accounts
    payable                                                             | 1,865,369         |  | 1,722,991     
|Advances from
      customers                                                    | 555,667           |  | 727,176       
|Accrued
    liabilities                                                          | 170,755           |  | 174,458       
|Shareholder
      advances                                                       | 3,124,893         |  | 797,717       
|Total current
      liabilities                                                  | 5,716,684         |  | 3,422,342     
|Stockholders
      Equity:                                                      |                   |  |               
|Common stock: authorized 75,000,000 shares
      of                              |                   |  |               
|$0.001 par
      value; issued and outstanding 24,000,000                        | 24,000            |  | 24,000        
|Capital in excess of par
      value                                             | 728,260           |  | 728,260       
|Retained
      Earnings                                                          | 616,272           |  | 387,422       
|Comprehensive
      income                                                       | 11,630            |  | -             
|Earnings
      appropriated for statutory reserves                               | 161,710           |  | 121,710       
|Total Stockholders
      equity                                                 | 1,541,872         |  | 1,261,392     
|Total Liabilities and Stockholders
Equity                                       | $7,258,556        |  | $4,683,734    
|The accompanying notes are an integral part of these
      financial statements. |                   | 

-F1-

- 5 -



---



|ASIA ELECTRICAL POWER
      INTERNATIONAL GROUP INC.                            
|--------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF
      INCOME                                         
|For the Three and Nine Month
      Periods Ended Sept. 30, 2006 and 2005        
|(Prepared Without
      Audit)                                                  
|                                                                                
|                                                                                
|                                                                                
|Revenue                                                                         
|Cost of Sales                                                                   
|Gross
    Profit                                                                
|Expenses:                                                                       
|Selling and Administrative
      Expenses                                       
|Operating Income                                                                
|Other Income
      and Expense:                                                 
|Other
    Income                                                                
|Interest
      Income                                                           
|Other
    Expense                                                               
|Income Before
      Income Taxes                                                
|Provision for Income Taxes:                                                     
|Current
      Provision                                                         
|Net income for the
      period                                                 
|Other
      comprehensive income                                                
|Foreign
    exchange                                                            
|Total
      Comprehensive income                                                
|Income Per Share
    -                                                          
|Basic and
      Diluted                                                         
|Weighted average                                                                
|number of
      shares                                                          
|Outstanding                                                                     
|The accompanying notes are
      an integral part of these financial statements.
|                                                                                

- 6 -

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|ASIA
      ELECTRICAL POWER INTERNATIONAL GROUP INC.              
|------------------------------------------------------------------
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS                       
|For the Nine
      Month Periods Ended September 30, 2006 and 2005
|(Prepared Without Audit)                                          
|                                                                  
|                                                                  
|                                                                  
|CASH FLOWS FROM OPERATIONS:                                       
|Net income                                                        
|Charges not requiring the outlay of cash:                         
|Depreciation
      and amortization                               
|Loss on disposal of fixed asset                                   
|Decrease in
      deferred taxes                                  
|Changes in assets and liabilities:                                
|Increase in
      accounts receivable                             
|Increase in other receivables                                     
|Decrease
      (Increase) in advances to suppliers                
|Decrease (Increase) in other assets                               
|Increase in
      inventory                                       
|Increase in accounts payable                                      
|Decrease in
      advances from customers                         
|Decrease in accrued liabilities                                   
|Increase
      (Decrease) in other liabilities                    
|Net Cash Consumed By                                              
|Operating Activities                                              
|CASH FLOWS FROM INVESTING                                         
|ACTIVITIES:                                                       
|Construction in Progress                                          
|Deposit on
      land                                             
|Purchases of fixed assets                                         
|Net Cash Consumed
      By                                        
|Investing Activities                                              
|CASH FLOWS
      FROM FINANCING                                   
|ACTIVITIES:                                                       
|Advances from
      shareholder                                   
|Net
      Cash Provided By                                        
|Financing Activities                                              
|Effect on foreign currency translation                            
|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.

-F3-

- 7 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

September 30, 2006

(Unaudited)

|**1.** | BASIS OF PRESENTATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      
|       | The unaudited interim financial statements of Asia
      Electrical Power International Group Inc. (the Company) as of September
      30, 2006 and for the three and nine month periods ended September 30, 2006
      and 2005, have been prepared in accordance with generally accepted
      accounting principles. In the opinion of management, such information
      contains all adjustments, consisting only of normal recurring adjustments,
      necessary for a fair presentation of the results for such periods. The
      results of operations for the quarter ended September 30, 2006 are not
      necessarily indicative of the results to be expected for the full fiscal
      year ending December 31, 2006.
|      
|       | Certain information and disclosures normally included in
      the notes to financial statements have been condensed or omitted as
      permitted by the rules and regulations of the Securities and Exchange
      Commission, although the Company believes the disclosure is adequate to
      make the information presented not misleading. The accompanying unaudited
      financial statements should be read in conjunction with the financial
      statements of the Company for the year ended December 31, 2005.                                                                                                                                                                                                         
|      
|**2.** | SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
      INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|      
|       | There were no cash payments for interest during the six
      month 2006 and 2005 period. Cash payments for income taxes were
      approximately $ 30,000 in the 2006 and there were no cash payments for
      income taxes in the 2005 period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|      



|-F4-
|----

- 8 -

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Item 2.  MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 prospectus. 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.



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



|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 with implementation of the sewage
system remains to be completed.

As of September 30, 2006 to date, we have
made deposits in the amount of $ 1,007,392 and $ 104,162 remains pending. The $
104,162 amount pending relates to the cost of implementation of the sewage
systems and will be payable when completed. The estimated completion date is
unknown as the matter is still pending with the PRC Government.

- 9 -

---

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.



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

During the quarter ended September 30,
2006, we incurred construction costs in the amount of $ 163,795 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 late 2008. Funding for this project will be through
shareholder loans and bank loans.



|Plan of Operation and Marketing
      Strategies
|------------------------------------------------

Our plan of operation in the next 12
months is to establish a larger sales network by establishing 5 more branch
offices outside of Guandong Province. During the nine month period ended
September 30, 2006, we established 3 branch offices.



|Our marketing strategies are based on
      the following:
|----------------------------------------------------------

|1. | The efforts of our sales
      staffin 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 relationsto 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 qualityand new product
      development.                                                                                                                                                                                                                                                                                                                                                                                                                   
|  

- 10 -

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|4. | Market exposurethrough placement of advertisements
      in newspapers and trade magazines in major urban centers.
|-- | ------------------------------------------------------------------------------------------------------------------
|  

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.

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



|Target
      MarketsOur target markets
      are:
|-------------------------------------------------

|· | Residential and
      commercial developers or contractors which may require expansion of
      existing power systems to new areas.                                                                                                                                                                      
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 
|· | Wholesale manufactures
      who may make bulk purchases.                                                                                                                                                                                                                                                 
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 
|· | Electrical equipment
      installation companies who may refer us to potential customers.                                                                                                                                                                                                                
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 
|· | 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.
| 
|  | o                                                                                                                                                                                                                                                                                                         
| 

The majority of our marketing efforts are
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.

We will also be incurring research and
development costs for refining our existing product line. Currently we are not
expecting to be developing new products in the near future.

- 11 -

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|Results of
      Operations
|---------------------------

Nine months ended September 30, 2006,
compared to nine months ended September 30, 2005.

We generated revenues for the nine months
ended September 30, 2006, 2005 of $ 5,479,182 and $ 4,593,571, respectively. The
increase was attributed to establishing additional branch offices and sales
staff devoted solely to marketing of our products in various areas,
participation in exhibitions and launch of marketing campaigns. In doing so
enabled us to obtain several sales contracts which specified bulk purchases to
be made through the year.

With the level of sales we generated, we
were in a position with better purchasing power and were granted discounts on
bulk transactions. Cost of sales were 81% in 2006 and 86 % in 2005.

Our selling and administrative expenses
consist of the following:

|                              | 2006            | 2005           
|----------------------------- | --------------- | ---------------
|Selling:                      |                 |                
|Transportation                | 68,329          | 54,582         
|Travel and promotion          | 44,479          | 38,910         
|Marketing                     | 19,070          | 9,812          
|Warranty                      | 15,271          | 20,916         
|Bad debts                     | 106,097         | 620            
|Other                         | 36,473          | 12,988         
|Total                         | $ 289,719       | $ 137,828      
|General & Administrative:     |                 |                
|Salary and
      benefits     | 166,851         | 137,763        
|Occupancy                     | 39,913          | 35,670         
|Depreciation                  | 47,193          | 39,524         
|Meals
      and entertainment | 26,422          | 25,719         
|Travel and
      vehicle      | 36,626          | 25,439         
|Office and utilities          | 53,951          | 44,194         
|Insurance                     | 16,500          | 16,214         
|Research and development      | 64,295          | 7,653          
|Amortization                  | -               | 6,724          
|Other                         | 14,079          | 11,000         
|Total                         | $
      465,830 | $
      349,900
|Total
      expenses          | $ 755,549       | $ 487,728      

- 12 -

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|Selling
      Expenses
|----------------------

Transportation expenseincreased as a result of increase in oil prices for use of our
fleet of delivery vans. We also have another option of using transportation
carriers which have fixed cost of delivery despite increases in fuel costs
however schedule conflicts are more likely to arise and as a result has increase
the use of our own methods of delivery.

OurTravel and Promotionincreased despite
our expectation of these expenses to decrease as a result of efforts to delegate
sales and marketing initiatives to each branch office and its corresponding
location. Sales staff located in each branch office are responsible for sales in
their location and any initiatives or sales opportunities in another location
are directed to sales staff at the closest branch office. Such efforts were
implemented however travel by member of top management to oversee branch offices
resulted in additional travel costs to be incurred.

Advertisingcosts increased as a result of advertising in trade magazines and
newspapers in circulation in locations in Xian, Chongqing Shandong, and
Beijing. We have also participated in industry exhibitions/fairs held in Anhui
and Sichuan provinces during April 2006.

Warrantycosts decreased as a result of our research and development efforts to
refine our existing product line. We expect to continuously monitor and make
improvements to our product line whenever such warranty claims are brought
forward.

Bad debtsincreased as a result of bankruptcy of customers of which held accounts
outstanding for more than three years. We are seeking legal action to recover
such amounts however do not foresee recovery of such accounts to be likely.



|Administrative
      Expenses
|-----------------------------

Salariesincreased as a result of retaining approximately 10 additional staff
filling positions in our Marketing, Quality Control, Research and Development,
Productions, Purchasing/Transportation, and Administration departments and also
increases in wages granted to various employees.

Occupancyexpense increased as a result of increase in month to month rates as a
result of market conditions. Our location is a developing area and occupancy
fees are on the rise.

Depreciationincreased as a result of purchasing new additional production
equipment. We expect to phase out older equipment within the next 2 years.

Meals and entertainmentexpenses are expected to remain relatively
constant.

Travel and vehicleexpenses increased solely because of increase in fuel costs.

Officeexpenses increased as a result of increase in utility rates implemented
throughout various regions where our branch offices are located.

Insurancesexpense is expected to remain constant. The only insurance we currently
carry is for vehicle accident insurance.

We incurredResearch and Developmentcosts for
refining our existing products consisting of XGN15-12II SF6 Insulated Ring Main
Unit with Compact Switchgear, DFW8-12 Branch cable cabinet, and SRM16-12 SF6
insulated ring main cabinet with compact switchgear.

Other Incomeof $ 62,144 consists of compensation received from suppliers
for 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. We also received
bursaries from Shenzhen Science and Technology Bureau and Shenzhen Nanshan
Financial Bureau of approximately $ 50,000. The grant was used for research and
development our VDM6-12 Vacuum Circuit-breaker with magnetic actuator

- 13 -

---

mechanism. Grants are obtained through
application to the Bureau and are awarded to the candidates with the most
innovative product. Grants are applied for regularly and we hope to subsidize a
substantial amount of our research and development of our products through
various grants received. There are no restrictions on the spending of the grant
however we intend on using such funding solely for research and
development.



| | Liquidity and Capital
      Resources
| | -------------------------------------

As of September 30, 2006, we had a
negative working capital of $ 1,259,625. This was mainly as a result of
shareholder advances we received from our President, Mr. Guo for funding our
operations and deposits which were made on land we leased for a period of 50
years in September 2004 for the purpose of constructing new office and
manufacturing facilities. Shareholder loans are without stated terms of
repayment and interest is imputed at 6% per annum. Total deposits made on the
land lease were $ 2,362,958 and we received shareholder loans totaling $
3,124,893 as of September 30, 2006 to fulfill deposits which were required and
to fund our working capital needs.

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.



|Operating
      Activities
|--------------------------

Net Cash consumed by operating activities
were $ 429,111 in 2006 compared to $ 797,195 in 2005.



|Current
  Assets:
|-----------------

Accounts receivables increased by $
340,254 as a result of relaxing our credit terms with clients who have shown a
history of timely payments. We will extend such terms to its other customers who
demonstrate a good credit history.

Other receivables increased by $ 116,876
as a result of granting personal loans to employees. We do not have a formal
agreement with its employees. Such loans are viewed as employee benefits.

Advances to suppliers increase by $ 43,827
as a result of numerous requests on part of the vendor to prepay for sales
orders. The prepayment of goods is a common practice in China and generally
ensures that goods are available as determined upon initiating orders.

Inventory increased by $ 258,261 as a
result of re-stocking for anticipated increase in sales. We have seen a steady
increase in sales and will adjust its inventory levels in order to meet the
increase demand.



|Current
    Liabilities:
|------------------------

Accounts payable have increased by $
143,984 mostly as a result of placement of orders to replenish inventory to
desired levels.

Advances from customers decreased by $
171,509 as a result of fulfilling contracted orders which were schedule to occur
mostly between March-Sept of 2006. Also because we extended credit terms to
additional customers, the number of prepayment of orders decreased accordingly.

Accrued liabilities remained relatively
constant and consist of salaries and taxes payable in the amount of $
131,320.

Other liabilities consist of accruals for
transportation costs incurred.

Shareholder advances increased as a result
of meeting the required payments of the deposit of land as mentioned above.



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

- 14 -

---

Net Cash consumed by investing activities
in 2006 was $ 1,563,835.



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

The company purchased additional
production equipment in anticipation of phasing out its older
equipment.

Construction in progress costs were
incurred in the amount of $ 163,795 as a result of preparing for construction of
new manufacturing facilities. To date we have incurred costs for:

- Excavation and land leveling
- Road work
- Design
- Civil engineering

We estimate the total cost of this
development to be $ 10,000,000 with a completion date to be late 2008. Funding
for this project will be through shareholder loans and bank loans.



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

Net Cash provided by financing activities
in 2006 was $ 2,327,175 as result of shareholder loans provided by Mr. Guo to
fund our operations. We also received capital contributions from Mr.
Guo.

Not including our plans for construction
of new office facilities, over the next 12 months, we will require approximately
$ 5,700,000 for payment of our current liabilities. Our main source of funding
has been shareholder loans and capital contributions from shareholders. We may
explore financing options however we expect shareholders loans and cash flow
generated from sales to be sufficient to fund our operations for the next 12
months.



| | Critical Accounting
      Policies
| | ----------------------------------

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 as 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 majority of our estimates does not
vary over time and are not expected to change in the future with the exception
of allowance for doubtful accounts. The normal collection period for accounts
receivable is between 1.5 and 2 years; however the timing collection of accounts
vary significantly and therefore estimates of doubtful accounts are not as
accurate compared to other operations which have a shorter normal collection
period of, for example, net 30 days.

Factors That May Affect Our Future
Results and the Trading Price of Our Common Stock

An investment in shares of our common
stock involves a high degree of risk. You should consider carefully the
following information about these risks, together with other information
contained in this report and our other filings with the Securities and Exchange
Commission before you decide to buy our stock. If any of the following risks
actually occur, our business, financial condition and prospects would likely
suffer. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our operations.

There is currently no public market for
our common stock and therefore the stock you purchase may be illiquid for an
indefinite period of time.

- 15 -

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There is currently no public market for
the common stock. We are under application to apply for quotation of our common
stock on the OTC Bulletin Board, there can be no assurance that, even if our
common stock is approved for quotation, an active trading market for our common
stock will develop or be sustained.

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 principal shareholders, own an aggregate of approximately 54.71% of
our outstanding shares. 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 AEPI.

Item 3. CONTROLS AND
PROCEDURES

(A)  Evaluation of
Disclosure Controls and Procedures

As of the end of the period covered by
this report, the Company carried out an evaluation, under the supervision and
with the participation of the Companys Chief Executive Officer/Chief Accounting
Officer of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. The Companys disclosure controls and
procedures are designed to provide a reasonable level of assurance of achieving
the Companys disclosure control objectives. The Companys Chief Executive
Officer/Chief Accounting Officer has concluded that the Companys disclosure
controls and procedures are, in fact, effective at this reasonable assurance
level as of the period covered. In addition, the Company reviewed its internal
controls, and there have been no significant changes in its internal controls or
in other factors that could significantly affect those controls subsequent to
the date of their last evaluation or from the end of the reporting period to the
date of this Form 10-QSB.

(B)  Changes
in Internal Controls Over Financial Reporting

In connection with the evaluation of the
Companys internal controls during the Companys second fiscal quarter ended
September 30, 2006, the Companys Chief Executive Officer/Chief Accounting
Officer has determined that there are no changes to the Companys internal
controls over financial reporting that has materially affected, or is reasonably
likely to materially effect, the Companys internal controls over financial
reporting.

- 16 -

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PART II.

OTHER INFORMATION

Item 1. Legal
Proceedings

None.

Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior
Securities

None.

Item 4. Submission of Matters to a Vote
of Security Holders

None

Item 5. Other
Information

None.

- 17 -

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|Item 6.              |            
|-------------------- | -----------
|A)                   | Exhibits   
|Exhibit
      Number | Description
|3.1                  |            
|3.2                  |            
|3.3                  |            
|3.4                  |            
|3.5                  |            
|3.6                  |            
|3.7                  |            
|31.1                 |            
|31.2                 |            
|32.1                 |            
|32.2                 |            

|(1) | Incorporated by reference from our Form SB-2 that was
      originally filed with the SEC on October 29, 2004.
|--- | --------------------------------------------------------------------------------------------------------------
|   

|B) | Reports on
      Form 8-K
|-- | -------------------------
|   | None                     

- 18 -

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SIGNATURES

SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly
Report to be signed on its behalf by the undersigned thereunto duly
authorized.



|                              | ASIA
      ELECTRICAL POWER                          
|----------------------------- | -----------------------------------------------------
|                              | INTERNATIONAL GROUP INC.                             
|Date: November 14,
      2006 |                                                      
|                              | /s/ Yulong Guo                                       
|                              | By:                                                  
|                              | Yulong
  Guo                                         
|                              | President, Chief Executive Officer and
      Director
|                              |                                                      
|                              | /s/ Xiaoling Chen                                    
|                              | By:                                                  
|                              | Xiaoling
    Chen                                    
|                              | Secretary, Chief Accounting
    Officer              

- 19 -

---