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 June 30, 2006
|--------------------------------------------------

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



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

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 June 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
      StatementsJUNE 30,
      2006(Prepared Without Audit
      )
|-----------------------------------------------------------------------------------------

- 3 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.

CONSOLIDATED BALANCE
SHEETS

|ASSETS                                                                                 |  | Six Months June 30, 2006 |  | Year Ended December 31, 2005
|-------------------------------------------------------------------------------------- |  | ------------------------ |  | ----------------------------
|Current Assets:                                                                        |  | (Unaudited)              |  | (Audited)                   
|Cash                                                                                   |  | $ 697,700                |  | $283,601                    
|Accounts
      receivables, net of provision for doubtful accounts                     |  | 1,565,961                |  | 1,522,865                   
|Other receivables                                                                      |  | 219,915                  |  | 65,998                      
|Advances to
      suppliers                                                            |  | 231,632                  |  | 179,208                     
|Inventory                                                                              |  | 1,766,406                |  | 1,300,310                   
|Total current assets                                                                   |  | 4,481,614                |  | 3,351,982                   
|Fixed Assets:                                                                          |  |                          |  |                             
|Production
      equipment                                                             |  | 152,127                  |  | 130,878                     
|Office equipment                                                                       |  | 75,805                   |  | 75,345                      
|Vehicles                                                                               |  | 276,436                  |  | 276,436                     
|                                                                                       |  | 504,368                  |  | 482,659                     
|Less accumulated depreciation                                                          |  | 233,176                  |  | 194,600                     
|Net fixed
      assets                                                                 |  | 271,192                  |  | 288,059                     
|Other
      Assets:                                                                    |  |                          |  |                             
|Deposit on Land                                                                        |  | 2,362,958                |  | 996,326                     
|Rental
      Deposit                                                                   |  | 15,370                   |  | 15,370                      
|Deferred taxes recoverable                                                             |  | 9,160                    |  | 31,997                      
|Total other assets                                                                     |  | 2,387,488                |  | 1,043,693                   
|Total
      Assets                                                                     |  | $7,140,294               |  | $4,683,734                  
|LIABILITIES AND
      STOCKHOLDERS EQUITY                                             |  |                          |  |                             
|Current Liabilities:                                                                   |  |                          |  |                             
|Accounts
      payable                                                                 |  | 1,854,525                |  | 1,687,739                   
|Advances from customers                                                                |  | 417,542                  |  | 727,176                     
|Accrued
      liabilities                                                              |  | 100,626                  |  | 174,458                     
|Other liabilities                                                                      |  | 19,903                   |  | 35,252                      
|Shareholder
      advances                                                             |  | 3,393,864                |  | 797,717                     
|Total current liabilities                                                              |  | 5,786,460                |  | 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                                                                |  | 455,627                  |  | 387,422                     
|Comprehensive income                                                                   |  | 133,710                  |  | -                           
|Earnings
      appropriated for statutory reserves                                     |  | 132,370                  |  | 121,710                     
|Total Stockholders equity                                                             |  | 1,353,834                |  | 1,261,392                   
|Total Liabilities and Stockholders
      Equity                                       |  | $7,140,294               |  | $4,683,734                  
|The
      accompanying notes are an integral part of these financial
      statements. |  |                         

- 4 -

---

|                                                                                       |  | ASIA
      ELECTRICAL POWER INTERNATIONAL GROUP INC.                  
|-------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------
|                                                                                       |  | CONSOLIDATED
      STATEMENTS OF INCOME                               
|                                                                                       |  | For the Three
      and Six Month Periods Ended June 30, 2006 and 2005
|                                                                                       |  | (Prepared
      Without Audit)                                        
|                                                                                       |  | Three Months                                                          
|                                                                                       |  | June 30,                                                              
|                                                                                       |  | 2006                                                                  
|                                                                                      
|Revenue                                                                                |  | $1,733,531                                                            
|Cost of Sales                                                                          |  | 1,531,789                                                             
|Gross
      Profit                                                                     |  | 201,742                                                               
|                                                                                      
|                                                                                      
|Expenses:                                                                              |  |                                                                       
|Selling and Administrative Expenses                                                    |  | 181,073                                                               
|Operating
      Income                                                                 |  | 20,669                                                                
|                                                                                      
|Other Income
      and Expense:                                                        |  |                                                                       
|Other Income                                                                           |  | 58,269                                                                
|Interest
      Income                                                                  |  | 598                                                                   
|Other Expense                                                                          |  | (161)                                                                 
|                                                                                      
|Income Before Income Taxes                                                             |  | 79,375                                                                
|                                                                                      
|Provision for Income Taxes:                                                            |  |                                                                       
|                                                                                      
|Current Provision                                                                      |  | (3,014)                                                               
|Net income
      for the period                                                        |  | 80,707                                                                
|                                                                                      
|Other
      comprehensive income                                                       |  |                                                                       
|Foreign exchange                                                                       |  | 9,112                                                                 
|Total
      comprehensive income                                                       |  | $
      89,819                                                        
|                                                                                      
|Income Per
      Share -                                                               |  |                                                                       
|Basic and Diluted                                                                      |  | $-                                                                    
|                                                                                      
|Weighted average                                                                       |  |                                                                       
|number of
      shares                                                                 |  |                                                                       
|outstanding                                                                            |  | 24,000,000                                                            
|The
      accompanying notes are an integral part of these financial
      statements. |  |                                                                       

- 5 -

---

|ASIA
      ELECTRICAL POWER INTERNATIONAL GROUP INC.                            
|--------------------------------------------------------------------------------
|CONSOLIDATED
      STATEMENTS OF CASH FLOWS                                     
|For the Six
      Month Periods Ended June 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 (Increase) in deferred taxes                                           
|Changes in assets and
      liabilities:                                        
|(Increase) in accounts receivable                                               
|(Increase) in
      other receivables                                           
|(Increase) in advances to suppliers                                             
|Decrease
      (Increase) in other assets                                       
|(Increase) in inventory                                                         
|Increase in
      accounts payable                                              
|Increase (decrease) in advances from
      customers                            
|(Decrease) in
      accrued liabilities                                         
|(Decrease) in other liabilities                                                 
|Net Cash Consumed By Operating
      Activities                                 
|                                                                                
|CASH FLOWS
      FROM INVESTING ACTIVITIES:                                     
|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.

- 6 -

---

ASIA ELECTRICAL POWER INTERNATIONAL
GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

JUNE 30, 2006

(Unaudited)

| | **1.** | **BASIS OF
      PRESENTATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |        | The unaudited interim financial statements
      of Asia Electrical Power International Group Inc. (the Company) as of
      June 30, 2006 and for the three and six month periods ended June 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 June 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 periods of 2006 and 2005. Cash payments for income taxes were
      $13,597 in the 2006 and $24,946 in the 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | 3.     | DEPOSIT ON LAND                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |        | On September 7, 2004, we entered into an agreement with
      the PRC Government to purchase approximately 3.77 hectares of 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. As of June 30, 2006 and 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.                                                                                                                                                                                                                                      
|
| |        | On January 20, 2006, we entered into an agreement with
      Shenzhen Land Resource and Real Estate Management Bureau for compensation
      of loss of business to the previous users of the land we purchased in
      September 2004. The land was previously used as farmland for cultivating
      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.                                                                                                                                                                                                                      
|

- 7 -

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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 June 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.

- 8 -

---

As the PRC Government was subject to
making 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.



| | Plan of
  Operation
| | -------------------

Our plan of operation in the next 12
months is to establish a larger sales network by establishing 10 more branch
offices outside of Guandong Province. 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.                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|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.

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.

To implement its business plan over the
next year, the Company plans to implement on a monthly basis:

|A) | To continuously enhance the
      employment and training of sales staff; every month the leader of each
      region will perform a market review to keep abreast of the correct and
      most up-to-date market information in a timely fashion.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|B) | To continuously enhance the
      marketing communications campaign:                                                                                                                                                                               
|  

|· | by seeking more power grids
      through whose publications the companys products and services can be
      advertised;                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
|· | by planning participation in
      select industry exhibitions and trade fairs to be held in Harbin,
      Shenyang, Beijing, Guangzhou, Jinan, Nanning and Shanghai;
| 
|· | by organizing the placement of
      advertising in newspapers and magazines in major urban centers.                                                                 
| 
|  | C) To continuously enhance the
      management/control of product quality and new product development.                                                              
| 

- 9 -

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There are three sections in the companys Marketing Department:

·
    The No.1 Section is led by the
      General Manager, Qinghai Qian, who is responsible for 14 key provinces as
      well as overseas.·
    The No.2 Section is led by the
      Vice General Manager, Wei Luo, who is responsible for 14 other provinces
      specifically in the middle part and western part of China.·
    The No.3 Section is led by the
      Company President Yulong Guo, who is responsible for 3 provinces in the
      southern part of China.




| | We have recently accomplished the
      following:
| | --------------------------------------------------

o
    Participated in the Anhui
      International Electrical Power and Technology Exhibition (April 19-21,
      2006), and the Sichuan International Electrical Power Electrician/Power
      Grid Construction and Power Supply Technology Exposition (April 12-15,
      2006). Participation in some other exhibitions to be held in Shanghai,
      Guangzhou, Shenzhen, Harbin, Shenyang, Beijing, Jinan and Nanning is
      planned over the remainder of calendar year 2006.o
    As of June 30, 2006, Wei Luo,
      Vice General Manager, has recorded sales in his division amounting to $
      878,000 in middle and western part of China. Yulong Guo, the President,
      has reported sales for the southern part of China amounting to $
      1,037,000; and Qinghai Qian, General Manager, as sales manager of other
      markets, reported sales amounting to $ 1,161,000.o
    To enhance the advertising
      campaign penetration, and in order to increase greater awareness of its
      products and services, the Company has advertised in magazines and
      newspapers of various power grids - Xian, Chongqing and Shandong; has
      participated in industry exhibitions/fairs held in Anhui and Sichuan
      provinces during April 2006; and, has advertised in newspapers in Beijing
      and Xian.o
    To improve new product
      development, the Company: has strengthened research and development on new
      products under the leadership of a newly-hired general engineer, who is
      responsible for research and development.




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

·
    Residential and
      commercial developers or contractors which may require expansion of
      existing power systems to new areas.o
    Our sales staff regularly keeps
      in contact with developers and contractors for future referrals to service
      any new development projects.o
    Sales staff also seeks 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.o
    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.o
    Installation companies who are
      also licensed electricians appointed by government authorities also have
      their own customer base from which we may receive referralso
    We use a variety of installation
      companies as our products require installation by these licensed
      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.


- 10 -

---

|· | 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.



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

Six months ended June 30, 2006,
compared to six months ended June 30, 2005.

We generated revenues for the six months
ended June 30, 2006, 2005 of $ 3,140,055 and $ 2,692,545, 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.

- 11 -

---

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 83% in 2006 and 82 % in 2005. Our selling
and administrative expenses consist of the following:

|Selling Expenses                                |  |                 |  | 2006            |  | 2005            |  | % Change
|----------------------------------------------- |  | --------------- |  | --------------- |  | --------------- |  | --------
|                                               
|                                               
|Transportation                                  |  |                 |  | 41,498          |  | 40,226          |  | 3%      
|Travel and promotion                            |  |                 |  | 28,529          |  | 28,091          |  | 2%      
|Salary                                          |  |                 |  | 20,104          |  | 23,742          |  | -15%    
|Office and other                                |  |                 |  | 16,248          |  | 6,932           |  | 134%    
|Meals and
      entertainment                   |  |                 |  | 13,267          |  | 12,932          |  | 3%      
|Advertising                                     |  |                 |  | 13,232          |  | 5,495           |  | 141%    
|Technical support and
      warranty            |  |                 |  | 8,742           |  | 9,164           |  | -5%     
|Vehicle                                         |  |                 |  | 4,795           |  | 3,191           |  | 50%     
|                                               
|Total Selling
Expenses                          |  |                 |  | $ 146,415       |  | $
      129,773 |  | 13%     
|                                               
|Administrative
      Expenses                   |  |                 |  | 2006            |  | 2005            |  | % Change
|                                               
|Salary                                          |  |                 |  | 90,388          |  | 50,724          |  | 78%     
|Depreciation                                    |  |                 |  | 31,982          |  | 24,738          |  | 29%     
|Occupancy                                       |  |                 |  | 24,762          |  | 23,945          |  | 3%      
|Office                                          |  |                 |  | 16,864          |  | 29,822          |  | -43%    
|Insurance                                       |  |                 |  | 13,279          |  | 10,181          |  | 30%     
|Other                                           |  |                 |  | 11,543          |  | 2,539           |  | 355%    
|Vehicle                                         |  |                 |  | 9,883           |  | 5,622           |  | 76%     
|Advertising                                     |  |                 |  | 8,428           |  | 85              |  | 9815%   
|Research and
    development                    |  |                 |  | 69,652          |  | 6,763           |  | 930%    
|Professional
    fees                           |  |                 |  | 7,332           |  | 2,603           |  | 182%    
|Travel and promotion                            |  |                 |  | 4,060           |  | 5,849           |  | -31%    
|Meals and
      entertainment                   |  |                 |  | 870             |  | 4,977           |  | -83%    
|Utilities                                       |  |                 |  | 324             |  | 6,511           |  | -95%    
|Amortization                                    |  |                 |  | 0               |  | 4,456           |  | -100%   
|                                               
|Total Administrative
      Expenses             |  |                 |  | $
      289,367 |  | $
      178,815 |  | 62%     
|Total Selling and Administrative
      Expenses |  | $
      435,782 |  | $ 318,934       |  | 37%            

- 12 -

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

Transportation expenseremained relatively constant as the transportation carriers
which we retained have fixed their cost of delivery of goods outside of Guandong
Province despite increases in fuel costs. We have our own delivery vans and also
outsource to other 3rdparties when needed.

OurTravel and Promotionremained
relatively constant and we expect 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 is
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.

Salariesdecreased as a result of termination of several ineffective sales
personnel. We are in the process of training new sales staff.

Office and othercosts increased as a result of preparing promotional materials
to be use by each of our branch offices. We also incurred costs for bidding
contracts with four power supply bureaus. The results of these bids will be
announced late August 2006.

Meals and entertainmentincreased as a result of meetings held with
members of the media/advertising community for launch of new advertising
materials.

Advertisingcosts increased as a result of advertising in magazines and newspapers of
various power grids -Xian, Chongqing and Shandong. We have also participated in
industry exhibitions/fairs held in Anhui and Sichuan provinces during April
2006; and advertised in newspapers in Beijing and Xian.

Technical support and 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.

Vehiclecosts increased as a result of increase in fuel costs.



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

Salariesincreased as a result of retaining approximately 20 additional staff
filling positions in our Marketing, Quality Control, Research and Development,
Productions, Purchasing/Transportation, and Administration
departments.

Occupancyexpense is expected to remain constant from period to period.

Officeexpenses decreased as a result of a bulk purchase of office supplies made
in 2005 which are currently in use.

Insurancesexpense increased as we obtained insurance on our employees for possible
theft.

Vehiclecosts increased as a result of increase in fuel costs.

Advertisingcosts increased as a result of printing promotional materials we used for
distribution to existing customers, wholesalers, electrical installation
companies and electrical bureaus.

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.

Professional feesincreased as a result of surveying the land which we entered
into an agreement to purchase in September 2004 as mentioned above, for the
purpose of construction new office and manufacturing facilities.

- 13 -

---

Other Incomeof $ 42,232 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.

Other Expenseof $ 15,695 consists of amounts paid to a customer for delays
in delivery of our product as a result of faulty raw materials used as discussed
above. This matter was also settled privately and there are no amounts pending.
We believe we have a good relationship with this customer and will continue our
business relationship in the long term.



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

As of June 30, 2006, we had a negative
working capital of $ 1,304,846. 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 $ 3,393,864 as of June 30, 2006 to fulfill
deposits which were required and to fund our working capital needs. We made
deposits in the amount of $ 1,366,632 throughout June 30, 2006.

Currently we cannot estimate construction
costs as this project is in its planning stages and we are gathering various
quotes from construction companies and suppliers of construction materials.
Other expansion plans include establishing 10 more branch offices, expanding our
sales network which will require approximately $100,000 to sustain per year.
Branch offices are our most effective means of marketing and generating sales.
We expect to establish 2 branch offices per month commencing June
2006.

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.

Net Cash consumed by operating activities
were $ 805,944 in 2006 compared to $ 479,788 in 2005 and are summarized as
follows:

|                                                     |  | 2006        |  | 2005       
|---------------------------------------------------- |  | ----------- |  | -----------
|Net Income                                           |  | $ 80,205    |  | $ 141,363  
|Increase in
      accounts receivable                |  | (43,096)    |  | (3,161)    
|Increase in advances to
      suppliers              |  | (52,424)    |  | (1,038,900)
|(Increase) in
      inventory                        |  | (466,096)   |  | (130,945)  
|Increase in accounts
      payable                   |  | 166,786     |  | 357,982    
|Decrease
      (Increase) in advances from customers |  | (309,634)   |  | 617,730    
|Other                                                |  | (181,685)   |  | (423,857)  
|Net Cash
      Consumed By Operating Activities      |  | ($ 805,944) |  | ($ 479,788)

Most of our sales transactions with
customers during the second quarter were made on account as opposed to accounts
which were prepaid. As a result of these sales, we made purchases to replenish
inventory levels to fulfill these transactions. These purchases were mostly made
on account.

Net Cash consumed by investing activities
in 2006 was $ 1,388,341 of which we purchased 2 delivery vans and made deposits
on the land we leased in September of 2004 which our President provided the
necessary funding.

Net Cash provided by financing activities
in 2006 was $ 2,596,147 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
$ 2,000,000 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



|- 14
-
|------

---

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.

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.

- 15 -

---

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
June 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.



|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.
|-----

- 16 -

---

|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                     

- 17 -

---

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:  August 18, 2006 |  |  |  |                                                      
|                       |  |  |  | /s/ Yulong Guo                                       
|                       |  |  |  | By:                                                  
|                       |  |  |  | Yulong
  Guo                                         
|                       |  |  |  | President, Chief Executive Officer and
      Director
|                      
|                       |  |  |  | /s/ Xiaoling Chen                                    
|                       |  |  |  | By:                                                  
|                       |  |  |  | Xiaoling
    Chen                                    
|                       |  |  |  | Secretary, Chief Accounting
    Officer              



- 18 -



---