Asia Electrical Power International (AEPW) 10-Q 2009 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    .

Asia Electrical Power International Group Inc.

(Exact name of registrant as specified in Charter)

NEVADA	0-51787	98-0522960
(State or other	(Commission File No.)	(IRS Employee
jurisdiction of		Identification No.)
incorporation or
organization)

E-4, Floor 3, Haijin Square
Taizi Road, Nanshan District, Shenzhen, PRC 518067
(Address of Principal Executive Offices)

86 755 2823 1993

(Issuer Telephone number)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).o Yeso No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of November 13, 2009: 51,959,693 shares of common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risks
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 6. Exhibits
SIGNATURES
EX-31.1
EX-31.2
EX-32

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
CONSOLIDATED BALANCE SHEETS

	September 30, 2009		December 31, 2008
	(Unaudited)		(Audited)
Current Assets:
Cash	$	1,532,054	$	3,013,900
Accounts receivables, net of allowance for doubtful accounts of $346,220		5,015,378		2,465,300
Other receivables		177,283		141,203
Advances to suppliers		71,712		66,351
Inventory		2,311,361		2,290,470
Total current assets		9,107,788		7,977,224
Fixed Assets
Land use right		2,743,148		2,791,248
Plant, property, and equipment		7,819,228		7,387,628
		10,562,376		10,178,876
Less: depreciation and amortization		1,345,429		1,056,603
Net fixed assets		9,216,947		9,122,273
Other Assets:
Deposits		499,529		1,043,807
Advances to affiliate		2,718,496		920,500
Total other assets		3,218,025		1,964,307
Total Assets	$	21,542,760	$	19,063,804
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Notes payable	$	—	$	201,653
Accounts payable		5,201,552		3,727,138
Advances from customers		788,799		1,105,403
Accrued liabilities		470,626		337,803
Other liabilities		1,355,724		396,531
Total current liabilities		7,816,701		5,768,528
Convertible Note Payable		1,405,499		1,321,508
Total Liabilities		9,222,200		7,090,036
Stockholders’ Equity:
Preferred stock: authorized 5,000,000 shares of $0.001 par value; issued and outstanding, 5,000,000 shares		5,000		5,000
Common stock: authorized 150,000,000 shares of $0.001 par value; issued and outstanding, 51,959,693 shares		51,960		51,960
Capital in excess of par value		8,221,456		8,221,456
Paid in capital — stock options		2,933,333		2,933,333
Accumulated earnings (deficit)		74,836		(245,975	)
Earnings appropriated for statutory reserves		183,749		183,749
Comprehensive income (loss)		850,226		824,245
Total stockholders’ equity		12,230,560		11,973,768
Tot Total Liabilities and Stockholders’ Equity	$	21,542,760	$	19,063,804

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

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ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2009 and 2008
(Unaudited)

	Nine Months Ended September 30,						Three months ended September 30,
	2009			2008			2009			2008
Revenue	$	13,351,210		$	9,406,051		$	6,637,692		$	3,997,033
Cost of Sales		10,406,404			7,810,410			5,008,791			3,292,637
Gross Profit		2,944,806			1,595,641			1,628,901			704,396
Expenses:
Selling and Administrative Expenses		2,416,659			872,667			1,121,791			251,043
Operating Income		528,147			722,974			507,110			453,353
Other Income (Expense)
Interest expense		(87,957	)		(4,811	)		(29,125	)		(1,123	)
Losses on foreign currency transactions		(61,148	)		(3,331	)		—			(3,331	)
Interest income		8,001			9,279			2,123			4,976
Other income		95,410			5,663			33,639			(32,817	)
Net other income (expense)		(45,694	)		6,800			6,637			(32,295	)
Income before Income Taxes		482,453			729,774			513,747			421,058
Provision for Income Taxes:
Current Provision		(161,644	)		(63,041	)		(114,174	)		(37,993	)
Net Income for the Period		320,809			666,733			399,573			383,065
Other Comprehensive Income —
Foreign currency translation adjustments		25,983			172,306			11,557			41,660
Total Comprehensive Income	$	346,792		$	839,039		$	411,130		$	424,725
Income Per Common Share —
Basic and Diluted	$	0.01		$	0.01		$	0.01		$	0.01
Weighted average number of shares outstanding		51,959,693			51,959,693			51,959,693			51,959,693

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

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ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Month Periods Ended September 30, 2009 and 2008
(Unaudited)

	2009			2008
CASH FLOWS FROM OPERATIONS:
Net income	$	320,809		$	666,733
Adjustments to reconcile net income to net cash provided (consumed) by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization		286,495			236,308
Amortization of discount on convertible note		83,991			—
Changes in assets and liabilities:
Increases in accounts receivable		(2,534,784	)		(1,132,081	)
(Increase) decrease in other receivables		(44,503	)		209,488
(Increase) decrease in advances to suppliers		(5,198	)		94,392
Increase in inventory		(15,328	)		(240,783	)
Decrease in notes payable		(201,653	)		—
Increase in accounts payable		1,465,056			(15,331	)
Increase (decrease) in advances from customers		(319,219	)		367,732
Increase (decrease) in other payables		953,590			(1,328,250	)
Decrease in accrued liabilities		131,975			72,400
Net Cash Provided (Consumed) By Operating Activities		121,231			(1,069,392	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment to affiliate		(1,797,323	)
Purchases of fixed assets		(425,411	)		(214,350	)
Increase in construction in progress		—			(850,804	)
Return of guarantee deposit		203,789			—
Increase (decrease) in deposits		409,311			(241,959	)
Net Cash Provided (Consumed) By Investing Activities		(1,609,634	)		(1,307,114	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under promissory note		—			1,545,483
Funds set aside for collateral account		—			(275,457	)
Borrowings under bank credit facility		—			918,189
Net Cash Provided (Consumed) By Financing Activities		—			2,188,215
Effect of exchange rate changes on cash		6,557			172,307
Net change in cash		(1,481,846	)		(15,984	)
Cash balance, beginning of period		3,013,900			2,920,073
Cash balance, end of period	$	1,532,054		$	2,904,089

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

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ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)

1. BASIS OF PRESENTATION

The unaudited interim consolidated financial statements of Asia Electrical Power International Group Inc. (the “Company”) as of September 30, 2009 and 2008 and for the three and nine month periods ended September 30, 2009 and 2008, have been prepared in accordance with United States 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 of such periods. The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2009.

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, 2008.

2. NOTES PAYABLE AND RELATED WARRANTY DEPOSIT

In January, 2009, the Company paid the principal balances of promissory notes which totaled $201,653. These had been issued to five suppliers in lieu of payments for purchases. At the time of the note payments, a related warranty deposit of $203,789 was returned to the Company.

3. SELLING AND ADMINISTRATIVE EXPENSE

Details of amounts included in Selling and Administrative Expense are presented below.

	Nine Months Ended		Nine Months Ended
	September 30, 2009		September 30, 2008
Salaries and benefits	$	460,444	$	417,712
Executive salaries		615,000		—
Office and utilities		78,044		54,563
Travel expenses		244,047		131,052
Research and development		154,655		19,520
Depreciation		191,550		153,775
Promotional expense		102,421		51,902
Professional fees and expenses		435,000		—
Other expenses		135,498		44,143
	$	2,416,659	$	872,667

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4. INCOME TAXES

The Company was granted a 50% exemption from income taxes for the year 2009. Such exemptions are available to Chinese enterprises classified as foreign investment companies. This exemption provides for exemption of 50% of the income taxes of 2009 and 2010.

5. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION

The Company did not make any cash payments of either interest or income taxes during the nine month periods of 2009 and 2008.

There were no non cash financing or investing transactions during either of the periods presented.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Notice Regarding Forward Looking Statements.

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forwarding-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances. Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our next Annual Report on Form10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligations to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Background

We were incorporated in the State of Nevada on August 30, 2002 as “Berita International Corporation.” 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.

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We have produced high and mid-voltage electrical switchgears since its inception in 1997. For the year ended December 31, 2008, we generated a pre-tax net income (audited) of $129,400 compared with a pre-tax net loss (audited) of $(946,837) for the 2007 fiscal year end period.

Results of Operations

September 30, 2009, compared to September 30, 2008

Revenues

	Nine months					Nine months
	ended September					ended September
	30, 2009		% Sales			30, 2008		% Sales
Revenue	$	13,351,210		100	%	$	9,406,051		100	%
Cost of Sales		10,406,404		78	%		7,810,410		83	%
Gross Profit	$	2,944,806		22	%	$	1,595,641		17	%

Our revenues for the nine months ended September 30, 2009 were $13,351,210, which represents an increase of $3,945,159 (or 41.9% which includes the effectiveness of the exchange rate) from revenues of $9,406,051 for the comparable 2008 period. The increase in revenues reflects the Company’s successful tendering for engineering projects controlled by Power Supply Bureaus in Shanxi, Shandong, Yunnan and Guangxi provinces.

Cost of Sales for the nine month period in 2009 was $10,406,404, which represents an increase of $2,595,994 (or 33.2%) from $7,810,410 for the comparable 2008 period. The increase in cost of sales reflects the corresponding increase in sales for the period. Gross profit for the 2009 period was $2,944,806 representing an increase of $1,349,165 or $84.6% from $1,595,641 for the comparable period in 2008. The increase in gross profit is attributable to the increase in revenues for the 2009 period.

	Three months					Three months
	ended September					ended September
	30, 2009		% Sales			30, 2008		% Sales
Revenue	$	6,637,692		100	%	$	3,997,033		100	%
Cost of Sales		5,008,791		75	%		3,292,637		82	%
Gross Profit	$	1,628,901		25	%	$	704,396		18	%

Our revenues for the three months ended September 30, 2009 were $6,637,692, which represents an increase of $2,640,659 (or 66.1% which includes the effectiveness of the exchange rate) from revenues of $3,997,033 for the comparable 2008 period. The significant increase in revenues is

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due principally to the effectiveness of the PRC government’s stimulus money and policy to boost domestic demand. For the quarter ended September 30, 2009, the Company aggressively participated in tendering for engineering projects of power supply companies in different provinces. As a result, sales increased dramatically during the quarter.

Cost of Sales for the three month period ended September 30, 2009 was $5,008,791, which represents an increase of $1,716,154 (or 52.1%) from $3,292,637 for the comparable 2008 period. The increase in cost of sales is connected to the corresponding increase in revenues for the period. Gross profit for the 2009 three month period was $1,628,901 representing an increase of $924,505 (or $131.2%) from $704,396 for the comparable period in 2008. The increase in gross profit is attributable to the increase in revenues for the 2009 period.

Selling and Administrative Expenses

Selling and administrative expenses (which includes salaries and benefits, depreciation and amortization, travel and promotion, technical support and related overhead, among other charges) for the 2009 nine month period were $2,416,659, which represents an increase of $1,543,992 (or 176.9%) from $872,667 for the prior year period. The increase in selling and administrative expenses for the 2009 nine month period was due principally to the $615,000 in salaries of the Company’s CEO and Secretary in 2009 compared with $0 for the 2008 period, and professional fees of $435,000 in 2009 compared with $0 in the prior period. Additional changes include research & development ($154,655 for the 2009 period compared with $19,520 for the 2008 period), bad debt expense (expense of $512 for the current period versus a prior year credit of $73,951), travel and promotion ($190,831 for the 2009 period compared with $120,542 for the 2008 period), depreciation and amortization ($191,550 for the 2009 period compared with $153,775 for the 2008 period), and other miscellaneous charges ($194,495 for the 2009 period compared with $125,074 for the 2008 period).

During the 2009 period: fuel prices decreased slightly compared with the same period of last year but the increase in sales volume beyond Guangdong Province kept the transportation cost at the same level as last year’s; in order to mitigate the impact of the global financial crisis, management increased the expenses for public relations; the Company lowered advertising cost; the Company actively participated in tendering for engineering projects that are mostly funded through the governments’ stimulus money and correspondingly the Company’s tendering expenses increased; research and development increased from the prior period for the development of new switchgears.

The selling and administrative expenses for the three months ended September 30, 2009 were $1,121,791, which represents an increase of $870,748 (or 346.9%) from $251,043 for the prior year period. The increase for this 2009 period is principally because the Company accrued $265,000 for yearly salaries of our CEO and Secretary in 2009 and $335,000 in certain professional fees and expenses relating to its public company status compared to no expense in 2008.

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Operating Income

During the first nine months of 2009, we had an operating income of $528,147 compared with operating income of $722,974 for the comparable period in 2008, due to the reasons discussed above.

During the three month period ended September 30, 2009, our operating income was $507,110 compared with operating income of $453,353 for the comparable period in 2008, due to the reasons discussed above.

Other Income (Expense)

Other Income (Expense) was $(45,694) for the 2009 nine month period compared with $6,800 for the comparable 2008 period and was $6,637 for the 2009 three month period compared with $(32,295) for the 2008 period. The increase in other expenses for the 2009 nine month period was due primarily to a loss on currency exchange on equipment purchases using European currency.

Income Taxes

The corporate income tax increased from 9% in 2008 to 10% in 2009.

Income before Income Taxes, Net Income for the Period, Total Comprehensive Income, and Loss Per Common Share

For the 2009 nine month period, we had income before taxes of $482,453 compared with income of $729,774 for the comparable period in 2008. For the three month period ended September 30, 2009, we had income before taxes of $513,747 compared with income of $421,058 for the comparable period in 2008. During the 2009 nine month period, we also made a provision for income taxes of $161,644, compared with a provision of $63,041 for the comparable period in 2008. For three months ended September 30, 2009 and 2008, the provisions for income taxes were $114,174 and $37,993, respectively. Our net income for the 2009 nine month period was $320,809, compared with net income of $666,733 for the comparable period in 2008. The net income for the three month period ended September 30, 2009 was $399,573, compared with net income of $383,065 for the comparable period in 2008. Foreign currency translation adjustments, which are the impact of different foreign exchange rates applied to the balance sheet and income statement, were a gain of $25,983 for the 2009 nine month period, compared to a gain of $172,306 for the same period in 2008. Total comprehensive income of $346,792 for the first nine months of 2009 compares with total comprehensive income of $839,039 for the same period in 2008. For the three months ended September 30, 2009, total comprehensive income was $411,130, compared with total comprehensive income of $424,725 for the same period in 2008.

Income per Common Share for the nine months and three months ended September 30, 2009 and for the nine months and three months ended September 30, 2008 was $0.01 per share for each period.

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Current Trends in the Industry

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

We have been able to retain our market share and expect to increase our customer base and level of sales with existing methods of marketing, sales staff and customer service that we currently provide. We view customer service as the most important factor in our marketing mix. As mentioned above “Trends in the Industry”, with new developments in rural areas, the PRC will be accepting bids to service such areas to establish electrical networks. We anticipate such new developments will increase our sales by 25% per year for fiscal 2009 year end. A majority of our sales are generated through existing customer base by referrals however with these new developments.

Liquidity and Capital Resources

As of September 30, 2009, we had working capital of $1,291,087 compared to working capital of $2,208,696 as of December 31, 2008. The decrease is due principally to the decrease of cash reserve and the increase in accounts payable, partially offset by a increase in accounts receivable.

Over the next three months, we will require approximately $5,000,000 to sustain our working capital needs as follows, based on projected sales of $6,700,000:

Materials, Labor, Overhead	$	4,200,000
Selling Expenses and Administrative Expenses	$	800,000
Total	$	5,000,000

Sources of Capital

We expect our revenues generated from operations to cover our projected working capital needs; however, if additional capital is needed, we will explore financing options such as shareholder loans. Shareholder loans are without stated terms of repayment. In the past, we have been charged interest at the rate of 6% per annum. We have no formal agreement that ensures that we will receive such loans. In the event shareholder loans are not available, we may seek long or short term financing from local banks. Presently, we do no have any credit facilities outstanding with any banks.

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Material Commitments

We do not have any material commitments for capital expenditures other than the engineering expenditure for Asia Electrical Power Industrial Zone.

Seasonal Aspect

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

Off Balance Sheet Arrangements

We have no off balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 1 to our audited consolidated financial statements included in the annual report for the year ended December 31, 2008. We prepare our financial statements in conformity with U.S. GAAP, which requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management’s judgment.

NEW ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, Fair Value Measurement (FAS 157). While this statement does not require new fair value measurements, it provides guidance on applying fair value and expands required disclosures. FAS 157 was effective for the Company beginning in the first quarter of fiscal 2009. This pronouncement should not have a material impact on our financial statements.

In February 2008, FASB issued “Effective Date of FASB Statement No. 157” FASB Staff Position (FSP) No. 157-2 (FSP No. 157-2). FSP No. 157-2 delayed the effective date of FAS 157 until fiscal years beginning after November 15, 2008, for fair value measurements of non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in an entity’s financial statements on a recurring basis (at least annually).

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In February 2007, FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). The statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain others items at fair value. FAS 159 was effective for us beginning in the first quarter of 2009. This pronouncement should not have a material impact on our financial statements.

In March 2008, FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It was effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We do not expect the adoption of FAS No. 161 to have a material impact on our financial statements.

Off-Balance Sheet Commitments and Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Revenue Recognition

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

Income Taxes

We account for income taxes under the provisions of FAS No. 109, “Accounting for Income Taxes,” as described in Note 12 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008. We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase our income in the period such determination was made. Likewise, if we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to our income in the period such determination is made. We record income tax expense on our taxable income using the

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balance sheet liability method at the effective rate applicable in China in our consolidated statements of operations and comprehensive income.

Item 3. Quantitative and Qualitative Disclosures about Market Risks

Not applicable because we are a smaller reporting company.

Item 4. Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the nine months ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 6. Exhibits

31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Signatures appear on following page)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.

Date: November 13, 2009

By:	/s/ Yulong Guo
	Yulong Guo
	President, Chief Executive Officer and Director
By:	/s/ Yunbin Li
	Yunbin Li
	Chief Financial Officer

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