U.S. SECURITIES AND EXCHANGE COMMISSION
| Washington, D.C. 20549 ________________ FORM 10-Q ________________ |
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the quarterly period ended September 30, 2008 |
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to .
| Commission file number 000-51787 ________________ |
ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
(Exact name of small business issuer as specified in its charter)
________________
NEVADA | 98-0522960 |
6130 Elton Avenue, Las Vegas, Nevada, 89107
(Address of principal executive offices)
1-888-597-8899
(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. Yesx No¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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 filer¨ | Accelerated filer¨ | Non-accelerated | Smaller reporting |
| filer¨ | companyx | ||
| (Do not check if a smaller | |||
| reporting company) |
As of September 30, 2008, 51,959,693 shares of the issuer’s Common Stock, and 5,000,000 preferred shares, $ 0.001 par value per share, were outstanding.
Transitional Small Business Disclosure Format Yes ¨ Nox
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| Item 1. FINANCIAL STATEMENTS |
ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC.
Consolidated Financial Statements
September 30, 2008
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| ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC. | ||
| CONSOLIDATED BALANCE SHEETS | ||
| ASSETS | September 30, | December 31, |
| 2008 | 2007 | |
| Current Assets: | (Unaudited) | (Audited) |
| Cash | $ 2,904,089 | $ 2,920,073 |
| Accounts receivables | 2,756,483 | 1,624,402 |
| Other receivables | 315,692 | 525,180 |
| Advances to suppliers | 154,796 | 249,188 |
| Collateral deposit | 275,457 | - |
| Inventory | 2,782,742 | 2,541,958 |
| Total current assets | 9,189,259 | 7,860,801 |
| Fixed Assets: | ||
| Land use right | 2,389,657 | 2,429,518 |
| Buildings | 3,856,789 | 3,802,277 |
| Production equipment | 439,535 | 275,382 |
| Office equipment | 281,580 | 269,335 |
| Vehicles | 314,236 | 330,796 |
| Construction in progress | 1,418,362 | 567,557 |
| 8,700,159 | 7,674,865 | |
| Less accumulated depreciation | 685,504 | 489,057 |
| Net fixed assets | 8,014,655 | 7,185,808 |
| Other Assets: | ||
| Deposits | 1,053,556 | 811,598 |
| Total Assets | $ 18,257,470 | $ 15 ,858,207 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||
| Current Liabilities: | ||
| Notes payable – bank credit facility | $ 918,189 | $ - |
| Accounts payable | 3,374,562 | 3,389,893 |
| Advances from customers | 1,289,522 | 921,789 |
| Accrued liabilities | 168,978 | 96,578 |
| Other liabilities | 242,146 | 1,570,396 |
| Total current liabilities | 5,993,397 | 5,978,656 |
| Long Term Note Payable | 1,545,483 | - |
| Total liabilities | 7,538,880 | 5,978,656 |
| Stockholders’ Equity: | ||
| Common stock: authorized 150,000,000 shares of | ||
| $0.001 par value; issued and outstanding 51,959,693 | ||
| shares | 51,960 | 51,960 |
| Preferred stock: authorized 5,000,000 shares of $ 0.001 par | ||
| value; issued and outstanding 5,000,000 shares | 5,000 | 5,000 |
| Paid in capital - Stock options | 1,908,333 | 1,908,333 |
| Capital in excess of par value | 7,932,156 | 7,932,156 |
| Retained Earnings (Deficit) | 468,406 | (198,327) |
| Earnings appropriated for statutory reserves | 183,749 | 183,749 |
| Accumulated other comprehensive income (loss) | 168,986 | (3,320) |
| Total stockholders’ equity | 10,718,590 | 9,879,551 |
| Total Liabilities and Stockholders’ Equity | $ 18,257,470 | $15,858,207 |
| 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 and COMPREHENSIVE INCOME (LOSS)
For the Three and Nine Month Periods Ended September 30, 2008 and 2007
(Unaudited)
| Nine Month Periods Ended | Three Month Period Ended | |||
| September 30 | September 30 | |||
| 2008 | 2007 | 2008 | 2007 | |
| Revenue | $ 9,406,051 | $ 8,054,898 | $ 3,997,033 | $ 3,407,703 |
| Cost of Sales | 7,810,410 | 6,748,400 | 3,292,637 | 2,867,053 |
| Gross Profit | 1,595,641 | 1,306,498 | 704,396 | 540,650 |
| Expenses: | ||||
| Stock Options Issued for Services | - | 1,908,333 | - | - |
| Selling and Administrative Expenses | 872,667 | 679,407 | 251,043 | 220,087 |
| 872,667 | 2,587,740 | 251,043 | 220,087 | |
| Operating Income (Loss) | 722,974 | (1,281,242) | 453,353 | 320,563 |
| Other Income (Expense) | 6,800 | (18,862) | (32,295) | (18,872) |
| Income (Loss) before Income Taxes | 729,774 | (1,300,104) | 421,058 | 301,691 |
| Provision for Income Taxes: | ||||
| Current Provision | 63,041 | - | 37,993 | - |
| Net Income (Loss) for the Period | 666,733 | (1,300,104) | 383,065 | 301,691 |
| Other Comprehensive Income - | ||||
| Foreign currency translation adjustments | 172,306 | 232,107 | 41,660 | 100,979 |
| Total Comprehensive Income (Loss) | $ 839,039 | $ (1,067,997) | $ 424,725 | $ 402,670 |
| Income Per Common Share - | ||||
| Basic and Diluted | $0.01 | ($0.03) | $0.01 | $0.01 |
| Weighted average number of sharesoutstanding | 51,959,693 | 51,426,530 | 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, 2008 and 2007 | ||
| (Unaudited) | ||
| 2008 | 2007 | |
| CASH FLOWS FROM OPERATIONS: | ||
| Net income (loss) | $ 666,733 | $ (1,300,104) |
| Adjustments to reconcile net income to net cash | ||
| provided (consumed) by operating activities: | ||
| Charges not requiring the outlay of cash: | ||
| Depreciation and amortization | 236,308 | 57,834 |
| Issuance of stock options for services | - | 1,908,333 |
| Changes in assets and liabilities: | ||
| Increase in accounts receivable | (1,132,081) | (221,353) |
| Decrease in other receivables | 209,488 | 346,843 |
| Decrease in advances to suppliers | 94,392 | 58,414 |
| Increase in inventory | (240,783) | (102,366) |
| Increase in deposits | (241,959) | (224,884) |
| Increase (decrease) in accounts payable | (15,331) | 629,140 |
| Increase (decrease) in advances from customers | 367,732 | 11,081 |
| Increase (decrease) in other liabilities | (1,328,250) | 5,173 |
| Increase (decrease) in accrued liabilities | 72,400 | (7,434) |
| Net Cash Provided (Consumed) By Operating Activities | (1,311,351) | 1,160,677 |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Purchases of fixed assets | (214,350) | (44,993) |
| Increase in construction in progress | (850,804) | (2,425,360) |
| Net Cash Consumed By Investing Activities | (1,065,155) | (2,470,353) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Advances from shareholder | - | 661,189 |
| Proceeds of sales of common stock | - | 2,617,343 |
| Funds set aside for collateral deposit | (275,457) | - |
| Reduction in funds set aside for collateral deposit | - | 63,208 |
| Borrowings under promissory note | 1,545,483 | - |
| Borrowings under bank credit facility | 918,189 | - |
| Repayment of bank credit facility | - | (185,109) |
| 2,188,215 | 3,156,631 | |
| Net Cash Provided By Financing Activities | ||
| Affect on cash of foreign exchange rate changes | 172,307 | 232,107 |
| Net change in cash | (15,984) | 2,079,062 |
| Cash balance, beginning of period | 2,920,073 | 995,576 |
| Cash balance, end of period | $ 2,904,089 | $ 3,074,638 |
| 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, 2008
(Unaudited)
| 1. | BASIS OF PRESENTATION |
| The unaudited interim financial statements of Asia Electrical Power International Group Inc. (“the Company”) as of September 30, 2008 and for the nine month periods ended September 30, 2008 and 2007, 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 for such periods. The results of operations for the quarter ended September 30, 2008 are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2008. | |
| 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, 2007. | |
| 2. | INCOME TAXES |
| The Company was granted a 50% exemption by the People’s Republic of China from income taxes for the year 2008. Such exemptions are available to Chinese enterprises classified as foreign investment companies. This exemption is for 100% of 2007 taxes and 50% of the income taxes of 2008, 2009, and 2010. | |
| 3. | SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION |
| The Company did not make any cash payments of interest during the three month periods of 2008 and 2007. Cash payments of income taxes were made in the amount of $ 60,000 during the 2008 period; there were none made during the 2007 period. | |
| There were no non cash investing or financing transactions during any of the periods reported. | |
| 4. | NOTES PAYABLE |
| The Company has a bank credit facility under which it can borrow up to $2,300,000 at interest rates established periodically by the China central bank. The Company borrowed $918,189 under this facility during the third quarter of 2008. This debt is collateralized by the land use right and by a cash deposit equal to 30% of the outstanding balance. | |
| On June 2, 2008, the Company borrowed $1,545,483 from a private lender which is also a shareholder. The loan is convertible to common shares valued at the market price, less a discount of 20% at the conversion date. This obligation is due December 31, 2010, bears interest at 6%, and is not collateralized. | |
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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 filing. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this filing 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 or the Company”)was incorporated in the State of Nevada on August 30, 2002 as “Berita International Corporation”, for the purpose of producing high and mid-voltage electrical switchgears in the People’s Republic of China (“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.
| Trends in the market |
We expect a high volume of new domestic business from electricity infrastructure investments as a result of the PRC’s 11th five year plan which will:
“Build new socialist rural areas, optimize and upgrade industrial structures, promote concordant development of regions, build a conservation-minded and environment-friendly society, further system reform and enhance opening-up, efficiently practice strategies to invigorate China through science and education and through human resource development, and give impetus to constructing a socialist harmonious society.” – Source,www.China.org
With new developments in rural areas, the PRC will be accepting bids to service such areas to establish electrical networks. We anticipate such new developments will increase our sales by 40% in 2008 and by an additional 30% during 2009. A majority of our sales are generated through our existing customer base by referrals; however, with these new developments, we expect a substantial amount of our sales to be generated by fulfilling PRC contract bids to service rural areas through 2009.
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| Results of Operations |
For the nine months periods ended September 30, 2008, compared to nine months periods ended September 30, 2007.
| Revenues |
We generated revenues for the nine months periods ended September 30, 2008 and 2007 of $ 9,406,051 and $8,054,898, respectively. The increase of $ 1,351,153 was lower than expected as a result of slower sales in provinces affected by earthquake, flooding, and an unanticipated snow storm during the nine months periods ended September 30, 2008.
We generated revenues for the three months period ended September 30, 2008 and 2007 of $ 3,997,033 and $3,407,703, respectively. Revenues increased by $ 589,330 however such increase was lower than expected as a result of factors mentioned above.
We expect our revenues to increase as a result of orders from the Chinese government granted during the quarter. The orders were for our secondary electrical power systems components and complete-set equipment to be used to restore and upgrade the damaged electrical grids in numerous provinces throughout China.
On January 29, 2008, just before the start of the Chinese New Year, China was struck with the worst winter storm in over half a century. Millions of people traveling for the Chinese New Year holiday were left stranded due to major disruption and breakdown of the electric grid infrastructure in most cities and provinces throughout China, grounding trains to a halt and engulfing homes, businesses and shelters in darkness. This breakdown of the electric grid caused the Chinese Premier to issue an almost unprecedented apology to the people and promise to make upgrading the electrical grid a top priority for the government. The estimated cost for restoring the electric grid throughout China was placed at about $5.5 billion dollars with an additional $36 billion required to upgrade and reform the grid.
We are one of only a select number of electrical component manufacturers in China to have been granted the designated manufacturer status and received certification as a "Key Manufacturer" by the National Power Authority of China. This initial order of $7 million indicates we have an important part to play in the initial phase of the restoration and rebuilding of the electrical power grid in China. The orders are expected to be completed and delivered during the 4th quarter ended this year.
| Cost of Sales |
Our cost of sales for the nine months periods ended September 30, 2008 and 2007 were $ 7,810,410 and $6,748,400 which were 83% and 84% of revenue for each year, respectively.
Our cost of sales for the three months period ended September 30, 2008 and 2007 were $ 3,292,637 and $2,867,053 which were 82% and 84% of revenue for each year, respectively.
Our cost of sales is typically 80% and 90% of revenues depending on whether we take advantage of purchase discounts granted on advances made to suppliers or make larger bulk purchases in which we receive a discounted bulk price.
Also included in cost of sales is transportation expense for delivery to customers. Such costs are on the rise as a result of the PRC imposing further taxes on fuel and new fees per transportation unit based on the vehicle weight. These fees were imposed to generate the funds for improvements of roads.
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| Selling and Administrative Expenses |
Our other selling and administrative expenses consist of the following for the three and nine months periods ended September 30, 2008 and 2007:
| Nine Months Periods Ended September 30 | ||||
| 2008 | 2007 | Change | % Change | |
| Salaries, benefits and dues | $ 417,712 | $ 324,424 | $ 93,288 | 29% |
| Depreciation | 153,775 | 48,057 | 105,718 | 220% |
| Travel and promotion | 120,542 | 132,736 | (12,194) | -9% |
| Office and utilities | 54,553 | 61,397 | (6,844) | -11% |
| Technical support | 28,613 | 23,751 | 4,862 | 20% |
| Research & development | 19,520 | (437) | 19,957 | 4567% |
| Marketing | 16,318 | 15,611 | 707 | 5% |
| Transportation | 10,510 | 5,867 | 4,643 | 79% |
| Occupancy | - | 46,943 | (46,943) | -100% |
| Bad debt recoveries | (73,950) | (25,384) | (48,566) | 191% |
| Other | 125,074 | 46,442 | 78,632 | 169% |
| Total expenses | $ 872,667 | $ 679,407 | $ 193,260 | 28% |
| Three Months Period Ended September 30 | ||||
| 2008 | 2007 | Change | % Change | |
| Salaries, benefits and dues | $ 88,734 | $ 90,533 | $ (1,799) | -2% |
| Depreciation | 60,919 | 16,287 | 44,632 | 274% |
| Travel and promotion | 42,948 | 48,714 | (5,766) | -12% |
| Office and utilities | 21,644 | 22,031 | (387) | -2% |
| Research & development | 11,892 | 1,299 | 10,593 | 815% |
| Technical support | 9,908 | 9,404 | 504 | 5% |
| Transportation | 7,367 | 1,852 | 5,515 | 298% |
| Marketing | 7,090 | 2,922 | 4,168 | 143% |
| Occupancy | - | 15,865 | (15,865) | -100% |
| Bad debt recoveries | (43,373) | (4,594) | (38,779) | 844% |
| Other | 43,914 | 15,774 | 28,140 | 178% |
| Total expenses | $ 251,043 | $ 220,087 | $ 30,956 | 14% |
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Salaries increased by $ 93,288 for the nine month period ended September 30, 2008 as a result of bonuses paid to sales staff employees and also retaining additional staff in branch offices. For the three month period ended September 30, 2008, salaries remained similar to levels of the previous comparable period in 2007 as a result of a decrease in benefits and bonuses paid.
OurTravel and Promotion costs were decreased $ 12,194 during the nine month period ended September 30, 2008 as a result of weather conditions as mentioned above. We intend on increasing our travel to eastern and western markets in the 4th quarter with efforts such as holding functions for current and prospective customers for the purpose of maintaining good client relations with current customers while providing an opportunity to generate interest by prospective customers. We hope to generate referrals through our existing customer base. We expect to incur such promotion costs on an ongoing basis. For the three month period ended September 30, 2008, travel and promotion decrease slightly by $ 5,766 as a result of decrease in fuel prices.
Office and Utilitiescosts decreased as a result of management’s efforts to mitigate the increase in utility rates. We expect such rates to further decrease in the next quarter.
Technical Supportcosts increased during the nine and three months periods ended September 30, 2008 as a result of various on site visits initiated by management to ensure customer satisfaction. We expect such expenses to increase during the next quarter along with an increase in travel costs to eastern and western markets.
OurResearch and Developmentcosts increase as a result of expenditures made on product refinements. We expect to incur such costs on an ongoing basis
Marketing costs increased as a result of in house advertising for our new manufacturing facilities consisting of print ads in newspapers and magazines. To date we have not finalized any agreements with marketing agencies.
OurTransportation costs increased as a result the increase in technical support expense and related transportation costs.
Occupancy expenses were not incurred as we moved into our newly constructed facilities in September 2007. We do not expect to incur occupancy expenses in the future.
OurBad Debtsrecoveries increased while our bad debt expense decreased as a result of recovery of various accounts which were considered uncollectible as they were older than 3 years.
| Liquidity and Capital Resources |
As of September 30, 2008, we had a positive working capital of $ 3,195,862.
Over the next 12 months, we will require approximately $1,000,000 of additional working capital to support our expected sales growth.
| Sources of Capital: |
We will explore financing options such as shareholder loans. Shareholder loans are without stated terms of repayment with interest at the rate of 6% per annum. Shareholders loans are granted from time to time as required to meet current working capital needs. We have no formal agreement that ensures that we will receive such loans. We may exhaust this source of funding at any time.
In the past, we have normally been able to sustain our working capital through shareholder loans. We expect this source of funding to continue; however, in the event shareholder loans are no longer granted to us, we may obtain long or short term financing through bank loans.
We have a credit facility with Shenzhen Business Bank under which we can borrow up to $2,300,000, with interest at the Basic Rate (a rate which is promulgated periodically by the China central bank - People’s Bank of China). The facility expired October 11, 2007 and was renewed for another year. The principal balance on this facility at September 30, 2008 was $ 918,189. The facility is collateralized by the land use right and by a cash deposit with the bank equal to 30% of the outstanding balance, or $ 275,457.
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We may also receive capital contributions from our shareholders.
On June 2, 2008, we issued a promissory note in the amount of $ 1,545,483 to Century International Group Inc. (“Century”) for the purpose of funding our working capital needs. The loan is convertible to common shares valued at the market price, less a discount of 20% at the conversion date. This obligation is due December 31, 2010, bears interest at 6%, and is not collateralized.
Century is a Belize company 100% owned by Liping Zheng, a minority shareholder holding less than 5% of our outstanding capital. Mr. Zheng remains a minority shareholder through his indirect ownership of 872,447 shares through Century, in addition to his direct ownership of his shareholdings of the Company.
| Plans for Expansion: |
Given sufficient funding, we expect to expand our operations throughout the region by establishing up to 45 more branch offices devoted to marketing efforts. Each branch office will have approximately 3-10 full time and part time employees. To sustain a new branch office for 12 months, we will require a total of $200,000 of which $164,000 will be allocated to salaries and $36,000 allocated to rent. The need for the $200,000 for expansion and funds required to complete new manufacturing facilities, as discussed below, is not included in the $1,000,000 we require to meet working capital needs.
We do not know of any trends, events or uncertainties that are likely to have a material impact on our short-term or long-term liquidity other than those factors discussed above.
| Construction of Employee Dormitories |
Through September 30, 2008, we incurred construction costs in the amount of $ 1,418,361 for construction of employee dormitories. Such costs consist of excavation and land leveling, surrounding roadwork, design & architectural fees and building construction costs relating to structural work. Construction is expected to be completed December 2008.
| Cash Flows Operating Activities |
Net Cash consumed by operating activities was $ 1,311,351 in the nine month 2008 period, compared to cash provided by operating activities of $ 1,160,677 in the 2007 nine month period; the changes are summarized as follows:
| 2008 | 2007 | |
| Net income (loss) | $ 666,733 | $ (1,300,104) |
| Issuance of stock options | - | 1,908,333 |
| Increase in accounts receivable | (1,132,081) | (221,353) |
| Decrease in advances to suppliers | 94,392 | 58,414 |
| Increase in inventory | (240,783) | (102,366) |
| Increase (decrease) in accounts payable | (15,331) | 629,140 |
| Increase in advances from customers | 367,733 | 11,081 |
| Increase (decrease) in other liabilities | (1,328,250) | 5,173 |
| Other | 276,236 | 172,359 |
| Net Cash Provided (Consumed) By Operating Activities | $ (1,311,351) | $ 1,160,677 |
Our accounts receivables increased as a result of retaining several contracts which were made on account net 60 days. Our advances to suppliers decreased substantially as a result of the fact that our new manufacturing facilities were completed September 2007 and advances were no longer required to secure various building materials.
In anticipation of increased sales projected for the balance of the year, we replenished our inventory levels to fulfill orders made on account during the last quarter of 2007. As a result, inventory levels were sufficient to meet our needs during the third quarter of 2008. We settled a portion of these purchases made on account
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relating to inventory. We also received additional advances from customers in anticipation of orders that will be shipped during the first quarter of 2009.
| Investing Activities |
Net Cash consumed by investing activities in 2008 was $ 1,065,155 which was used to purchase office equipment for our branch offices and new production equipment to be fitted in new manufacturing facilities. Increase in construction in progress is attributed solely to construction of dormitories for employees. The 2007 balance mainly consists of amounts expended for new manufacturing facilities. Such facilities were completed September 2007.
| Financing Activities |
Net Cash provided by financing activities in 2008 was $ 2,188,215 as result of loans provided under the credit facility with the Shenzhen Business Bank ($1,545,483) and the promissory note with Century, as noted above. Partially offsetting these loans was a $275,457 collateral deposit required under the credit facility. Please refer to “Sources of Capital” above.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company does not believe that it is significantly exposed to interest rate risk, foreign currency exchange rate risk, commodity price risk, or equity price risk.
| Item 4T. 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 and 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 and Chief Accounting Officer have 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-Q.
(B) Changes in Internal Controls Over Financial Reporting
In connection with the evaluation of the Company’s internal controls during the Company’s third quarter ended September 30, 2008, the Company’s Chief Executive Officer and Chief Accounting Officer have 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 affect, the Company’s internal controls over financial reporting.
| PART II. |
| OTHER INFORMATION |
| Item 1. | Legal Proceedings |
| None. | |
| Item 1A. | Risk Factors |
A description of the risks associated with our business, financial condition, and results of operations is set forth in our annual report on Form 10-K for the year ended December 31, 2007.
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| 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. | |||
| Item 6. | |||
| A) | Exhibits | ||
| Exhibit Number | Description | ||
| 3.1 | Certificate of Incorporation, dated August 30, 2002-Berita International Corporation(1) | ||
| 3.2 | Certificate of Incorporation, dated December 24, 2003-Keiji International GroupInc.(1) | ||
| 3.3 | Certificate of Incorporation, dated September 30, 2004-Asia Electrical Power | ||
| International Group Inc.(1) | |||
| 3.4 | Articles of Incorporation, dated August 26, 2002-Berita International Corporation(1) | ||
| 3.5 | Certificate Amending Articles of Incorporation dated December 24, 2003 changing | ||
| our name to “Keiji International Group Inc.”(1) | |||
| 3.6 | Certificate Amending Articles of Incorporation dated September 30, 2004 changing | ||
| our name to “Asia Electrical Power International Group Inc.”(1) | |||
| 3.7 | Bylaws, effective September 3, 2002(1) | ||
| 31.1 | CEO Section 302 Certification | ||
| 31.2 | CAO Section 302 Certification | ||
| 32.1 | CEO Section 906 Certification | ||
| 32.2 | CAO Section 906 Certification | ||
| (1) | Incorporated by reference from our Form SB-2 that was originally filed with the SEC on October 29, 2004. | ||
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| B) Reports on Form 8-K |
| None |
| SIGNATURES |
| SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
| ASIA ELECTRICAL POWER INTERNATIONAL GROUP INC. |
| Date: November 14, 2008 |
/s/ Yulong Guo
By:
Yulong Guo
President, Chief Executive Officer and Director
/s/ Xiaoling Chen
By:
Xiaoling Chen
Secretary, Chief Accounting Officer
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