The global economic issues that are limiting capital and otherwise affecting the economies of North America and Europe may have an effect on the Company and its business plan. As long as there is this dislocation in the global economy, the portion of the automotive industry in which the Company operates will be subject to its stresses which may reduce the demand for the Company’s products in North America. Such dislocation may also require the Company to focus more marketing and business attention on its markets in China. Although the Chinese economy is still considered to be growing, albeit at slower rates than before, there is no assurance that its economy and the engine market in which the Company operates will not experience slowdown or other dislocation. Furthermore, new capital may be limited or unobtainable, or if obtainable at prices and terms that will not be acceptable to the Company or permit the Company to implement its business plan and be profitable. Therefore, investors must evaluate an investment in the Company and its success in light of the larger global economy, the Chinese and North American markets for its products and the impact it will have on the Company’s ability to implement its business plan, and ultimately the Company’s ability to survive the economic dislocations that have occurred and are continuing to occur.
Results of Operations
Three Months Ended March 31,September 30, 2009 Compared to Three Months Ended March 31,September 30, 2008
Revenue
Revenue increased by $8,053$761,836 or 1%64% to $976,967$1,948,406 for the three months ended March 31,September 30, 2009 compared with $968,914$1,186,570 for the three months ended March 31,September 30, 2008. Sales revenue for the three months ended September 30, 2009 consisted solely of sales of gears and gearboxes in China, as a result of the Company’s sale of IBC, the North America / Auto Parts segment in June 2009. Revenue for the three months ended March 31, 2009,September 30, 2008, consisted of sales of automotive parts in North America (North America/Auto Parts segment) and sales of gears and gearboxes in China, (China/Gear segment), for $241,374$339,563 and $735,593,$847,007, respectively. SalesThe sales revenue of gears and gearboxes for the three months ended March 31, 2008 consistedfirst fiscal quarter of $369,5152010 grew by approximately 130% compared to the sales of the same products in China for North America/Auto Parts segment,same period in the prior fiscal year. The increase in gears and $599,399gearboxes sales was attributable to the Company’s expansion in production capacity and its continued marketing efforts to develop its customer base. Revenues during the period were also beneficially affected by the recovery of domestic market in China for China/Gear segment, respectively.gear and gearbox products as a result of Chinese government’s economic stimulus plan.
Cost of Sales and Gross Margin
Cost of sales was $770,546$1,543,174 for the three months ended March 31,September 30, 2009, decreasingincreasing by $15,825$691,087 or 2%81%, from $786,371$852,087 for the three months ended March 31,September 30, 2008. The gross margin was approximately 21% for the three months ended March 31,September 30, 2009, compared to approximately 19%29% (excluding auto parts business) for the three months ended March 31,September 30, 2008. For the China/Gears segment, theThe decrease in gross margin in this quarter as compared to the same period in prior fiscal year was attributedattributable mainly to a general decrease in gear prices and the launch of new gearbox products, to the market, margin of which is lower than for gears; for the North America/Auto Parts segment, the gross margingears. The shift in product mix and development of new products has been increasedimplemented by the Company as a strategy to quickly penetrate the market for its normal level during the period, compared with the same period in prior fiscal year.products and build sales.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses consisted primarily of labor costs and overhead costs for sales, marketing, finance, legal, human resources and general management. Such costs also include the expenses recognized for stock-based compensation pursuant to FAS 123(R)SFAS 123R (ASC 718).
SG&A expenses increaseddecreased by $257,735$124,448 to $623,392$344,240 in the three months ended March 31,September 30, 2009, from $365,657$468,688 in three months ended March 31,September 30, 2008. SG&A increaseddecreased for the current period compared with the same period in the prior fiscal year, and the decrease primarily attributedwas attributable to incurrencethe exclusion of researchthe expenses associated with IBC, reduction in rental expense, and development expensesreduction in China/Gear segment for gearbox products,some professional and additional legal and other consulting expenses during the period.
Net Loss
Net loss reached $319,817was $28,355 in three months ended March 31,September 30, 2009, compared with net loss of $140,428$130,538 in the three months ended March 31,September 30, 2008. The net loss was mainly attributedattributable to R&D expenses for new products, the costs related to being a public company including professional services related to auditing, legal and other services, and non-cash expenses recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R), partially offset by the net interest income and net other income of $51,462.
Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2008
Revenue
Revenue increased by $540,564 or 22% to $2,984,064 for the nine months ended March 31, 2009 compared with $2,443,500 for the nine months ended March 31, 2008. Revenue for the nine months ended March 31, 2009, consisted of sales of automotive parts in North America (North America/Auto Parts segment) and sales of gears and gearboxes in China (China/Gear segment), for $869,407 and $2,114,657, respectively. Sales revenue for the nine months ended March 31, 2008 consisted of $788,942 for North America/Auto Parts segment, and $1,654,558 for China/Gear segment, respectively.
Cost of Sales and Gross Margin
Cost of sales was $2,316,530 for the nine months ended March 31, 2009, increasing by $387,549 or 20%, from $1,928,981 for the nine months ended March 31, 2008. The gross margin was approximately 22% for the nine months ended March 31, 2009, compared to approximately 21% for the nine months ended March 31, 2008. For the China/Gears segment, gross margin slightly decreased in the nine-month period as compared to the same period in prior fiscal year, due to the launch of new gearbox products to the market, the margin of which is lower than for gears; for the North America/Auto Parts segment, gross margin has been increased to its normal level during the period, compared with the same period in prior fiscal year.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses consisted primarily of labor costs and overhead costs for sales, marketing, finance, legal, human resources and general management. Such costs also include the expenses recognized for stock-based compensation pursuant to FAS 123(R)123R (ASC 718).
SG&A expenses increased by $403,984 to $1,605,608 in the nine months ended March 31, 2009, from $1,201,624 in nine months ended March 31, 2008. SG&A increased for the current period over the same period in the prior fiscal year primarily attributed to incurrence of research and development expenses in China/Gear segment for gearbox products, and additional legal and other consulting expenses during the period.
Net Loss
Net loss reached $817,056 in nine months ended March 31, 2009, compared with net loss of $634,943 in the nine months ended March 31, 2008. The net loss was mainly attributed to R&D expenses for new products, the costs related to being a public company including professional services related to auditing, legal and other services, and non-cash expenses recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R), partially offset by the net interest income and net other income of $106,148.
Liquidity and Capital Resources
As of March 31,September 30, 2009, Equicap had current assets equal to $8,229,219$10,884,641, which primarily were comprised of cash and cash equivalents of $3,749,327,$1,160,252, restricted cash of $190,992,$414,061, inventory of $1,459,691$1,578,808 and net trade related receivables and other receivables of $1,155,734,$2,283,243, and advance payments of $1,540,640. The$5,362,956. Approximately $4.6 million of the advance payments represented a deposit thatan advance payment made by the ZhongChaiZhongchai JV placed to secureZhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), for the exclusive right to acquire 100% interestpurchase of a project,land use rights and the ZhongChai JV is entitled to refundbuilding, including fixtures thereto, for Zhongchai JV’s future expansion of the full deposit amount in case the project is not completed or ZhongChai JV decides not to pursue the transaction within the twelve-month period ending October 17, 2008. As of March 31, 2009, ZhongChai JV has received refund of approximately $3.4 million and the balance is under governmental approval procedures before the amount may be returned.production capabilities. Equicap’s current liabilities as of March 31,September 30, 2009 were $1,847,814,$4,397,457, which primarily were comprised of short term bank loan, trade accounts payable and accrued expenses, trade notes payable, and other payables.payable. At March 31,September 30, 2009, Equicap had working capital of $6,381,405.$6,487,184. Equicap believes that it has sufficient operating capital for its current operations.
Through the fiscal year ended June 30, 2009, Equicap has funded its operations from income generated by its IBC subsidiary (which was sold by the Company in June 2009) and, to a greater extent, by the income generated by its PRC subsidiaries.subsidiaries and from the sale of equity securities. The Company’s principal equity funding for the Company was a private placement in March 2007, in which Equicap sold 8,450,704 shares at an aggregate offering price of $12,000,000. After related expenses, Equicap had net proceeds of approximately $10,000,000. The net proceeds of the private placement are being used by Equicap and its various subsidiaries principally for manufacturing, market expansion, product development, product acquisition and working capital and general corporate purposes.
Equicap used $8,000,000 of the proceeds from the March 2007 offering to fund the capital of ZhongChai JV. These funds are available as working capital of the joint venture. The joint venture partner contributed $2,600,000 of working capital simultaneously with the contribution by Equicap.
During the first quarter of fiscal year 2008, Equicap used approximately $3,700,000 of its cash assets to acquire Shengte as a wholly-owned subsidiary of ZhongChai JV. The cash assets used for this acquisition were those forming a part of the working capital contributed to ZhongChai JV. Shengte is a manufacturer and distributor of gears mainly used in engines and gearboxes, and gearboxes (transmissions) which are primarily used in industrial equipment such as forklift trucks. We expect that future cash flows generated from the operation of gear and gearbox business will be sufficient to cover Equicap’s China/Gear Segment’sthe Company’s working capital requirements.
Also duringDuring the first quarter of fiscal year 2008, Equicap paid a liquidated damages amount of $32,000 because it did not have thea registration statement for certain shares declared effective within the time period specified in theby a date determined under a registration rights agreement forentered into in connection with the March 2007 offering. As a result Equicap was obligated to pay
On June 8, 2009, the liquidated damage amount provided in theCompany, with its wholly owned subsidiary Usunco, entered into an agreement to sell IBC, the investors whichwholly owned subsidiary of Usunco. The transaction was closed on June 15, 2009. The sale agreement provided for the sale of all the share equity of IBC owned by Usunco to certain of the management persons of IBC, Mr. Philip Widmann and Ms. Ruth Kirshner, in exchange for the following: (i) the cancellation of an aggregate of $32,000.555,994 shares of common stock of Company which those individuals owned, and (ii) the payment of $60,000 in installments pursuant to the terms of an unsecured promissory note, the final payment of which will be November 15, 2010. As part of the transaction, the Company cancelled $428,261.49 through the closing date, of inter-company debt which funds had been used in the business of IBC prior to the transaction.
On November 6, 2008, a group of the investors filed a law suit in federal court in New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and vFinance Investment, Inc. based on alleged violations of the Securities Exchange Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional malpractice and negligent misrepresentation arising out of the private placement closed on March 7, 2007. The action was settled by an agreement dated July 31, 2009, which provided (i) for a third party, Ruihua International Limited ("Ruihua"), to purchase all the shares of common stock of the Company owned and held by the plaintiffs, (ii) upon the purchase of the shares, for the Company and Mr. Wang and each of the plaintiffs to exchange general mutual releases as to all matters arising concerning the plaintiffs' purchase and holding of the common shares of the Company, and (iii) for a stipulation to dismiss the action. The action was discontinued with prejudice by stipulation among all the parties which was ordered by the court on August 4, 2009. The Company incurred legal and other consulting expenses and indemnification claims for approximately $315,000 related to the lawsuit and the settlement efforts thereof.
As Equicap expands its operations and considers additional acquisitions of private companies, divisions or product lines, it may require additional capital for its business development and operations. Equicap does not have any specific sources of capital at this time, however,therefore, it believes that it will be ablewould need to find additional funding for its capitalization needs. Such capital may be in the form of either debt or equity or a combination thereof.combination. To the extent that financing is in the form of debt, it is anticipated that the terms will include various restrictive covenants, affirmative covenants and credit enhancements such as guarantees or security interests. The terms of any proposed financing may not be acceptable to Equicap. There is no assurance that funding will be identified or accepted by Equicap or, that if offered, it will be concluded.
From time to time since the Share Exchange, some of the private placement investors sought to end their investment in the Company. There had been discussions with these investors about proposals in which the Company might buy back the investors’ shares of common stock. The Company and those investors did not conclude any definitive arrangements or any written agreements about any aspect of the foregoing discussions or considerations. On November 6, 2008, nine of the investors in the Share Exchange filed a law suit against the Company, Mr. Wang and vFinance Investments, Inc. which in part seeks a return of their investment funds and other sums. For a further discussion of this legal action, see “Part II- Other Information, Item 1. Legal Proceedings.”
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).
Critical Accounting Policies and Estimates
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Stated of America. The consolidated financial statements include the accounts of the parent companyEquicap, Inc. and theits wholly and majority owned subsidiaries. Inter-company accountsAll inter-company transactions and transactionsbalances have been eliminated in consolidation.
Cash and Cash Equivalents
In accordance with Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows,” the Company considers all highly liquid instruments with original maturities of three months or less to be cash and cash equivalents.
Accounts Receivable and Bad Debt Reserves
Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at the end of the period. Based on its assessment of the credit history with customers having outstanding balances and current relationships with them, management makes conclusions whether any realization of losses on balances outstanding at the end of the period will be deemed uncollectible based on the age of the receivables. For the North America/Auto Parts segment, the Company reserves 5% of accounts receivable balances that have been outstanding for greater than 90 days. For the China/Gear segment, theThe Company reserves 0.5% of accounts receivable balances that have been outstanding below three months, 5% of accounts receivable balances that have been outstanding between three months and six months, 20% of receivable balances that have been outstanding within one year, 50% of receivable balances that have been outstanding for between one year and two years, and 100% of receivable balances that have been outstanding more than two years.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the weighted-average basis and includes all costs to acquire and other costs incurred in bringing the inventories to their present location and condition. The Company evaluates the net realizable value of its inventories on a regular basis and record a provision for loss to reduce the computed weighted-average cost if it exceeds the net realizable value. The Company did not record any provision for slow-moving and obsolete inventory as of September 30, 2009 and 2008.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the assets. Repairs and maintenance expenditures, which do not extend the useful lives of the related assets, are expensed as incurred.
Under SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (ASC 360-10), the Company's long-lived assets are evaluated for impairment when events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company also assesses these assets for impairment based on their estimated future cash flows. The Company has not incurred any losses in connection with the adoption of this statement.
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. All other intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are subject to annual impairment testing using the guidance and criteria described in Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (ASC 350). This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. As of March 31, 2009, the Company concluded that there were no impairments on goodwill or indefinite-lived intangibles.
Revenue Recognition
Revenue consists of sales of automotive parts, gears and gearboxes. In accordance with the provisions of Staff Accounting Bulletin No. 103, revenue is recognized when merchandise is shipped, title and risk of loss pass to the customer and collectibility is reasonably assured. Revenue is recorded as the sales price of goods and services, net of rebates and discounts and is reported on a gross basis. The gross basis is used mainly due to the fact that the Company acts as principal in each transaction and is responsible for fulfillment and acceptability of the products purchased, the Company takes title to its products before the products are ordered by its customers, the Company has risk of inventory loss as title of the products is transferred to the Company, the Company is responsible for collection of sales and delivery of products, and the Company does not act as an agent or broker and is not compensated on a commission or fee basis.
Sales Return and Warranties
Generally the Company does not accept the return of products once sold to customers. The Company generally provides a one-year limited warranty covering manufacturing defects and/or product functional failures. After evaluation and confirmation of customer complaints, the Company either replaces the defective products or accepts returns by crediting the customer's account. Such replacements or returns as well as handlingaccount, and is responsible for the costs therefrom are passed through to the suppliers.and expenses thus incurred.
Advertising Costs
The Company expenses the cost of advertising as incurred. Advertising costs for the quarters ended March 31,September 30, 2009 and 2008 were insignificant.
Research and Development Costs
Research and development ("R&D) costs are classified as general and administrative expenses and are expensed as incurred.
Comprehensive Income (Loss)
The Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes rules for the reporting and display of comprehensive income, its components and its components. In addition to net loss,accumulated balances. SFAS No. 130 (ASC220) defines comprehensive income (loss) includesto include all changes in equity, during a period,including adjustments to minimum pension liabilities, accumulated foreign currency translation, and unrealized gains or losses on available-for-sale marketable securities, except those resulting from investments by owners and distributions to owners. Items of comprehensive income include foreign currency translation adjustment.
Foreign Currency Translation
A significant portion of the Company's operations are conducted in China and the financial statements are translated from Chinese RMB, the functional currency, into U.S. Dollars in accordance with SFAS No. 52 "Foreign Currency Translation."Translation" (ASC 830-20). Accordingly, all foreign currency assets and liabilities are translated at the period-end exchange rate and all revenues and expenses are translated at the average exchange rate for the period. The effects of translating the financial statements of foreign subsidiaries into U.S. Dollars are reported as a cumulative translation adjustment, a separate component of comprehensive income in stockholder's equity.
Recent Accounting Pronouncements
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009. Accordingly, the Company refers to Codification in respect to the appropriate accounting standards throughout this document as “ASC”. Implementation of the Codification did not have any impact on the Company’s consolidated financial statements.
In May 2009, the FASB issued SFAS 165 “Subsequent Events” (ASC 855), which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. ASC 855 is effective for interim and fiscal years ending after June 15, 2009, which is the Company’s fourth quarter of fiscal 2009. The adoption of ASC 855 did not have a material impact on the Company’s consolidated financial statements.
In April 2009, FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, was issued to provide additional guidance for estimating fair value in accordance with SFAS No. 157 (ASC 820), Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased.
This FSP also provides guidance on identifying circumstances which indicate that a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
In April 2009, the FASB issued FSP FAS 107-1, APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, (“FSP 107-1, 28-1”). FSP 107-1, 28-1 requires disclosure about fair value of financial instruments in interim financial statements in order to provide more timely information about the effects of current market conditions on financial instruments. FSP 107-1, 28-1 is effective beginning the Company’s first interim period of fiscal 2010. The adoption of this FSP is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2007, the FASB released SFAS 141(R) “Business Combinations” (ASC 805). This standard applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and as such, will be effective beginning in the Company’s fiscal year 2010. This standard establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest and the goodwill acquired. Additionally, transaction costs that are currently capitalized under current accounting guidance will be required to be expensed as incurred under SFAS No. 141(R) (ASC 805). This standard also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination.
Recent Accounting PronouncementsIn December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (ASC 810-10). This standard is will change the accounting and reporting for minority interests, which will now be termed “non-controlling interests.” This standard requires non-controlling interests to be presented as a separate component of equity and requires the amount of net income attributable to the parent and to the non-controlling interest to be separately identified on the consolidated statement of operations. SFAS 160(ASC 810-10) is effective for fiscal years beginning on or after December 15, 2008, and as such, will be effective beginning in the Company’s fiscal year 2010. The Company does not expect the adoption of SFAS No. 160(ASC 810-10) to have a material impact on its consolidated financial statements
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities” (ASC 825-10). This standard permits entities to measure many financial instruments and certain other items at fair value. The purpose is to improve financial reporting by providing entities with the opportunity to mitigate volatility. SFAS No. 159 (ASC 810-10) provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS No.159this standard is to reduce both complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS No. 159This standard also establishes presentation and disclosure requirements designed to facilitate comparisons between companies and choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159This standard is effective for the Company on JanuaryJuly 1, 2008. It is not expected that the adoption of SFAS No. 159 (ASC 810-10) will not have a material impact on the Company’s financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB Statement No. 51.” SFAS No. 160 amends Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements,” to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as a minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS No. 160 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and the noncontrolling interest. SFAS No. 160 is effective for the Company on January 1, 2009, and is not expected to have a significant impact on the Company’s financial condition or results of operations.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations (Revised))”, (SFAS No. 141(R)), to replace SFAS No. 141, “Business Combinations. SFAS No. 141(R) requires the use of the acquisition method of accounting, defines the acquirer, establishes the acquisition date and broadens the scope to all transactions and other events in which one entity obtains control over one or more other businesses. This statement is effective for business combinations or transactions entered into for fiscal years beginning on or after December 15, 2008. The Company is evaluating the impact of SFAS No. 141 (R).
Fair Value of Financial Instruments
The Company considers the carrying amounts reported in the consolidated balance sheet for current assets and current liabilities qualifying as financial instruments and approximating fair value.
Income Taxes
Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect in the United States of America for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. No differences were noted between the book and tax bases of the Company’s assets and liabilities, respectively. Therefore, there are no deferred tax assets or liabilities for the three and nine months ended March 31,September 30, 2009. For the China/Gear segment,operating subsidiaries, the ZhongChai JV isand its subsidiaries are located in the PRC, and isare therefore subject to central government and provincial and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws. The standard corporate income tax rate is 25% from January 1, 2008, when China’s new tax law became effective, decreased from 33%.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The information is not required for smaller reporting companies.
Item 4T. Controls and Procedures.
As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
On November 6, 2008, nine of the investors in the private placement conducted by the Company in March – April 2007 filed a law suit in federal court in New York against the Company, Usunco Automotive Ltd., Mr. Wang and vFinance Investment, Inc. The case name is The Pinnacle Fund, L.P., Pinnacle China Fund. L.P., Atlas Capital Master Fund, L.P., Atlas Capital (Q.P.), L.P., Westpark Capital, L.P., Sandor Capital Master Fund L.P., Vision Opportunity Master Fund, Ltd., Heller Family Foundation, Jayhawk Private Equity Co-Invest Fund, L.P., and Jayhawk Private Equity Fund, L.P., Plaintiffs v. Equicap Inc., Usunco Automotive Ltd., vFinance Investment, Inc., and Peter Wang, Defendants, United States District Court, Southern District of New York, 08CIV 9008. The allegations asserted are based on alleged violations of the Securities Exchange Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional malpractice and negligent misrepresentation arising out of the private placement in March – April 2007. The action seeks a return of the investment funds of the plaintiffs, payment of interest, restitution and disgorgement of profits and other ill gotten gains, damages for lost opportunity and other consequential damages. The plaintiffs have requested that the Company and the other named defendants waive service of the complaint. The Company and Mr. Wang have filed a motion to dismiss the action, which is now under consideration by the court. The Company and Mr. Wang deny any wrongdoing and plan to defend the action. The Company is obligated to provide indemnification to vFinance Investments, Inc. for its expense in defending the claims against it and any settlement costs.None
Item 1A. Risk Factors.
Not applicable to smaller reporting companies.
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. Exhibits.
Item 6. Exhibit | Exhibits.Description |
Exhibit | | Description |
| | |
31.1 | | Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2009. |
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| | Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31,September 30, 2009. |
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32.1 | | Certification of the Company’s Principal Executive Officer and Principal Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| EQUICAP, INC. | |
| | | |
| By: | /s/ Peter Wang | |
| Name: | Peter Wang | |
| Title: | President | |
| | | |
| By: | /s/ David Ming He | |
| Name: | David Ming He | |
| Title: | Chief Financial Officer | |