U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31,September 30, 2009

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

For the transition period from ____ to _____

Commission file number: 000-31091

Equicap, Inc.
(Exact name of small business issuer as specified in its charter)


Nevada 33-0652593
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)

224 Tianmushan  Road,  
Zhongrong Chengshi  Huayuan 5-1-602,  
Zhangzhou, P.R. China 310007
(Address of principal executive offices) (Zip Code)

Issuer’s telephone number: (904) 507-4937

Not Applicable
                            Not Applicable                                   
(Former name, former address and former
(Former name, former address and former
fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x No ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or 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 filer ¨ Smaller reporting company  x

Indicate by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨ No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 28,169,01327,613,019 shares of common stock, par value $.001 per share, outstanding as of MayNovember 11, 2009.

 
 

EQUICAP, INC.

- INDEX -

  Page
PART I – FINANCIAL INFORMATION:INFORMATION:
 
   
Item 1.Financial Statements12
   
 Consolidated Balance Sheet as of March 31,September 30, 2009 (unaudited)2
   
 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Nine Months Ended March 31,September 30, 2009 and 2008 (unaudited)3
   
 Consolidated Statements of Cash Flows for the NineThree Months Ended March 31,September 30, 2009 and 2008 (unaudited)4
   
 Notes to Consolidated Financial Statements, March 31,September 30, 2009 and 20085
   
Item 2.Management’s Discussion and Analysis of Financial Condition and 
 Results of Operations1211
   
Item 3Quantitative and Qualitative Disclosures about Market Risk2019
   
Item 4T Controls and Procedures2019
   
PART II – OTHER INFORMATION:INFORMATION:
 
   
Item 1.Legal Proceedings2019
   
Item 1A.Risk Factors2019
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds2119
   
Item 3.Defaults Upon Senior Securities2119
   
Item 4.Submission of Matters to a Vote of Security Holders2119
   
Item 5.Other Information2119
   
Item 6.Exhibits2120
   
Signatures2221

 
 

FORWARD-LOOKING STATEMENTS

Statements made in this Form 10-Q (the “Quarterly Report”) that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “approximate”, or “continue”, or the negative thereof. Equicap, Inc. (the “Company”) intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. These factors include our current dependence on a limited number of products and customers, the shift in focus of ourthe business on the gear, gearbox and diesel engine markets in Peoples Republic of China, the need to develop new products and create demand for our products,them, the effect of the global recession in the automobile industry on a portionand availability of our business,credit, pricing pressures on our products caused by demand and competition, delivery deadlines,margins, product quality, customer satisfaction ourand the ability to generatesustain and grow sales and expand ourthe customer base, warranty obligations and claims, operating a portion of our business primarily in the Peoples Republic of China, currency controls and exchange rate exposure, and the other risk factors discussed in our reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

EQUICAP, INC.

Consolidated Balance Sheets
  September 30,  June 30, 
  2009  2009 
  
(Unaudited)
    
Assets      
Current assets:      
Cash and cash equivalents $1,160,252  $3,990,767 
Restricted cash  414,061   315,151 
Accounts receivable, net of allowance for doubtful accounts of $10,520        
and $7,732 at September 30, 2009 and June 30, 2009, respectively  1,693,133   1,540,402 
Inventory  1,578,808   1,568,445 
Notes receivable  50,000   57,500 
Trade notes receivable  521,069   391,155 
Other receivables, net  69,041   76,491 
Advance payments  5,362,956   2,988,235 
Prepaid expenses  35,321   38,775 
         
Total current assets  10,884,641   10,966,921 
         
Property and equipment, net  2,722,328   2,662,924 
         
Goodwill  3,411,913   3,407,262 
         
Other assets:        
Intangible assets, net  1,255   1,522 
Deferred compensation  36,408   63,606 
Deferred expenses  247   447 
Total other assets  37,910   65,575 
         
Total assets $17,056,792  $17,102,682 
         
Liabilities        
Current liabilities:        
Short term bank loans $1,422,990  $2,197,500 
Accounts payable and accrued expenses  1,873,246   1,562,217 
Trade notes payable  414,061   315,151 
Taxes payable  57,876   54,292 
Other current liabilities  629,284   635,408 
Total current liabilities  4,397,457   4,764,568 
         
Total liabilities  4,397,457   4,764,568 
         
Commitments and contingencies        
         
Equity        
Stockholders’ equity:        
Common stock, $.001 par value, 500,000,000 shares authorized,        
27,613,019 shares issued and outstanding at September 30, 2009        
and June 30, 2009, respectively  27,613   27,613 
Stock subscription receivable  (33,120)  (33,120)
Additional paid-in capital  16,484,097   16,484,097 
Statutory reserves  124,460   124,460 
Retained earnings (deficit)  (8,468,610)  (8,440,255)
Accumulated other comprehensive income  1,432,336   1,415,474 
Total stockholders’ equity  9,566,776   9,578,269 
         
Noncontrolling interest  3,092,559   2,759,845 
         
Total equity  12,659,335   12,338,114 
         
Total liabilities and equity $17,056,792  $17,102,682 
The accompanying notes are an integral part of these consolidated financial statements.

 
12
 

EQUICAP, INC.

Consolidated Balance SheetsStatements of Operations and Comprehensive Income (Loss)

(Unaudited)
  March 31,  June 30, 
  2009  2008 
Assets (Unaudited)    
Current assets:      
Cash and cash equivalents $3,749,327  $956,973 
Restricted cash  190,992   - 
Accounts receivable, net of allowance for doubtful accounts of $116,851 and $29,747 at March 31, 2009 and June 30, 2008, respectively  981,233   807,484 
Inventory  1,459,691   1,186,900 
Other receivables, net  174,501   141,496 
Advance payments  1,540,640   5,059,154 
Prepaid expenses  59,585   212,405 
Notes receivable  73,250   294,686 
         
Total current assets:  8,229,219   8,659,098 
         
Property and equipment, net:  2,729,642   2,511,602 
         
Goodwill:  3,407,262   3,393,307 
         
Other assets:        
Intangible assets, net  1,791   2,586 
Deferred compensation  90,803   172,395 
Deferred expenses  18,908   51,829 
         
Total other assets:  111,502   226,810 
         
Total assets: $14,477,625  $14,790,817 
         
Liabilities and stockholders’ equity:        
Current liabilities:        
Accounts payable and accrued expenses $1,052,662  $851,284 
Notes payable  190,992   - 
Taxes payable  26,375   946 
Other payables  577,785   530,381 
         
Total current liabilities:  1,847,814   1,382,611 
         
Minority interest:  2,698,526   2,706,313 
         
Total liabilities:  4,546,340   4,088,924 
         
Commitments and contingencies:        
         
Stockholders’ equity:        
Common stock, $.001 par value, 500,000,000 shares authorized, 28,169,013 shares issued and outstanding  28,169   28,169 
Stock subscription receivable  (28,650)  (32,400)
Additional paid-in capital  16,516,901   16,516,901 
Accumulated deficit  (8,000,661)  (7,183,605)
Accumulated other comprehensive income  1,415,526   1,372,828 
         
Total stockholders’ equity:  9,931,285   10,701,893 
         
Total liabilities and stockholders' equity: $14,477,625  $14,790,817 
  For the Three Months Ended 
  September 30, 
  2009  2008 
       
Revenue $1,948,406  $1,186,570 
         
Cost of sales  1,543,174   852,087 
         
Gross profit  405,232   334,483 
         
Operating expenses        
Selling, general and administrative  344,240   468,688 
         
Income (loss) from operations  60,992   (134,205)
         
Other income (expenses):        
Interest income, net  (18,767)  2,713 
Other income  4,240   31,439 
Total other income (expenses)  (14,527)  34,152 
         
Income (loss) before provision for income taxes  46,465   (100,053)
         
Provision for income taxes  35,505   788 
         
Net income (loss) before noncontrolling interest  10,960   (100,841)
         
Noncontrolling interest  39,315   29,697 
         
Net loss  (28,355)  (130,538)
         
Other comprehensive income        
Foreign currency translation adjustment  16,862   25,656 
         
Comprehensive loss $(11,493) $(104,882)
         
Loss per common share:        
Basic $(0.00) $(0.00)
Diluted $(0.00) $(0.00)
         
Weighted average number of common shares outstanding:        
Basic  27,613,019   28,169,013 
Diluted  27,613,019   28,169,013 

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

23

EQUICAP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)
Cash Flows
(Unaudited)

  For Three Months Ended  For Nine Months Ended 
  March 31,  March 31, 
  2009  2008  2009  2008 
             
Revenue: $976,967  $968,914  $2,984,064  $2,443,500 
                 
Cost of sales:  770,546   786,371   2,316,530   1,928,981 
                 
Gross profit:  206,421   182,543   667,534   514,519 
                 
Operating expenses:                
Selling, general and administrative  623,392   365,657   1,605,608   1,201,624 
                 
Loss from operations:  (416,971)  (183,114)  (938,074)  (687,105)
                 
Other income:                
Interest income, net  4,003   7,154   9,722   85,189 
Other income, net  47,459   55,432    96,427     26,440 
Total other income:  51,462   62,586     106,149   111,629 
                 
Loss before provision for income tax:  (365,509)  (120,528)  (831,925)  (575,476)
                 
Provision for income tax:      -     -   1,172   - 
                 
Net loss before minority interest:  (365,509)  (120,528)  (833,097)  (575,476)
                 
Minority interest:    (45,692)   19,900   (16,041)  59,467 
                 
Net loss:  (319,817)  (140,428)  (817,056)  (634,943)
                 
Other comprehensive income (loss):                
Foreign currency translation adjustment  (17,231)  471,505   42,698   950,187 
                 
Comprehensive income (loss): $( 337,048) $331,077  $( 774,358) $315,244 
                 
Loss per common share:                
Basic $(   0.01) $( 0.00) $( 0.03) $( 0.02)
Diluted $(    0.01) $( 0.00) $( 0.03) $( 0.02)
                 
Weighted average shares of common stock:                
Basic  28,169,013   28,169,013   28,169,013   28,169,013 
Diluted  28,169,013   28,169,013   28,169,013   28,169,013 
  For the Three Months Ended 
  September 30, 
  2009  2008 
Cash flows from operating activities:      
Net loss $(28,355) $(130,538)
Adjustments to reconcile net loss to net cash        
provided by (used in) operating activities:        
Noncontrolling interest  39,315   29,697 
Depreciation and amortization  72,159   42,184 
Provision for bad debts  2,776   (15,262)
Share-based payments  27,198   27,197 
Non-cash payments of rent  -   1,240 
Changes in assets and liabilities:        
Accounts receivable  (153,312)  (31,607)
Inventory  (8,217)  (207,293)
Trade notes receivable  (129,301)  116,041 
Other receivables  7,550   97,125 
Advance payments  (2,369,187)  4,257 
Prepaid expenses  3,457   125,184 
Deferred expenses  200   2,506 
Accounts payable and accrued expenses  308,956   (97,928)
Trade notes payable  98,419   - 
Taxes payable  3,507   10,017 
Advances from customers  4,153   - 
Other current liabilities  (10,926)  23,841 
Total adjustments  (2,103,253)  127,199 
         
Net cash used in operating activities  (2,131,608)  (3,339)
         
Cash flows from investing activities:        
Additions to property and equipment  (127,626)  (137,815)
Proceeds from notes receivable  7,500   - 
         
Net cash used in investing activities  (120,126)  (137,815)
         
Cash flows from financing activities:        
Repayment for short term bank loans  (777,033)  - 
Contribution from minority shareholders  293,220   - 
         
Net cash used in financing activities  (483,813)  - 
         
Effect of foreign currency translation on cash  3,942   974 
         
Net decrease in cash and cash equivalents and restricted cash  (2,731,605)  (140,180)
         
Cash and cash equivalents and restricted cash – beginning
  4,305,918   956,973 
         
Cash and cash equivalents and restricted cash – ending
 $1,574,313  $816,793 

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

3
EQUICAP, INC.
Consolidated Statements of Cash Flows
(Unaudited)

  For Nine Months Ended 
  March 31, 
  2009  2008 
       
Cash flows from operating activities:      
Net loss $( 817,056) $( 634,943)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:        
Share-based compensation  81,592   81,592 
Minority interest  (16,041)  59,467 
Depreciation and amortization  137,136   73,313 
Bad debt expense  87,971   212,391 
Non-cash payments of rent  3,750   3,750 
Changes in assets and liabilities:        
Accounts receivable  (258,324)  54,140 
Inventory  (267,824)  (501,710)
Other receivables  (33,292)  2,957,982 
Advance payments  3,538,111   (2,657,134)
Prepaid expenses  152,835   (27,625)
Notes receivable  222,572   (256,563)
Deferred expenses  33,122   (1,234)
Accounts payable and accrued expenses  198,159   (201,770)
Trade notes payable  190,927   - 
Taxes payable  25,425   (293)
Other payables  45,541    (406,868)
         
Total adjustments:  4,141,660     (610,562)
         
Net cash provided by (used in) operating activities:  3,324,604   (1,245,505)
         
Cash flows from investing activities:        
Additions to property, plant and equipment  (343,972)  (367,657)
Additions to construction in progress  -   (1,630,161)
Additions to intangible assets  -   (2,984)
Acquisition of Shengte, net of cash from Shengte      -   (3,584,960)
         
Net cash used in investing activities:  (343,972)  (5,585,762)
         
Effect of foreign currency conversion on cash:  2,714     231,723 
         
Net increase (decrease) in cash and cash equivalents:  2,983,346   (6,599,544)
         
Cash and cash equivalents and restricted cash – beginning:
  956,973    7,848,812 
         
Cash and cash equivalents and restricted cash– ending:
 $3,940,319  $1,249,268 
         
Supplemental schedule of non cash activities        
Construction in progress reclassed to property and equipment $1,785,616  $- 

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

4

EQUICAP, INC.
Notes to Consolidated Financial Statements
March 31,September 30, 2009 and 2008
(Unaudited)

NOTE 1 –ORGANIZATION AND NATURE OF BUSINESS
Note 1 – Organization and Nature of Business

Equicap, Inc. (“theEquicap” or “the Company”), a Nevada corporation, is a manufacturer and distributor of gears and gearboxes, and a distributor of automotive parts and components, such as, starters and alternators, which are marketed and sold to customers primarily located in China and North America.China.

On July 6, 2007, the Board of Directors of Zhejiang Zhongchai Machinery Co., Ltd. (“Zhongchai”), the China based and 75% owned subsidiary of the Company, approved and finalized a Share Purchase Agreement (“Share Purchase Agreement”) with Xinchang Keyi Machinery Co., Ltd., (“Keyi”) a corporation incorporated in the People’s Republic of China. Pursuant to the Share Purchase Agreement, Zhongchai purchased all the outstanding equity of Zhejiang Shengte Transmission Co., Ltd. (“Shengte”) from Keyi, the sole owner of Shengte for approximately $3.7 million.

On March 7, 2007, the Company and Usunco Automotive, Ltd. (“Usunco”), a British Virgin Islands company, entered into a Share Exchange Agreement (“Exchange Agreement”) which was consummated on March 9, 2007. Under the terms of the Exchange Agreement, the Company acquired all of the outstanding equity securities of Usunco in exchange for 18,323,944 shares of the Company’s common stock.

For accounting purposes, because the Company had been a public shell company prior to the share exchange, the share exchange was treated as a recapitalization of the Company.  As such, the historical financial information prior to the share exchange is that of Usunco and its subsidiaries. Historical share amounts have been restated to reflect the effect of the share exchange.

On June 18, 2006, Usunco acquired 100% of IBC Automotive Products Inc (“IBC”), a California Corporation as of May 14, 2004 (date of inception), through a Share Exchange Agreement of 28% of Usunco’s shares. IBC iswas considered a “predecessor” business to Usunco as its operations constituted the business activities of Usunco formed to consummate the acquisition of IBC.  The consolidated financial statements reflect all predecessor statements of income and cash flow activities from the inception of IBC in May 2004.

On June 15, 2009, IBC was sold to certain of the management persons of IBC in exchange for the following: (i) the cancellation of an aggregate of 555,994 shares of common stock of the 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 through the closing date, of inter-company debt which funds had been used in the business of IBC prior to the transaction.

On September 22, 2009, Xinchang Xian Lisheng Machinery Co., Ltd. (“Lisheng”) was incorporated by Zhongchai and two individual investors. Total registered capital of Lisheng is RMB 5 million, of which Zhongchai accounts for 60%. The Company plans to start production of die casting products in 2010 for use in gearboxes, diesel engines and other machinery products.

5
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements include the accounts of Equicap, Inc. and its direct wholly-owned subsidiarieswholly and of its indirect proportionate share of subsidiariesmajority owned by the wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP)(“GAAP”) applicable to interim financial information and with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission applicable to smaller reporting companies.Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

Interim Financial Statements

These interim financial statements should be read in conjunction with the Company’s audited financial statements for the years ended June 30, 2009 and 2008, as not all disclosures required by GAAP for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the years ended June 30, 2009 and 2008.

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. The Company’s implementation of this guidance effective July 1, 2009 did not have a material effect on the Company’s condensed consolidated financial statements.

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 intangible assets with indefinite lives are subject to annual impairment test using the guidance and criteria described in Statement of Financial Accounting Standard No. 142, (ASC 350) “Goodwill and Other Intangible Assets”. This test 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 of goodwill or intangible assets with indefinite lives.

5

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Interim Financial StatementsNote 3 – Restricted Cash

These interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2008, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended June 30, 2008.

NOTE 3 –EARNINGS (LOSS) PER SHARE

The Company presents earnings (loss) per share on a basic and diluted basis.  Basic earnings (loss) per share have been computed by dividing net earnings by the weighted average number of common shares outstanding.  Diluted earnings (loss) per share has been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of equity securities. Share data has been adjusted to reflect the recapitalization of the Company after the share exchange agreement with Usunco. The weighted average number of common shares calculated for Diluted EPS excludes the potential common stock that would be exercised under the options granted to employees and warrants granted to agents. The inclusion of the potential shares from these options and warrants would cause an antidilutive effect by reducing the net loss per share.

  
Three Months Ended March 31,
  
Nine Months Ended March 31,
 
  
2009
  
2008
  
2009
  
2008
 
             
Net loss $( 319,817) $( 140,428) $( 817,056) $( 634,943)
                 
Weighted average common shares                
(denominator for basic income per share)  28,169,013   28,169,013   28,169,013   28,169,013 
                 
Effect of dilutive securities:  -   -   -   - 
                 
Weighted average common shares                
(denominator for diluted income per share)  28,169,013   28,169,013   28,169,013   28,169,013 
                 
Basic net income (loss) per share $( 0.01) $( 0.00) $( 0.03) $( 0.02)
Diluted net income (loss) per share $( 0.01) $( 0.00) $( 0.03) $( 0.02)

Note 4 –RESTRICTED CASH

As of March 31,September 30, 2009 and June 30, 2008,2009, the Company had $190,992restricted cash of $414,061 and $-0- restricted cash,$315,151, respectively. These restricted cash balances are reserved for settlement of trade notes payable in connection with inventory purchases.  The cash is held in custody by the bank issuing the trade notes payable is restricted as to withdrawal or use, and is currently earning interest.

NOTE 5 –INVENTORY

Inventory at March 31, 2009 and June 30, 2008 consisted of the following:

  March 31,  June 30, 
  2009  2008 
       
Gears products $700,550  $574,097 
Gearbox products  744,004   612,597 
Automotive products  14,930     
Other  207   206 
    Total $1,459,691  $1,186,900 


 
6
 
Note 4 – Inventory

Inventory at September 30, 2009 and June 30, 2009 consists of the following:

  September 30,  June 30, 
  2009  2009 
       
Gears products $1,000,441  $885,559 
Gearbox products  575,178   680,317 
Other  3,189   2,569 
Total $1,578,808  $1,568,445 

NOTE 6 –ADVANCE PAYMENTS
Note 5 – Advance Payments

Advance payments amounted to approximately $1.54$5.4 million as of March 31,September 30, 2009, of which approximately $1.5$4.6 million represents a deposit thatrepresented an advance payment made by the Zhongchai placed withJV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a corporation in China, to secure Zhongchai's exclusive right to acquire 100% interestfor the purchase of land use rights and building for Zhongchai JV’s future expansion of its production capabilities. Zhongchai JV is currently leasing a project from Xinchai Holdings within twelve months starting Oct. 15, 2007. The intended project was located in Hangzhou, Zhejiang Province, China, and was for assembly of advanced diesel engines, engine components and related products. Zhongchai is entitled to a refundportion of the full deposit amount in caseland and building to be purchased. The total land area to be purchased is approximately 250,000 square feet. The total contract price for the projectland use rights, building and fixtures is not completed or Zhongchai decides not to pursue the transaction within the twelve-month period. Due to changesapproximately $4.6 million. The Company is currently in the macro economic conditionsprocess of registering and business operations for the proposed project, Zhongchai has decided not to pursue the project, and Xinchai Holding has agreed with that decision.  Zhongchai has been refunded approximately $3.4 million out of the total $5 million advance payment and the balance is under governmental approval procedures to unwind the project before the refund may be made.transferring title.

NOTE 7 –PROPERTY AND EQUIPMENT
Note 6 – Property and Equipment

Property and equipment at March 31,September 30, 2009 and June 30, 20082009 consists of the following:

 March 31,  June 30,  September 30,  June 30, 
 2009  2008  2009  2009 
            
Manufacturing equipment $2,912,944  $784,658  $3,055,115  $2,923,420 
Office equipment and furniture  50,979   45,537   56,673   56,597 
Vehicles  62,039   61,785   62,124   62,039 
Subtotal
  3,025,962   891,980   3,173,912   3,042,056 
Less: Accumulated depreciation  301,256   164,204   451,584   379,132 
  2,724,706   727,776 
Construction in progress  4,936   1,783,826 
        
Total $2,729,642  $2,511,602  $2,722,328  $2,662,924 

Depreciation expense for three months ended March 31, 2009 and 2008 was $47,880 and $39,994, and for nine months ended March 31, 2009 and 2008 was $136,331 and $72,981, respectively.

NOTE 8 –RENTAL EXPENSE

The Company's U.S. office site is located in the state of California. Rental expense for the three months ended March 31,September 30, 2009 and 2008 was $1,250$71,890 and $1,250,$41,916, respectively.

Note 7 – Accounts Payable and forAccrued Expenses

Accounts payable and accrued expenses consist of the nine months ended March 31, 2009following:

  September 30,  June 30, 
  2009  2009 
       
Accounts payable $1,668,268  $1,400,162 
Accrued expenses  204,978   162,055 
         
Total $1,873,246  $1,562,217 

The carrying value of accounts payable and 2008 was $3,750 and $3,750, respectively. accrued expenses approximates their fair value due to the short-term nature of these obligations.

7

Note 8 – Short Term Bank Loans

Short-term bank loans consist of the following:

  September 30,  June 30, 
  2009  2009 
       
On May 25th, 2009, the Company obtained a loan from Agricultural Bank of
      
China, which was re-paid in full on August 26th, 2009. The annual interest was
      
at the fixed interest rate of 4.374% and paid monthly.      
The loan was secured by a third party. $-  $776,450 
         
On June 15th, 2009, the Company obtained a loan from Agricultural Bank
        
of China, which is due on June 16th, 2010. The interest  is
        
calculated using an annual fixed interest rate of 5.31% and paid monthly.        
The loan is secured by a third party.  1,422,990   1,421,050 
         
Total short-term bank loans $1,422,990  $2,197,500 

Note 9 – Rental Expense

The Company’s Chinese operation isoperations are located in Hangzhou,Zhejiang, China, and the rental expense for the three months ended March 31,September 30, 2009 and 2008 was $10,263$10,870 and $3,921, and for the nine months ended March 31, 2009 and 2008 was $52,619 and $25,157,$14,603, respectively.

NOTE 9 –MAJOR CUSTOMERS AND SUPPLIERS
Note 10 – Major Customers and Suppliers

For the auto parts segment, two major customers, BBB-OCA, and World Pac, accounted for 66% and 13%, respectively, of the net revenue of auto parts in North America for the three months ended March 31, 2009. For the gear segment, twoTwo customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd. accounted for 70%47% and 17%, respectively, of the net revenue in China, for the three months ended March 31, 2009. These four customers accounted for 16%, 3%, 53% and 13%29%, respectively, of the Company’s consolidatednet revenue for the three months ended March 31,September 30, 2009. For the nine months ended March 31, 2009, two major customers, BBB-OCA, and World Pac, accounted for approximately 71% and 13% of the net revenue of auto parts in North America; and for the gear segment three customers, Zhejiang Xinchai Co., Ltd., Ningbo Ruyi Co., Ltd., and Lonking (Shanghai) Forklift Co., Ltd. accounted for 80%, 7% and 6%, respectively, of the net revenue in China. These five customers accounted for 21%, 4%, 57%, 5% and 4%, respectively, of the Company’s consolidated revenue for the nine months ended March 31, 2009.

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NOTE 9 –MAJOR CUSTOMERS AND SUPPLIERS (continued)

For the auto parts segment, three major suppliers, Wuxi Susun Autoparts Co., Ltd., Pico and Zhejiang Boyu Industrial Co., Ltd, accounted for 33%, 24% and 21%, respectively, of the Company's purchases of the auto parts for the three months ended March 31, 2009. For the gear segment, four major suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Wuxi Hydraulic Machinery Co., Ltd. and Xinchang Liyuan Foundry Co., Ltd., accounted for approximately 32%, 14%, 6% and 6% respectively, of the total purchases in China for the three months ended March 31, 2009. These seven suppliers accounted for 9%, 7%, 6%, 23%, 10%, 5% and 4%, respectively, of the Company’s consolidated purchases for the three months ended March 31, 2009. For the nine months ended March 31, 2009, three major suppliers, Wuxi Susun Autoparts Co., Ltd., Zhejiang Boyu Industrial Co., Ltd, and Pico accounted for approximately 49%, 25% and 7% respectively, of the Company's purchases of the auto parts; and fourFive major suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Xinchang Liyuan Foundry Co., Ltd and Xinchang ZhishengZhicheng Machinery Fittings Factory, Changzhou Wujin Hengli Machinery Fittings Co., Ltd., and Chongqing Shenjian Auto Transmission Parts Co., Ltd. accounted for approximately 35%28%, 16%7%, 6%, 6% and 5% respectively, of the total purchases in China. These seven suppliers accounted for 15%, 7%, 2%, 24%, 11%, 4% and 4%,6% respectively, of the Company’s consolidatedtotal purchases for the ninethree months ended March 31,September 30, 2009.

NOTE 10 –DEFERRED COMPENSATION
Note 11 – Deferred Compensation

As described in Note 14 (“Stock-Based Compensation”Share-Based Payments”), the Company granted options to employees and warrants to the private placement agent.  Following SFAS No. 123R (ASC 718), the Company recognizes expenses based on the fair value of the options and warrants. Deferred compensation represents stock-based compensationshare based payments that will be expensed in future periods based on the vesting time of such options and warrants.

NOTE 11 –SEGMENT REPORTING

The Company’s reporting segments have been determined based on the geographic locationNote 12 – Supplemental Disclosure of their operations and the nature of the products offered to customers. The North America/Auto Parts Segment, represented by the 100% owned subsidiary of IBC Automotive Products, Inc. headquartered in California, USA, focuses on sourcing automotive parts and products from China and distributing them in North America and other regions. The China/Gear Segment, represented by the 75% owned subsidiary Zhejiang ZhongChai Machinery Co., Ltd. headquartered in Hangzhou, China, currently focuses on manufacturing and distribution of gears and gearboxes, for the industrial equipment markets in China.

The accounting policies of the segments are the same as those described in Note 2 (Summary of Significant Accounting Policies). Segment operating results include earnings before corporate and unallocated shared expenses, amortization of intangible assets, gain or loss on sale of assets, net interest income, income tax benefits and minority interests. Intersegment and intergeographic sales, if any, are accounted for on an arm’s length pricing basis. There were no intersegment sales for the nine months ended March 31, 2009 and 2008.Cash Flow Information

  Three Months Ended March 31,  Nine Months Ended March 31, 
Segment revenues 2009  2008  2009  2008 
North America/Auto Parts $241,374  $369,515  $869,407  $788,942 
                 
China/Gear  735,593   599,399   2,114,657   1,654,558 
                 
Corporate and elimination  -   -   -   - 
Consolidated $976,967  $968,914  $2,984,064  $2,443,500 
  For the Three Months Ended September 30, 
  2009  2008 
       
Cash paid for interest $24,774  $- 
Cash paid for income taxes $42,642  $788 

 
8
 

NOTE 11 –SEGMENT REPORTING (continued)
Note 13 – Earnings (Loss) Per Share

Segment operating Three Months Ended March 31,  Nine Months Ended March 31, 
  earnings (loss) 2009  2008  2009  2008 
North America/Auto Parts $( 12,677) $( 4,063) $( 94,397) $(251,127)
                 
China/Gear  (234,234)  22,366   ( 166,918)  126,748 
                 
Corporate and elimination  (170,060)  (201,417)  (676,759)  (562,726)
Consolidated $(416,971) $(183,114) $(938,074) $(687,105)
The Company presents earnings (loss) per share on a basic and diluted basis. Basic earnings (loss) per share have been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings (loss) per share has been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of equity securities. All share and per share data have been adjusted to reflect the recapitalization of the Company after the share exchange agreement with Usunco. The weighted average number of shares calculated for Diluted EPS excludes the potential common stock that would be exercised under the options granted to employees and warrants granted to agents because the inclusion of the potential shares from these options and warrants would cause an antidilutive effect by reducing the net loss per share.

  Three Months Ended March 31,  Nine Months Ended March 31, 
Depreciation expense 2009  2008  2009  2008 
North America/Auto Parts $33  $-  $66  $- 
                 
China/Gear  47,821   39,994   136,196   72,981 
                 
Corporate and elimination  26   -   69   - 
Consolidated $47,880  $39,994  $136,331  
$ 72,981　
 
  September 30, 2009  September 30, 2008 
       
Net loss $(28,355) $(130,538)
         
Weighted average common shares  27,613,019   28,169,013 
(denominator for basic loss per share)        
         
Effect of dilutive securities:  -   - 
         
Weighted average common shares        
(denominator for diluted loss per share)  27,613,019   28,169,013 
         
Basic net loss per share $(0.00) $(0.00)
Diluted net loss per share $(0.00) $(0.00)

  As of 
Segment identifiable assets March 31, 2009  June 30, 2008 
North America/Auto Parts $375,114  $451,240 
         
China/Gear  10,564,525   10,257,675 
Total Segment identifiable assets  10,939,639   10,708,915 
         
Goodwill  3,407,262   3,393,307 
         
Corporate and elimination  130,724   688,595 
Consolidated $14,477,625  $14,790,817 
Note 14 – Share-Based Payments

Note 12 –SUPPLEMENTAL CASH FLOW INFORMATION
As of September 30, 2009, there were 366,550 outstanding options to employees (“Employee Options”) and 422,535 outstanding warrants to the private placement agent (“Agent Warrants”). Both the Employee Options and Agent Warrants vest over three years and have a life of five years. For the three months ended September 30, 2009, the Company recorded approximately $27,198 of stock-based compensation based on the fair value method of SFAS. No. 123R (ASC 718) using the following assumptions: volatility of 34.94%, risk free interest rate of 4.63%, dividend yield of 0%, and expected life of 5 years.  No estimate of forfeitures was made as the Company has a short history of granting options and warrants.

The fair value of the options and warrants was determined based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock-based compensation was determined using the Black-Scholes model.
  Nine Months Ended March 31, 
  2009  2008 
       
Cash paid for interest $191  $747 
Cash paid for income taxes $1,171  $- 


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NOTE 13–STOCK AUTHORIZATION AND ISSUANCE
Note 15 – Stock Authorization and Issuance

On March 9, 2007, the Company completed the sale of an aggregate of 8,450,704 shares of its common stock to a limited number of institutional investors in a private placement transaction pursuant to offering exemptions under the Securities Act of 1933.  The shares, which represented approximately 30% of the outstanding common stock on an after-issued basis, were sold at a price of $1.42 per share, for net proceeds of approximately $10 million. The net proceeds from this transaction have been used for general working capital purposes.

The Company has a registration payment arrangement with regard to the common stock issued in the private offering. The Company was required to file a registration statement within 45 days of closing and cause the registration statement to become effective on or prior to 150 days after the closing date. The registration statement was filed within the 45 day limit thus fulfilling part of this obligation. In addition, the Company is required to use reasonable commercial efforts to maintain the registration statement’s effectiveness and file additional registration statements in the future, to continue to provide to the stockholders the opportunity to sell the shares of restricted stock that they hold untilhold. This obligation ends if the registered securitiesshares can be sold pursuant to Rule 144. Currently the shares are eligible for sale under Rule 144.

9

In the event the Company diddoes not satisfy the registration obligations of the registration rights agreement, (“Registration Default”), which were subject to Rule 144 limitations, the Company would have had toshall pay the investors an amount in cash equal to 1% of the aggregate investment amount for each 30-day period of a Registration Default. The maximum penalty that the Company could have incuredmay incur under this registration payment arrangement is 10% of the aggregate investment amount, or $1,200,000. Any payments made would have beenare to be prorated for anythe portion of a 30-day period of a Registration Default.

Although the Company hadhas the obligation to register shares of common stock for other persons under the above described registration rights agreement, the Company wouldis not be obligated to pay liquidated damages in the event that their shares wereare not registered or the registration statement wasis not approved.available for their sale.

NOTE 14 –STOCK-BASED COMPENSATION

As of March 31, 2009, there are outstanding 366,550 options to employees (“Note 16 – Employee Options”) and 422,535 warrants (“Agent Warrants”) to the private placement agent. Both the Employee Options and Agent Warrants vest over three years and have a life of five years. For the three and nine months ended March 31, 2009, the Company recorded approximately $27,197 and $81,592, respectively, of stock-based compensation based on the fair value method of SFAS. No. 123R using the following assumptions: Volatility of 34.94%, risk free interest rate of 4.63%, dividend yield of 0%, and expected life of 5 years.  No estimate of forfeitures was made as the Company has a short history of granting options.Welfare Plan

The fair valueCompany has established an employee welfare plan in accordance with Chinese laws and regulations. Full-time employees of the optionsCompany in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and warrants was determinedother welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on the number of shares granted and the quoted pricea certain percentage of the Company’s common stock on the date of grant. The fair value of stock-based compensation was determined using the Black-Scholes model.employees’ salaries.

NOTE 15 –COMMITMENTS AND CONTINGENCIES

In connection with the offering, for the benefit of the investors, eight of the former shareholders of Usunco, some of whom are the officers and directors of Equicap, placed into escrow an aggregate of 10,140,846 shares of common stock issued in the Share Exchange.  Because the Company did not meet the criteria for the escrowed shares to be returned to the former shareholders, the escrowed shares were distributed to the investors, pro rata for no additional consideration. The placing of shares by the former shareholders of Usunco into escrow was tantamount to a reverse stock split followed by the grant of a restricted stock award. Any make good shares issued to the investors are subject to the registration rights under the Registration Rights Agreement and the Rule 144 limitations on that obligation.

According to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s), because the performance criteria were not met, these shares have been treated as an expense for the amount of the market value of the shares as of the dates of release. Based upon the market price of $1.00 per share of common stock as of June 30, 2007, the total expense recognized for the fiscal year of 2007 was $3,954,930. Based upon the market price of $0.20 per share of common stock as of June 30, 2008, the total expense recognized for the fiscal year of 2008 was $1,419,719. Such expense was treated as an unusual item since it is deemed to be unusual in nature and would be infrequent in occurrence.

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NOTE 16 –LEGAL PROCEEDING
Note 17 – Legal Proceedings

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 seekswas settled by an agreement dated July 31, 2009, which provided (i) for a returnthird party, Ruihua International Limited ("Ruihua"), to purchase all the shares of common stock of the investment fundsCompany owned and held by the plaintiffs, (ii) upon the purchase of the plaintiffs, payment of interest, restitution and disgorgement of profits and other ill-gotten gains, damagesshares, for lost opportunity and other consequential damages, without specification of dollar amounts. The plaintiffs have requested that the Company and the other named defendants waive service of the complaint. The Company and Mr. Wang have filedand 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 motionstipulation to dismiss the action.  The action was discontinued with prejudice by stipulation among all the parties which is now under considerationwas  ordered by the court. Thecourt on August 4, 2009.

In connection with the purchase by Ruihua of the shares sold to it as part of the settlement of the above described action, Ruihua also bought shares from another shareholder who was not a party to the action.  As a result of the two share acquisitions, Ruihua acquired a total of 17,431,104 shares, currently representing 61.88% of the issued and outstanding shares of common stock of the Company.  Ruihua does not have any registration rights with respect to the shares or other provisions related to control of the Company, such as the right to have specific representation on the board of directors or nominate potential directors for election, other than their rights as a shareholder under the certificate of incorporation and by laws of the Company and Mr. Wang deny any wrongdoingunder the provisions of Nevada law and plan to defend the action.  The Company is obligated to provide indemnification to vFinance Investment, Inc. for its expenses in its defending the action.United States securities laws.

NOTE 18 – Subsequent Events

None.

 
1110
 

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations or Plan of Operations.
 
Equicap, Inc. (“Equicap”), a Nevada corporation, does business through its subsidiary, Usunco Automotive Limited (“Usunco”), a British Virgin Islands company, which in turn operates through IBC Automotive Products, Inc. (“IBC”), its wholly-owned subsidiary established under the laws of the State of California (the “North America/Auto Parts Segment”), and through Zhejiang ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture established under the laws of the People’s Republic of China (the “PRC” or “China”), and Zhejiang Shengte Transmission Co., Ltd. (“Shengte”) a company established under the laws of the PRC and wholly owned by ZhongChai JV (the “China/Gear Segment”).JV.  Through its operating subsidiaries, Equicap is currently engaged in the distribution of automotive parts primarily in North America, and manufacturing and sale of gears and gearboxes in China.
 
Company Background
 
Equicap was a public “shell” company with nominal assets until March 9, 2007, when it conducted a share exchange with the equity owners of Usunco (“Share Exchange”) and sold common stock in a private placement to eleven accredited and institutional investors for gross proceeds of $12,000,000. Prior to the Share Exchange, its sole business had been to identify, evaluate and investigate various companies with the intent that, if such investigation warranted, a reverse merger transaction be negotiated and completed pursuant to which Equicap would acquire a target company with an operating business with the intent of continuing the acquired company’s business as a publicly held entity.
 
Share Exchange
 
Equicap and Usunco entered a Share Exchange Agreement on March 7, 2007 which was consummated on March 9, 2007.  Under the terms of the Exchange Agreement, Equicap acquired all the outstanding equity securities of Usunco in exchange for 18,323,944 shares of common stock of Equicap, and thereby Equicap acquired Usunco as a wholly-owned subsidiary.
 
Upon execution of the Exchange Agreement, Mr. Peter Wang was appointed a director and the president of Equicap.  Mr. Thomas W. Colligan, the sole officer and director of Equicap before the Share Exchange, submitted his resignation letter resigning from all executive offices, effective on March 9, 2007, and with respect to his position as a director, effective on March 29, 2007.  On March 29, 2007, additional persons were appointed to the board of directors and as management persons.
In connection with the Share Exchange, Equicap engaged Fountainhead Capital Partners Limited, to act as a financial advisor.  At the closing of the Share Exchange, Fountainhead was paid an advisory fee of $450,000 by Equicap.
 
For advice in connection with the Share Exchange, vFinance Investments, Inc., was issued 161,633 shares of restricted common stock as compensation.  The shares were issued as restricted stock.  These shares have registration rights subject to Rule 144 limitations.
 
Since the former shareholders of Usunco at the time of the reverse merger owned approximately 65% of the shares of common stock of Equicap, the former shareholders of Usunco had control over Equicap immediately after the Share Exchange.  As a result, Usunco was deemed to have been the acquiring company in the Share Exchange for accounting purposes, and the Share Exchange transaction was treated as a reverse acquisition with Usunco as the acquirer and Equicap as the acquired party.  Equicap changed its fiscal year to end June 30.
 
Conversion of Convertible Note of Equicap
 
Equicap and Fountainhead Capital Partners Limited entered into a convertible note on December 31, 2006, the principal of which was for working capital and discharge of accrued payables of Equicap.  As part of the Share Exchange, Fountainhead agreed to convert the outstanding principal and accrued interest of approximately $100,000 into 702,132 shares of common stock, contingent on the closing of the Share Exchange.  Upon the conversion, the note was cancelled.  The shares were issued as restricted stock.  Equicap has agreed to register the shares issued in the conversion.

12
 
2007 Private Placement Offering
 
As a condition to the Share Exchange, Equicap conducted a private placement of its common stock to 11 accredited, institutional investors in which Equicap raised gross proceeds of $12 million (“Offering”) under an exemption from registration under Section 4(2) of the Securities Act of 1933.  After commissions and expenses related to the Offering and the $450,000 advisory fee payable to Fountainhead, Equicap received net proceeds of approximately $10,000,000 in the Offering.  The investors were issued an aggregate of 8,450,704 shares of common stock, representing approximately 30% of the issued and outstanding common stock of Equicap. The price per share of common stock was $1.42.

11
 
vFinance Investment, Inc. was the exclusive placement agent for the Offering.  For their services as placement agent, Equicap paid vFinance a fee equal toof approximately $983,000.  Equicap also reimbursed vFinance its expenses of approximately $120,000.  In addition, Equicap issued to vFinance a five-year warrant to purchase an aggregate of 422,535 shares of common stock at an exercise price of $2.13 per share (“Agent Warrant”).  The warrant vests over a three-year period and terminates March 6, 2012.
 
In connection with the Offering, Equicap granted registration rights to the investors, vFinance and the holders of the Agent Warrant, and provided for registration rights for certain former principal shareholders of Equicap through piggy-back rights for their respective shares of common stock.  Equicap entered into one registration rights agreement with the aforementioned persons. Equicap agreed to register the sale of the 8,450,704 shares of common stock issued to investors in the Offering, the 161,633 shares of common stock issued to vFinance, the 422,535 shares of common stock underlying the Agent Warrant and the 1,161,632 shares held by the former principal shareholders of Equicap.  In addition, if certain make good shares arewere distributed to the investors, Equicap will bewas obligated to register these shares in addition. If any of the aboveregistrable shares are not eligible for registration because of the rules and regulations of the Securities and Exchange Commission, when they are eligible for registration, Equicap will be obligated to take such action to have them registered for sale by the holder by filing successive registration statements. The initial registration statement for sale of the common shares was filed within the 45 day time limit of the registration rights agreement. Equicap had to have the registration statement effective within 150 days of the closing date of the Offering. If these actions were not achieved by thosethe specified dates, then Equicap was requiredhad to pay each of, and only, the investors an amount equal to 1% of the share purchase price actually paid by such investor for each month thereafter that the investors cannot publicly sellshares could not be sold under the shares of common stock covered by that registration statement. The sameSimilar penalties for the failure to file or have declared effective a registration statement within the stated time periods and maintain its effectiveness also apply to the subsequent required registration statements.  The maximum penalties under the liquidated damages provision payable to the investors is 10% of the share purchase price paid by the investors in the Offering.  The above timing and number of shares were subject to various conditions, and the registration statements were subject to the rules and regulations of the SEC and the staff interpretations thereof.  The registration statements required for the investors and vFinance under the registration rights agreement had to be kept effective until all the shares of these parties are sold or may be sold without limitation under Rule 144.  Equicap did not meet the effectiveness deadline for the initial registration statement and paid $32,000 to the investors under the liquidated damages provision.
 
The former principal shareholders of Equicap who have piggy-back rights also have a demand registration right after all the shares of the investors and vFinance have either been sold or may be sold without limitation under the then Rule 144.144k.  The company wasCompany is obliged to keep this registration statement effective until all the shares have been sold or are eligible for sale under Rule 144.

13
144k. Currently, Equicap believes that the shares may be sold under Rule 144, being the effective equivalent of Rule 144k or the obligation is no longer applicable because the shares have been sold.
 
Equicap completed the capitalization of its PRC joint venture shortly after the above described private placement.  Pursuant to PRC law, foreign joint ventures have to be capitalized pursuant to the terms of their approval. Equicap, through Usunco contributed $8,000,000 and its joint venture partner contributed $2,600,000, all of which will be used as working capital and other corporate purposes. Future capital contributions between the parties are to be on a 75% - 25% basis, with Usunco being the majority party.

 
Effects of Global Economic Crises
12
 
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.

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service expenses.
 
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.

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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.

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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.

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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.

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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.

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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.
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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.

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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.

 
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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%.
 
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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.

 
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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.
 
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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.

 
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Item 6.    Exhibits.
Item 6. ExhibitExhibits.Description
 
ExhibitDescription
31.1Certification 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.
31.2
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.
32.1Certification 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.

 
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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.

Date: MayNovember 11, 2009
EQUICAP, INC.
  
 By:/s/ Peter Wang 
 Name:Peter Wang
 Title:President
   
 By:/s/ David Ming He 
 Name:David Ming He
 Title:Chief Financial Officer

 
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