*Table
          of Contents*





**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**





x
            **Annual
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**




**For
      the fiscal year ended: June 30, 2007**




o
            **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.**


(Name
      of
      Small Business Issuer in Its Charter)





**NEVADA**
              (State
                of Incorporation)
            **33-0652593**
              (Small
                Business Issuer
              I.R.S.
                Employer I.D. Number)**10510
                Hillsboro Road**
              **Santa
                Ana, California**
              (Address
                of principal executive offices)
            **92705**
              (zip
                code)





**(904)
      507-4937**


(Issuer’s
      Telephone Number, Including Area Code)




**Securities
      registered pursuant to Section 12(b) of the Act:**


None




**Securities
      registered pursuant to Section 12(g) of the Act:**


Common
      Stock, par value $.001 per share




Check
      whether the Issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the past 12 months (or for such shorter
      period that the registrant was required to file such reports), and (2) has
      been
      subject to such filing requirement for the past 90 days.  Yes
x No
o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of the registrant’ s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x






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




Issuer’s
      revenues for the fiscal year ended June 30, 2007 were $1,817,264.




As
      of
      September 15, 2007, the aggregate market value of the common stock held by
      non-affiliates of the Registrant (14,172,328 shares) was approximately
      $18,424,026.




As
      of
      September 15, 2007, there were 28,169,013 shares of Common Stock, $.001 par
      value per share, outstanding.




Transitional
      Small Business Disclosure Format (check one): Yes o No
x







*Table
        of Contents*




**Equicap,
      Inc.**




**Annual
      Report on Form 10-KSB**


**Fiscal
      Year Ended June 30, 2007**


**Table
      of Contents**


Page
                No.PART
                I
            
            1Item
                1
            Description
                of Business
            1Item
                2
            Description
                of Properties
            26Item
                3
            Legal
                Proceedings
            26Item
                4
            Submission
                of Matters to a Vote by Security
                Holders
            26PART
                II
            
            26Item
                5
            Market
                for Common Equity, Related Stockholder Matters and
                Small Business
                Issuer Purchases of Equity Securities
            26Item
                6
            Management’s
                Discussion and Analysis or Plan of
                Operation
            28Item
                7
            Financial
                Statements
            35Item
                8
            Changes
                In and Disagreements With Accountants on Accounting
                and Financial Disclosure
            35Item
                8A
            Controls
                and Procedures
            36Item
                8B
            Other
                Information
            37PART
                III
            
            37Item
                9
            Directors,
                Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the Exchange
                Act
            37Item
                10
            Executive
                Compensation
            40Item
                11
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            43Item
                12
            Certain
                Relationships and Related
                Transactions
            44Item
                13
            Exhibits
            44Item
                14
            Principal
                Accountant Fees and Services
            45




*Table
          of Contents*




**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




This
      report contains forward-looking statements within the meaning of Section 21E
      of
      the Securities Exchange Act of 1934, and Section 27A of the Securities Act
      of
      1933. Any statements contained in this report that are not statements of
      historical fact may be forward-looking statements. When we use the words
“anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will”
and similar expressions, we are identifying forward-looking statements.
      Forward-looking statements involve risks and uncertainties, which may cause
      our
      actual results, performance or achievements to be materially different from
      those expressed or implied by forward-looking statements.  These
      factors include our current dependence on a limited number of sources of
      products and customers, continuing demand for our products, pricing pressures
      on
      our products caused by demand and competition, delivery deadlines, customer
      satisfaction, our ability to generate sales and expand our customer base,
      warranty obligations and claims, integrating any enterprises acquired, operating
      a portion of our business in the Peoples Republic of China, currency controls
      and exchange rate exposure and future need for capital to expand our
      business.




Except
      as
      may be required by applicable law, we do not undertake or intend to update
      or
      revise our forward-looking statements, and we assume no obligation to update
      any
      forward-looking statements contained in this report as a result of new
      information or future events or developments. Thus, you should not assume that
      our silence over time means that actual events are bearing out as expressed
      or
      implied in such forward-looking statements. You should carefully review and
      consider the various disclosures we make in this report and our other reports
      filed with the SEC that attempt to advise interested parties of the risks,
      uncertainties and other factors that may affect our business.




For
      further information about these and other risks, uncertainties and factors,
      please review the disclosure included in this report under “Part I, Item 1,
      Description of Business - Risk Factors.”




*Table
          of Contents*




**PART
      I**






**Item
              1.**
            **Description
                of
                Business**




**Background
      of Equicap**




**Reincorporation
      of Equicap**




Equicap,
      Inc. was incorporated on March 13, 2002, for the purpose of entering into a
      merger with and redomiciling its predecessor, Equicap, Inc., a California
      corporation ("Equicap California"). Effective January 25, 2005, Equicap
      California was merged with and into Equicap in a statutory merger based on
      management's belief that Nevada law is more advantageous to a corporation than
      California law. Equicap was considered a blank check company prior to the
      acquisition of Usunco Automotive Limited, a British Virgin Islands company
      (“Usunco”).




**Predecessor
      Corporation to Equicap**




Equicap's
      predecessor, Equicap California, was incorporated under the laws of the State
      of
      California on March 1, 1995, under the name of VWR Acquisition company, Inc.
      ("VWR"); the name was later changed to Equicap, Inc. Equicap's business
      activities prior to July 1996 were that of an investment banking and consulting
      firm whose business plan was to assist its clients by infusing capital into
      them
      and utilizing its experience to assist its client companies in getting their
      products or services to market. Equicap anticipated "incubating" client
      companies. Equicap issued 5,500,000 shares of its common stock in March 1995,
      to
      its founders in consideration of cash and services rendered. In March 1995,
      200,000 shares of its common stock were issued to an investor for approximately
      $137,000 in cash. All the shares were treated as "restricted securities" within
      the meaning of the rules under the Securities Act of 1933, as amended (“Act”).
      Then in October 1995, approximately 4,022,115 common shares were voluntarily
      cancelled by the shareholders, reducing the number of outstanding shares to
      1,677,885.




On
      December 29, 1995, BBU Systems Inc. ("BBU") was merged with and into Equicap
      as
      the surviving entity pursuant to an Agreement and Plan of Merger. In the merger
      Equicap issued 1,273,415 shares of its common stock and acquired all of the
      issued and outstanding common shares of BBU. In connection with the merger,
      an
      additional 509,295 shares were voluntarily cancelled by the holders, reducing
      the number of outstanding shares to 2,442,005.




Equicap
      became dormant in July 1996 when the company's board of directors determined
      that its original business plan could not be executed, and that the business
      of
      BBU could not be developed, due to the lack of operating capital and the lack
      of
      prospects to raise adequate funding.




On
      June
      19, 1998, Equicap issued 5,000,000 shares of its common stock to Stephen M.
      Siedow, the former President of the company, for services and costs advanced
      on
      behalf of Equicap that were valued at $5,000 in the aggregate. These shares
      were
      issued as "restricted securities."




On
      July
      31, 1998, Equicap's common stock underwent a reverse split in which each 100
      of
      the issued and outstanding shares were changed into one share, which decreased
      the number of issued and outstanding shares from 7,442,005 to 74,732. On
      December 29, 1999, Equicap issued 100,000 shares of its common stock to Mr.
      Siedow for services and fees and costs advanced on behalf of Equicap that were
      valued at $10,000 in the aggregate, which also were treated as "restricted
      securities." These shares have been registered for sale by Mr. Siedow under
      a
      registration statement.




On
      January 18, 2000, Equicap's common stock underwent a reverse and forward split
      of the common shares in which (i) each 50 of the issued and outstanding shares
      were changed into one share,


-
          1 -
 *Table
          of Contents*


with
      each
      fraction being rounded up to a whole share, and (ii) immediately following
      the
      reverse split, each resulting share was changed into 100 shares. Upon conclusion
      of the January 2000 recapitalization, Equicap had 390,100 common shares issued
      and outstanding.




**2007
      Share Exchange**




Equicap
      and Usunco entered a Share Exchange Agreement on March 7, 2007, which was
      consummated on March 9, 2007. Under 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. Prior to the Share Exchange, Equicap was a shell company with
      nominal assets and operations.




Each
      share of common stock of Equicap issued in the exchange to the former
      shareholders of Usunco is restricted stock, and the holder thereof may not
      sell,
      transfer or otherwise dispose of the shares without registration under the
      Act
      or an available exemption there from. No registration statement covering these
      shares has been filed with the Securities and Exchange Commission or with any
      state securities commission. In addition, some of these shares are subject
      to
      lock up agreements and a pledge of shares for the benefit of the investors
      in
      the offering, described below, and none of these persons have registration
      rights.




The
      Exchange Agreement provides that the principal shareholders of Equicap
      immediately before the Share Exchange have piggy-back and demand registration
      rights as provided in a registration rights agreement executed with the
      investors in the offering, described below.




In
      connection with the Exchange Agreement, Equicap engaged Fountainhead Capital
      Partners Limited, to act as a financial advisor for Equicap in connection with
      the Share Exchange. At the closing of the Share Exchange, Fountainhead was
      paid
      an advisory fee of $450,000.




In
      connection with the Share Exchange, vFinance Investments, Inc. provided advice
      in connection with the Share Exchange and was issued 161,633 shares of common
      stock as compensation. These shares have registration rights described
      below.




Since
      the
      former shareholders of Usunco own approximately 65% of the shares of common
      stock of Equicap, the former shareholders of Usunco have control of Equicap.
      As
      a result, Usunco is deemed to have been the acquiring company in the Share
      Exchange, and for accounting purposes, the Share Exchange transaction is treated
      as a reverse acquisition with Usunco as the acquirer and Equicap as the acquired
      party.




***Conversion
      of Convertible Note of Equicap***




Equicap
      and Fountainhead Capital Partners Limited, then an affiliate of Equicap, entered
      into a convertible note on September 30, 2006, the principal of which was for
      working capital and discharge of then accrued payables of Equicap. The note
      was
      due December 31, 2007, and carried an annual interest rate of 3%. 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. The rate of conversion was
      negotiated in connection with the acquisition of Equicap between the Usunco
      stockholders and Fountainhead, and represented a significant discount to the
      sale price of the shares in the private placement offering. Upon the conversion,
      the note was cancelled. The shares were issued as “restricted stock”.
      Fountainhead was granted piggyback and demand registration rights for these
      shares.


-
          2 -
 *Table
          of Contents*


***Private
      Placement Offering***




As
      a
      condition to the Share Exchange, Equicap and Usunco conducted a private
      placement offering of its common stock to accredited and institutional investors
      (“investors in the Offering”) in which Equicap raised gross proceeds of $12
      million (“Offering”) from 11 investors. 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, then
      representing approximately 30% of the issued and outstanding common stock of
      Equicap. The price per share of common stock was $1.42.




vFinance
      Investment, Inc. was the exclusive placement agent for the Offering. For their
      services as placement agent, Equicap paid vFinance a fee equal to approximately
      $983,000 and reimbursed 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 Agent Warrant vests over three years, and once vested is
      exercisable in whole or in part from time to time prior to March 6, 2012. In
      certain circumstances, the Agent Warrant may be exercised on a cashless basis.
      Upon the expiration of the warrant exercise period each warrant will expire
      and
      become void and of no value. The exercise price and number for which the warrant
      is exercisable are subject to adjustments in certain events such as mergers,
      reorganizations or stock splits, to prevent dilution. The holder of the warrant
      will not possess the rights that the shareholders have unless and until the
      holder exercises the warrants and then only as a holder of the common
      stock.




***Registration
      Rights for Investors, vFinance and Former
      Stockholders***




In
      connection with the Offering, Equicap granted registration rights to the
      investors in the Offering, the holders of the Agent Warrant and the shares
      issued to vFinance, and under the terms of the Share Exchange certain former
      principal shareholders of Equicap were granted piggy-back and demand
      registration 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
      the 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 (including 702,132 shares issued on conversion of the
      Fountainhead note) held by the former principal shareholders of Equicap. In
      addition, if the make good shares (described below) are distributed to the
      investors, Equicap will be obligated to register these shares in addition.
      If
      any of the above 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
      had
      to be filed by Equicap within 45 days of the closing date of the Offering,
      and
      it was to be declared effective within 150 days of the closing date of the
      Offering, and if these actions were not achieved by those dates then Equicap
      had
      to pay each of, and only, the investors 1% of the share purchase price paid
      by
      such investor for each month thereafter that the investors cannot publicly
      sell
      the shares of common stock covered by that registration statement. Equicap
      met
      the filing requirement but not the effectiveness requirement, and it paid
      $32,000 in penalties to the investors. The same 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 are subject
      to various conditions, and the registration statements are 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 must be kept effective until all the shares of
      these parties are sold or may be sold without limitation under Rule
      144k.


-
          3 -
 *Table
          of Contents*


The
      former principal shareholders of Equicap who have piggy-back registration rights
      also have a demand registration right after all the shares of the investors
      in
      the Offering, the holders of the Agent Warrants and vFinance have either been
      sold or may be sold without limitation under Rule 144k. The company is obliged
      to keep this registration statement effective until all the shares have been
      sold or are eligible for sale under Rule 144k.




A
      registration statement which satisfies the above registration rights has been
      filed and declared effective for all the above shares of the investors, the
      holders of the Agent Warrants, vFinance and the former shareholders of Equicap.
      No assurance can be given that Equicap will be able to maintain the
      effectiveness of the registration statement.




***Right
      of First Refusal***




For
      a
      period of one year after the earlier of: (i) effective date of the first
      registration statement filed for the sale of common stock by the investors
      in
      the Offering (August 13, 2007), or (ii) the first date on which any of the
      shares of the investors in the Offering otherwise becomes tradable according
      to
      Rule 144, those investors will have a right of first refusal to acquire any
      equity securities offered by Equicap, other than in excluded offerings which
      are
      defined in the Securities Purchase Agreement. The offering will be on a pro
      rata
      basis, and investors participating in the new offering may acquire those
      securities not taken up by other investors.




***Make
      Good Escrow Agreement***




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, have agreed to place into escrow an aggregate of 10,140,846 shares
      of
      common stock issued in the Share Exchange. These are referred to as the “make
      good shares.” The make good shares will act to adjust the investment of the
      investors in the Offering by increasing their holdings if the financial targets
      are not achieved by management as described in this section.




If
      the
      consolidated financial statements of Equicap for the fiscal year ending June
      30,
      2007, prepared in accordance with United States generally accepted accounting
      principles, consistently applied, reflect either (i) less than $2,320,000 of
      after-tax net income or (ii) earnings before income tax provision and before
      minority interest of less than $3,200,000, then 3,042,254 shares of common
      stock
      in escrow will be distributed to the investors on a pro rata basis for no
      additional consideration. If either (i) the earnings per share reported in
      the
      Annual Report on Form 10-KSB of Equicap for the fiscal year ending June 30,
      2008
      is less than $0.343 on a fully diluted basis (as equitably adjusted for any
      stock splits, stock combinations, stock dividends or similar transactions),
      (ii)
      the earnings per share before income tax provision and before minority interest
      of the company for the fiscal year ending June 30, 2008, is less than $0.446
      on
      a fully diluted basis (as equitably adjusted for any stock splits, stock
      combinations, stock dividends or similar transactions), (iii) the after tax
      net
      income reported in the Annual Report on Form 10-KSB of the company for the
      fiscal year ending June 30, 2008, is less than $10,000,000, or (iv) the earnings
      before income tax provision and before minority interest reported in the Annual
      Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008,
      is less than $13,020,000, then 7,098,592 shares of common stock in escrow will
      be distributed to the investors on a pro rata basis for no additional
      consideration. For purposes of determining the above amounts, if the release
      of
      the make good shares causes a charge or expense reflected on the company
      financial statements, then these will be ignored for purposes of the
      determination of the earnings before income tax provision and before minority
      interest, after-tax net income and earnings per share amounts. Also, the effects
      after the closing of the Offering of changes in China’s tax law and regulation
      for the purpose of equalization of taxes between domestic and foreign entities,
      if any, will be excluded from calculation of the earnings before income tax
      provision and before minority interest, after-tax net income and earnings per
      share amounts and any registration


-
          4 -
 *Table
          of Contents*


penalties
      accrued or paid, other than for a filing failure, will be excluded as an expense
      of the company. Any make good shares not distributed to the investors will
      be
      returned to the persons who placed them in escrow. Any make good shares issued
      to the investors will be subject to the registration rights under the
      Registration Rights Agreement.




The
      escrow agent is Securities Transfer Corporation, and vFinance has the authority
      to instruct the escrow agent to distribute the make good shares at the
      appropriate dates either to the investors or to the depositing shareholders.
      The
      distributions are to take place within 10 business days after the filing of
      the
      Form 10-KSB (or equivalent) Annual Report with the SEC by the
      company.




While
      the
      make good shares of common stock are in escrow, the eight former equity owners
      of Usunco who placed them with the escrow agent will have the right to vote
      the
      shares and receive the benefits incident to the ownership of the shares,
      including the right to receive dividends. The investors will have the right
      to
      receive the escrowed shares whether or not they hold the shares they acquired
      in
      the offering, and they will have the right to assign their rights to receive
      the
      shares while they are in escrow.




***Lock
      Up Restrictions***




Stockholders
      of Equicap who are the officers and directors or their affiliates, holding
      an
      aggregate of 14,177,989 shares of common stock, entered into a lock up agreement
      under which they will be prohibited from selling or otherwise transferring
      any
      of their shares of common stock for a period ending the later of (i) twelve
      (12)
      months following the effective date of the initial Registration Statement
      (August 13, 2008), or (ii) two years after the consummation of the Share
      Exchange (March 9, 2009). In addition, a portion of these shares are subject
      to
      the make good agreement which will prevent a portion of these shares from being
      available for sale until the filing of the Form 10KSB Annual Report for the
      fiscal year ending June 30, 2008.




As
      part
      of the share exchange transaction between Equicap and Usunco, the former
      principal stockholders of Equicap have entered into lock up agreements governing
      an aggregate of 1,161,632 shares which provide that they will not sell or
      otherwise transfer their shares for a period of 365 days from the closing of
      the
      Share Exchange (March 8, 2008). The lock up is subject to a release of
      one-twelfth of the shares each month following the closing of the exchange
      transaction whether or not they are sold.




**Usunco
      Automotive Limited**




Usunco
      Automotive Limited (“Usunco”) was organized in the British Virgin Islands as a
      limited liability company on April 24, 2006. Usunco owns 100% of the equity
      interest of IBC Automotive Products, Inc. (“IBC”), the North American arm of its
      business, and 75% of the equity interest of Zhejiang ZhongChai Machinery Co.,
      Ltd. (“ZhongChai JV”), which serves as the China arm of its business. These two
      subsidiaries also form the two business segments of the Company. The North
      America/Auto Parts Segment, represented by IBC, focuses on sourcing automotive
      parts and products from China and distributing them in North America and other
      regions. The China/Diesel Power Segment, represented by ZhongChai JV and its
      subsidiary, focuses on distribution of mid-sized diesel engines and engine
      related products, and manufacturing of gears and transmission systems, for
      the
      industrial and agricultural equipment markets in China.




IBC
      was
      incorporated on May 14, 2004 in the State of California and is headquartered
      in
      Santa Ana, California. IBC specializes in sourcing automotive parts and products
      from the China and distributing them in North America and other regions. IBC
      also introduces the designs of new product lines of automotive parts demanded
      by
      their customers in North America to manufacturers in China for their development
      and manufacturing. IBC primarily distributes parts, such as alternators and
      starters, to retailers, wholesalers and other US master distributors in the
      automotive replacement parts sector. Its




-
          5 -
 *Table
          of Contents*


current
      customers include, among others, Maxpower, LTD/Visteon, Remy, Cardone, BBB/OCA,
      Dixie and Dorset. End-users of parts and products sourced from IBC include,
      among others, O’Rilleys, Pep Boys, Worldpac/Carquest, and Dura
      International.




ZhongChai
      JV is a Sino-foreign equity joint venture established in the PRC by Usunco,
      and
      a local party in China, Xinchai Holding Group Co., Ltd. ("Xinchai Holding").
      The
      ZhongChai JV seeks to distribute mid-sized diesel engines and engine related
      products for the industrial and agricultural equipment markets throughout China
      and in the future it will attempt to expand its distribution internationally,
      most likely to the other markets in Asia.




The
      ZhongChai JV was approved by local authorities in the PRC as a Sino-foreign
      joint venture company with limited liability to be operated for a term of 25
      years. Usunco and Xinchai Holding have contributed $8 million and $2.6 million
      in cash for 75% and 25% equity ownership, respectively, for an aggregate amount
      of $10.6 million in registered capital for the joint-venture. The registered
      capital may be used as general working capital for it operations and other
      corporate purposes.




The
      operation of ZhongChai JV is governed by a binding Joint Venture Agreement
      entered into between Usunco and Xinchai Holding (the “JV Agreement”). Pursuant
      to the JV Agreement, the board of directors of ZhongChai JV consists of four
      directors, of which, Usunco has the right to designate three directors and
      Xinchai Holding has the right to designate one director. All material issues
      and
      actions of ZhongChai JV require approval by a majority of the Board.




On
      July
      6, 2007, ZhongChai JV completed the acquisition of all the outstanding equity
      of
      Zhejiang Shengte Transmission Co., Ltd. (“Shengte”). Shengte is a company
      organized under the laws of the PRC. The equity interest was acquired for
      approximately $3,7000,000, in cash. Shengte manufactures and distributes gears
      mainly used with diesel engines for industrial and agricultural machinery.
      Shengte was founded in 2006.




**Products**




As
      Usunco
      continues to implement its business plan, it will build and expand distribution
      of diesel engine and engine related products for the industrial and agricultural
      equipment markets primarily within China and auto part products primarily in
      North America.




***Diesel
      Engine Products***




The
      primary focus of the company is on its distribution business to be conducted
      through the ZhongChai JV. Its initial business purpose is improvement of the
      marketing of the diesel engines manufactured by its joint venture partner.
      In
      time, it will seek to distribute additional diesel engine and other engine
      related products, some of which may be manufactured by its joint venture
      partner, its subsidiaries or by others. The company also will seek to introduce
      new diesel engine designs or modifications and parts that will be the basis
      of
      more efficient and less costly engines and end products. ZhongChai JV currently
      offers its customers a four-cylinder, medium-sized diesel engine. The
      medium-sized diesel engines range from 30 to 60 hp and are used principally
      in
      the following applications:




•
            Industrial
                equipment, including forklifts, excavators, construction equipment,
                power
                generators;




•
            Agricultural
                equipment, including tractors, combined harvesters, water pumps,
                and other
                farming equipment; and




•
            Automobiles,
                particularly 3.5 ton trucks and light duty commercial
                vehicles.




-
          6 -
 *Table
          of Contents*




***Gears***




As
      a
      result of the acquisition of Shengte, Usunco’s products will include gears.
      These are primarily used with diesel engines for industrial and agricultural
      machinery.




***Auto
      Parts Products***




Usunco’s
      distribution arm in the United States, IBC, imports and distributes automotive
      parts and products, such as starters and alternators. These are sold to various
      distributors and wholesalers in the North America and other regions. IBC sources
      its automotive products from various manufacturers in China. IBC also introduces
      to its supplying manufacturers in China new auto part designs sourced from
      North
      American companies so that they may be manufactured to IBC’s client
      specifications.




**Exclusive
      Distribution Agreement**




ZhongChai
      JV has an exclusive distribution agreement with Xinchai Holding dated as of
      January 28, 2007. The distribution agreement was agreed upon in connection
      with
      setting up the joint venture, ZhongChai JV of which both Usunco and Xinchai
      Holding are the owners. The term of the agreement is for 25 years, and it is
      governed by the laws of the PRC.




ZhongChai
      JV is appointed the world wide, exclusive distributor for all the current and
      future diesel engine and diesel engine related products of Xinchai Holdings.
      As
      such, Xinchai Holdings is prohibited from appointing any third party as a
      distributor, sales or other agent or representative for distribution, marketing,
      sale, commercialization or other disposition of the products subject to the
      agreement, and it is not permitted to appoint on a limited product or territory
      basis any other parties to sell or commercialize, including by license, the
      products. In addition, it is required to refer purchase inquiries to ZhongChai
      JV. Xinchai Holdings also will not develop internal sales and marketing
      capabilities of the products under the distribution agreement. ZhongChai JV
      has
      the right of first refusal to act as the exclusive distributor for products
      to
      be marketed and sold by Xinchai Holdings that are outside the scope of diesel
      engines and related products.




ZhongChai
      JV is obligated to use its commercially reasonable efforts to sell, distribute
      and export the products under the distribution agreement for which it acts
      as
      distributor. ZhongChai JV may not distribute, sell or export diesel engines
      and
      related products produced by other parties, except those produced by Xinchai
      Holdings. It may use sub-distributors, sales agent and other companies, persons
      and organizations in order to achieve this objective. The pricing of the
      products under the distribution agreement will be determined by both parties
      on
      a regular basis.




Xinchai
      Holdings will provide sales and technical support to ZhongChai JV, as requested.
      Such support, among other things, will include maintenance and service
      instructions, operations manuals, installation kits, and technical
      training.




Xinchai
      Holdings is the owner of various intellectual property used in the design and
      manufacture of the products under the distribution agreement. Although it will
      retain such ownership, ZhongChai JV has the right to use such intellectual
      property in its marketing and sales efforts on a royalty free basis. This
      generally covers copyrights, trademarks and similar or related intellectual
      property.




**Market
      Overview**




The
      company products will be sold internationally, with a dual market emphasis
      on
      China and North America. The ZhongChai JV will focus on the domestic market
      in
      China, and IBC will focus on North America as well as certain other markets.


-
          7 -
 *Table
          of Contents*


The
      principal market for ZhongChai JV is manufacturers of industrial and
      agricultural equipment and light trucks located in China. The principal market
      for IBC is the wholesalers of aftermarket and replacement automobile parts.
      The
      products that ZhongChai JV distributes are those that are used as components
      in
      its customers’ final products, such as forklifts, excavators, construction
      equipment, tractors, water pumps and other machinery. The products that IBC
      currently distributes are automobile starters and alternators.




The
      domestic market in China for diesel engines and engine-related products has
      grown in recent years because of the increase in domestic demand driven by
      country wide economic growth, the real estate boom and urban expansion. In
      addition, beginning in 2005, because of the favorable government policies
      towards farmers in China, the PRC agricultural equipment market has been a
      growing market for the products like those of the company. As a result, the
      company has seen growth in all sectors of the diesel engine market in recent
      years, and especially that industrial equipment and agricultural
      equipment.




The
      diesel engines and engine-related products that ZhongChai JV distributes to
      industrial equipment manufacturers are mostly for material handling equipment
      (“MHE”), such as forklifts. Diesel engines are also used in various forms of
      agricultural equipment, such as tractors and harvesters. Diesel engines and
      engine-related products are also designed and manufactured for the light duty
      truck market (LTD).




China
      is
      becoming a major manufacturing base for worldwide automotive parts and
      components. Over the last several years, the company believes that a number
      of
      major original equipment manufacturers in the United States and Europe have
      announced sourcing programs which will represent a significant amount, in both
      dollars and pieces, of auto parts from China. Both the domestic market and
      the
      export market are expected to continue growing in near future.




**Customers**




The
      majority of the company’s customers in its diesel engine-related business are
      original equipment manufactures operating in China. These manufacturers
      typically integrate diesel engines with other components into their final
      products, such as forklifts, excavators, tractors and light duty, trucks.
      ZhongChai JV expects that its largest customer base will be in forklift sector.
      The company will attempt to sell to some of the largest forklift manufacturers
      in China, including Zhejiang Hangcha Engineering Machinery Co., Ltd. (a.k.a.
      Hangzhou Forklift).




Original
      equipment manufacturers in the agricultural market are typically those which
      produce agricultural vehicles and machines for the domestic market. These
      include Ningbo Benye Tractor & Automobile Manufacture Co., Ltd. (formerly
      First Tractor), Beiqi Foton Motor Co., Ltd., Shandong Shifeng Group, Jiangsu
      Yanchen Tractors Ltd., Guilin Combined Harvester Ltd., Hyundai Agricultural
      Equipment (Huzhou) Combined Harvester Co., Ltd. The company will also attempt
      to
      supply diesel engines to manufacturers of medium and light duty trucks, such
      as
      FAW-Hongta Yunnan Automobile Co., Ltd. and Anhui Jianghuai Automobile Co.,
      Ltd.




The
      company also plans to become the supplier of diesel engines to manufacturers
      of
      excavators, power generators, and other machinery. It is anticipated that these
      customers will constitute only a small part of our total diesel engine and
      related product sales.




Internationally,
      through IBC, the company distributes automotive parts, most of which are made
      in
      China, to distributors and wholesalers. The company focuses particularly on
      starters and alternators, for sale primarily in the North American aftermarket
      and replacement sector. The current customers include Maxpower Rebuilders,
      Inc.,
      LTD/Visteon, Cardone, BBB/OCA, Dixie and MPA, and the end


-
          8 -
 *Table
          of Contents*


users
      of
      our products include Pep Boys, Worldpac/Carquest, and Ford.




**Principal
      Customers**




For
      the
      fiscal year ended June 30, 2006, our principal customers were BBB/OAC,
      Ltd/Visteon and Maxpower Rebuilders, Inc., representing approximately 27%,
      37 %
      and 13%, respectively, of our fiscal year sales. For the fiscal year ended
      June
      30, 2007 these same customers, as well as another new customer in China,
      Zhejiang Xinchai Power Co., Ltd., represented approximately 25%, 30%, 15% and
      20%, respectively, of our consolidated sales. The company performs appropriate
      credit checks before orders are accepted and invoices are issued. Most accounts
      are collected with 90 days. Customers generally do not provide long term volume
      purchase commitments. Rather, transactions are based on non-binding purchase
      plans which provide only purchase forecasts and state basis terms.




**Product
      Returns and Warranties**




The
      company does not provide a right of return if the customer does not see the
      products in a timely fashion. The company generally provides a one-year limited
      warranty covering manufacturing defects and functional failures of products.
      After evaluation and confirmation, the company will either replace the defective
      product, or accept returns by crediting the customer account. Replacements
      and
      returns, and handling costs will be passed through to suppliers.




**Sales
      And Marketing**




The
      company’s primary operations are the sale and marketing of diesel engines,
      engine-related products and automotive parts. It currently conducts its sales
      and marketing through its two operating entities, ZhongChai JV and IBC.




The
      company plans to acquire customers in China by developing the network of
      original equipment manufacturers which currently use diesel engines manufactured
      by Xinchai Holdings. The company intends to implement sales and marketing
      methods and systems which are more efficient relative to current market
      standards and practices in the manufacturing sector in China. Specifically,
      the
      company will focus on customer awareness and meeting customer needs for after
      sales support. It will also try to employ timed delivery of products to reduce
      the need to carry inventory. The after sales support will include providing
      technical training programs on products for customers, ensuring parts
      availability, efficient delivery logistics for such parts and efficient
      servicing of the diesel engines the company sells. In addition, the maintenance
      of the quality for the products the company distributes, as well as Xinchai
      Holdings’ reputation among manufacturers in China for producing quality diesel
      engines are factors in the sales and marketing. The company intends to use
      the
“Usunco” brand name to market products internationally, outside of
      China.




In
      order
      to expand the customer base, the company’s sales representatives will approach
      Chinese original equipment manufacturers of forklifts, tractors, excavators
      and
      construction equipment as well as other industrial or agricultural equipment
      manufacturers, through referrals and trade shows. The company’s marketing
      efforts to develop new customers will emphasize its attention to customer
      awareness and after sales support.




Typically,
      the customers of these products will provide the supplier with a forecast and
      a
      desired shipment schedule up to one year in advance, which are reviewed
      quarterly, and in some cases monthly. The company’s customers usually will issue
      to the company an irrevocable purchase order combined with the firm shipment
      schedule three months prior to shipment.




With
      respect to the international market, the company markets to the aftermarket
      auto
      parts replacement sector through its subsidiary, IBC. It determines what
      products wholesalers, distributors and


-
          9 -
 *Table
          of Contents*


retailers
      in this sector require, and then it sources them from a selected group of
      manufacturers in China. IBC finds its customers through referrals and trade
      shows in the aftermarket parts sector. A customer will usually provide IBC
      with
      certain specifications for the product they require. IBC works closely with
      qualified manufacturers in China to meet the technical specifications and cost
      requirements of those customers. It then approves manufactured samples and
      obtains a trial order for our customers. Once this process is completed, IBC
      works with the customer on the forecast, shipment schedule and payment term.
      Subsequently, it issues orders to the factories of auto parts suppliers and
      IBC’s team in China follows up with local manufacturers to ensure quality
      control and timely shipment.




**Suppliers**




IBC
      sources automotive parts and products from various manufacturers in China.
      The
      current auto parts distributed by IBC on the international market are mainly
      starters and alternators. These products are sourced mainly from SIIG
      International, Zhejiang Yongkang Boyu and Wuxi Susun in China. IBC also
      distributes other auto parts such as brake pads sourced from other various
      suppliers. Currently, diesel engines are sourced from Xinchai Holding, our
      joint
      venture partner in ZhongChai JV, based on the exclusive distribution agreement.
      The diesel engines supplied by Xinchai Holding are mainly four-cylinder midsize
      engines of 30 to 60 hp suited for industrial and agricultural equipment and
      light truck applications. Gears are mainly produced by Zhejiang Shengte
      Transmission Co., Ltd., which is a wholly owned subsidiary of Zhongchai JV.




***Principal
      Suppliers***




For
      the
      fiscal year ended June 30, 2006, the principal suppliers of the company were
      SIIG International Inc., Zhejiang Yongkang Boyu and Wuxi Susun, representing
      43%, 21% and 12%, respectively. For the fiscal year ended June 30, 2007, the
      principal suppliers of the company were SIIG, Zhejiang Shengte and Yongkang
      Boyu, representing 37%, 21% and 13%, respectively, of the Company’s consolidated
      purchases. The company does not have any long term supply agreements with any
      of
      these companies, and it purchases products on the basis of purchase
      orders.




Except
      for the joint venture relationship with Xinchai Holding, and later acquisition
      of Shengte in July 2007, none of our suppliers have any ownership in the company
      or any relationship with the insiders of the company.




**Distribution**




For
      our
      diesel engine and gear business, currently we ship finished products directly
      to
      our customers from the source manufacturer’s warehouse. Our ZhongChai JV will
      endeavor to avoid maintaining any physical inventory of diesel engines. For
      our
      automotive parts business, we do not maintain inventories in China. However,
      IBC
      maintains a warehouse in Ontario, California to receive returned products which
      are still under warranty and to refurbish them locally. IBC will sometimes
      keep
      inventories in California when there is a receipt of a firm order from its
      customer.




Most
      of
      the orders received by IBC are container based with the shipment pre-scheduled.
      In most of cases IBC arranges for shipments directly from the suppliers in
      China
      to the customers’ warehouse in another country.




**Competition**




There
      are
      approximately 100 diesel engine manufacturers in China. These manufacturers
      typically distribute their engines in China through their internal marketing
      teams or through a subsidiary specifically established for the purpose of
      distributing their products. The break down related to size of engine for these
      companies is as follows:


-
          10 -
 *Table
          of Contents*


•
            Approximately
                10 companies sell large-sized diesel
                engines;




•
            80
                sell medium-sized diesel engines;
                and




•
            10
                sell small-sized diesel engines.




Most
      of
      our competitors, particularly in medium-size diesel engine market, are smaller
      manufacturers, limited by their production capacity, research and development
      capability and the size and sophistication of their distribution team. The
      largest diesel engine manufactures in China are:




•
            YuChai
                Machinery Co., Ltd.;




•
            Weichai
                Powers Co., Ltd.;




•
            Anhui
                QuanChai Co., Ltd.;




•
            Yangzhou
                Diesel Engine Co. Ltd; and




•
            ChangChai
                Co., Ltd..




YuChai
      Machinery, WeiChai Power, and Anhui QuanChai produce and sell four-cylinder
      and
      six-Cylinder diesel engines and focus primarily on engines for road vehicles
      such as for cars, trucks, and buses. Both YuChai and WeiChai are companies
      publicly listed in United States and Hong Kong. Some of their diesel engines
      are
      also manufactured for boats. Yangzhou Diesel Engine and ChangChai produce
      primarily four-cylinder diesel engines and mainly sell to original equipment
      manufacturers that produce road vehicles and agricultural equipment. Both
      companies have larger market shares in this mid-sized engine space than Usunco
      in the agricultural market. There are also some companies selling compressed
      natural gas and liquefied petroleum gas fuel system engines in China for
      automotive applications. These companies present competition to us in the truck
      and light duty commercial vehicle market.




In
      addition to these local domestic competitors in China, there are foreign
      competitors, primarily from Japan, Korea, and the United States. These companies
      include Nissan, Mitsubishi, Hyundai, General Electric. These well established
      foreign competitors have superior quality products with better financing terms
      than we generally can provide our customers. They also have better brand
      reputations and more marketing coverage for their distribution in China than
      the
      company. These competitors dominate the high-end and large engines markets
      internationally and in China. However, due to the price advantages we have
      in
      the mid-size diesel engine space, as well as our strong local supporting
      networks in comparison with the foreign competitors within the mid-tier domestic
      market, foreign companies usually will not be able to effectively compete
      against Usunco. This is especially true in the forklift market which will
      constitute the company’s largest market.




We
      also
      face competition from other power sources in the engine market, such as
      electrical motors. There is a trend in the market that industrial equipment
      such
      as forklifts will employ electrical motors because they are more environmentally
      friendly. Although electrical motors may have reduced power when compared with
      the diesel engines we plan to sell, we anticipate that we will face competition
      against our sales in the small forklift market where the power produced by
      electrical motors is sufficient for the smaller loads of these sized vehicles.
      Currently, the company estimates, based on its own assessments, that about
      10%
      of forklifts sold in China use electrical motors. The company believes that
      this
      percentage is likely to grow to 20% over the next 5 to 10 years. We believe
      that
      we will need to deal with this challenge by introducing cleaner emission
      technology to Xinchai Holdings and our other future suppliers of diesel engines
      in China.


-
          11 -
 *Table
          of Contents*


With
      respect to the auto parts market, we have competition from two principal
      sources, including other international distributors and manufactures in China
      who export and distribute to the international market directly. Some of the
      international distributors in our sector have better branding, distribution
      platforms, and financial capabilities than IBC. These companies source auto
      parts directly from manufactures in China and distribute them on the
      international market using their established sales channels and distribution
      networks. These competitors in North America include companies like WAI,
      American Automotive Parts, Inc., Arrowhead Electrical Products, Inc., DuBois
      Marketing Inc., and UniPoint Electrical Mfg. Co.




**Governmental
      Regulation**




In
      China,
      engine products that are used on vehicles are subject to Limits and Measurement
      Methods for Emission from Light-Duty Vehicles (III IV) - GB 18352.3-2005
      approved by China Environment Protection Agency (EPA) on April 5, 2006, and
      to
      be effective on July 1, 2007, which requires vehicles specified therein to
      meet
      the EU III standard after July 1, 2007, and the EU IV standard after July 1,
      2010.




The
      China
      EPA, so far, has not enforced emission requirements for industrial and
      agricultural equipment that use engines as power source.




Engines
      exported to other countries are subject to their respective local environmental
      protection requirements and occupational safety and health laws. Many aspects
      of
      these laws and regulations are generally enforced through the export agencies
      and customs authorities. Because the standards in the importing nations are
      usually quite clear and defined for the products we import, these regulations
      are easy to comply with, and the company does not anticipate any issues in
      having to comply with or satisfying them.




**Legal
      Proceedings**




The
      company is not a party in any bankruptcy, receivership or other legal
      proceeding, and to the best of its knowledge, no such proceedings by or against
      the company have been threatened.




**Employees**




As
      of
      June 30, 2007, the company employed either directly or through its subsidiaries
      approximately 27 individuals in the United States and China, consisting of
      5
      executives and managers, 2 product development personnel, 8 sales and marketing
      personnel, and 12 administrative and support personnel. The employees are not
      currently represented by any labor union or similar collective bargaining group.




**Risk
      Factors**




***Risks
      Related to Our Business***




**We
      anticipate that a significant portion of our revenue will be from our planned
      distribution of diesel engines and related products, which we purchase from
      one
      single supplier. We have considerable risk related to the reliance on the sole
      supplier which could have a detrimental consequence to our long term
      viability.**




We
      anticipate that a significant portion of our revenues in the nearer term will
      be
      from the distribution of diesel engine products which we will purchase from
      Xinchai Holding Group Co., Ltd. and its subsidiary, Xinchai Diesel Engine Co.,
      Ltd. Zhejiang ZhongChai Machinery Co., Ltd., and such distributorship is based
      on an exclusive distribution agreement between Xinchai Holding and
      ZhongChai


-
          12 -
 *Table
          of Contents*




Machinery,
      whereby ZhongChai Machinery serves as Xinchai’s sole agent responsible for
      distribution of all of the latter’s diesel engines and related accessories. We
      face risks inherent in relying on a single supplier for our most important
      products. If Xinchai Diesel supplies products that are defective or defaults,
      experiences disruptions in supplying us, or experiences any other events that
      affect our supply of marketable products, there could be considerable
      detrimental consequences to our reputation, market image, financial results
      and
      long term viability.




**The
      customers of Xinchai Diesel Engine may not want to source from us
      directly.**




The
      customers of Xinchai Engine, which are mostly original equipment manufacturers,
      may not want to sign supply contracts directly with ZhongChai JV which serves
      as
      a distributor or middleman. These customers may prefer to deal directly with
      the
      manufacturer for quality assurance, product delivery, product improvement,
      product modification, and product liability reasons. because ZhongChai JV is
      not
      the original source of the products. This may impact the sales efforts of
      ZhongChai JV and result in less growth as well as loss of sales.




**Our
      revenues will decrease if there is less demand for industrial and agricultural
      equipment or medium and light duty commercial vehicles in which our products are
      installed.**




We
      believe our principal customers will be manufacturers of industrial and
      agricultural equipment and of medium and light duty commercial vehicles. Our
      products will be part of the larger end product of these manufacturers,
      including things such as fork lifts, excavators, construction equipment,
      tractors, pumps and other machinery. If sales of industrial and agricultural
      equipment or medium and light duty commercial vehicles decrease, then the demand
      for our major products and our revenues would likewise decrease.




**We
      will continue to be under downward pricing pressures on our diesel engine and
      other engine products from our customers and competitors which may adversely
      affect our growth, profit margins and net income.**




We
      will
      face continuing downward pricing pressure from our customers and competitors
      as
      products similar to ours are sourced in different developing economies, new
      engine manufacturers offer better priced products and improved products are
      offered in the market place. To retain our existing customers and gain new
      ones,
      we will have to continue to keep our unit prices competitive and possibly
      improve or expand our product offerings. In view of our need to maintain
      competitive prices on our products, our growth, profit margins and net income
      will be affected if we cannot effectively continue to control our sourcing
      and
      other costs.




**Our
      contracts with our customers generally will be short-term and do not require
      the
      purchase of a minimum amount, which may result in periods of time during which
      we have limited orders for our products.**




Our
      customers generally do not provide long-term volume purchase commitments.
      Although we anticipate receiving non-binding purchase plans from significant
      customers who will have continuing demand for certain products, these plans
      provide only purchase forecasts and state terms such as price, payment method,
      payment period, quality standards and inspection and similar matters rather
      than
      provide firm, long-term commitments to purchase products. As we are not likely
      to have many long term contracts for the majority of our sales, we could have
      periods during which we have no or only limited orders for our products, but
      will continue to have to pay the costs to maintain our work force and our
      operating facilities and to service our indebtedness without the benefit of
      current revenues.




**We
      will face short lead-times for delivery of products to customers. Failure to
      meet delivery deadlines could result in the loss of customers and damage to
      our
      reputation and goodwill.**




We
      will
      have to enter into many customer purchase agreements prior to ordering from
      our
      suppliers. However, these purchase agreements typically contain short lead-times
      for the delivery of


-
          13 -
 *Table
          of Contents*




products,
      leading to production and manufacturer supply schedules that can reduce our
      profit margins on the products procured from our suppliers. Our suppliers may
      lack sufficient capacity at any given time to meet all of our customers’ demands
      if orders exceed their production capacity. We will strive for rapid response
      to
      customer demand which can lead to reduced purchasing efficiency and increased
      procurement costs, therefore reducing margins. If we are unable to sufficiently
      meet our customers’ demands, we may lose our customers. Moreover, failure to
      meet customer demands may damage our reputation and goodwill.




**If
      our selling efforts generate rapid growth in demand, we may not be able to
      respond effectively if our sources of supply or capital are not adequate
      resulting in lost business opportunity.**




If
      we are
      successful in our marketing plans resulting in significant market growth and
      demand for our products, we will be required to deliver larger volumes of
      products to our customers. Meeting any substantial demand will require us to
      increase our need to source a sufficient amount of quality products that meet
      our customers’ requirements, either from Xinchai Diesel or other sources. Such
      demand would require our current suppliers, and in particular Xinchai Diesel,
      to
      expand their production capacities, or it will necessitate our securing
      additional qualified suppliers. In addition, we may require more working capital
      than we currently have available to support new supply arrangements or
      additional inventory. The failure to be able to meet demand for our products
      may
      result in customers seeking other sources of supply and may adversely affect
      our
      reputation as a ready and consistent supplier.




**Because
      of market conditions, we will have to grant relatively long payment terms for
      accounts receivable which can adversely affect our cash
      flow.**




As
      is
      customary in China, for competitive reasons we will have to grant relatively
      long payment terms to most of our China based customers (generally 45-60 days
      for our original equipment manufacturing customers). As a result of the size
      of
      many of our orders, these payment terms may adversely affect our cash flow
      and
      our ability to fund our operations out of our operating cash flow. In addition,
      the reserves we will have to establish for our receivables may not prove to
      be
      adequate in view of an actual experience of bad debts. The failure of our
      customers to pay us timely would negatively affect our working capital, which
      could in turn adversely affect our cash flow.




Because
      our customers are likely to be large manufacturers, they generally will be
      placing large orders for our products and require their prompt delivery which
      will impact our working capital. If our customers do not use our products and
      sell the final end products in a timely fashion to generate their income, they,
      in turn may not pay us in a timely fashion. This failure to pay our invoices
      in
      a timely manner may defer or delay further product orders from us, which may
      adversely affect our cash flows, sales or income in subsequent
      periods.




**We
      may not be able to finance the development of new products which could
      negatively impact our competitiveness.**




Our
      future operating results will depend, to some extent, on our ability to continue
      to provide new products that compare favorably on the basis of cost and
      performance with the products of our competitors. Some of our competitors have
      design and manufacturing capabilities and technologies that compete well with
      our products, particularly in markets outside of China. We plan to conduct
      research and development on a number of new products as we implement our
      business plans. Some of these activities may require a substantial outlay of
      capital. To remain competitive, we believe that in the future we will have
      to
      incur product development expense and invest in research of new products. These
      costs will result in greater operating expenses. All of these factors will
      create demands on our working capital and our ability to fund our current and
      future marketing and distribution activities and the expansion of our
      business.


-
          14 -
 *Table
          of Contents*




**We
      will receive a significant portion of our revenues from a small number of
      customers which may make it difficult to negotiate attractive prices for our
      products and exposes us to risks of substantial losses if we lose certain of
      these customers.**




We
      anticipate that a significant portion of our revenues will be dependant on
      a
      small number of customers. Dependence on a few major customers could make it
      difficult to negotiate attractive prices for our products and could expose
      us to
      the risk of substantial losses if a single dominant customer stops purchasing
      our products. In such event, unless we are able to replace a terminating
      customer, we would suffer a loss of revenue and net income.




**Our
      ability to effectively implement our business strategy depends upon, among
      other
      factors, the successful recruitment and retention of additional skilled and
      experienced management and other key personnel, and we cannot assure that we
      will be able to hire or retain such employees.**




We
      must
      attract, recruit and retain a sizeable workforce of technically competent
      management and employees, particularly in the areas of marketing and sales
      and
      to some extent technical personnel. These individuals can be difficult to find
      in China, and as the economy in China expands, there is increasing competition
      for these types of educated and trained workers. We cannot give assurance that
      we will be able to find, hire or retain such management persons and employees,
      or even if we are able to so hire such persons, that the financial costs
      therefrom may have an adverse affect on our net income.




**Our
      business depends on our ability to protect and enforce our intellectual property
      effectively which may be difficult particularly in China.**




The
      success of our business depends in some measure on the legal protection of
      proprietary rights in the technology we hold. We will protect our proprietary
      rights in our products and operations through contractual obligations, including
      nondisclosure agreements. If these contractual measures fail to protect our
      proprietary rights, any advantage those proprietary rights provide us would
      be
      negated.




Monitoring
      infringement of intellectual property rights is difficult, and we cannot be
      certain that the steps we have taken will prevent unauthorized use of our
      intellectual property and know-how, particularly in China and other countries
      in
      which the laws may not protect our proprietary rights as fully as the laws
      of
      the United States. Accordingly, other parties, including competitors, may
      duplicate our products using our proprietary technologies. Pursuing legal
      remedies against persons infringing our patents or otherwise improperly using
      our proprietary information is a costly and time consuming process that would
      divert management’s attention and other resources from the conduct of our other
      business, and could cause delays and other problems with the marketing and
      sales
      of our products, as well as delays in deliveries.




**It
      may be difficult to find or integrate acquisitions which could have an adverse
      effect on our expansion plans.**




Although
      we have no commitments or agreements for any acquisitions at this time, a
      component of our growth strategy is to invest in or establish strategic
      alliances such as joint ventures with other companies, or acquire companies
      or
      divisions of companies that design, manufacture or distribute complementary
      products such as other sizes or designs of diesel engines, transmissions or
      automotive parts. We may be unable to identify suitable investments or
      acquisition candidates or to make these investments, alliances or acquisitions
      on a commercially reasonable basis, if at all. If we complete an investment,
      alliance or acquisition, we may not realize the anticipated benefits from the
      transaction.




Integrating
      an acquired company, division or product line is complex, distracting and time
      consuming, as well as a potentially expensive process. The successful
      integration of an acquisition would require us to:


-
          15 -
 *Table
          of Contents*




·
            integrate
                and retain key management, sales, research and development, and other
                personnel;




·
            incorporate
                the acquired products or capabilities into our offerings both from
                an
                engineering and sales and marketing
                perspective;




·
            coordinate
                research and development efforts;




·
            integrate
                and support pre-existing supplier, distribution and customer
                relationships; and




·
            consolidate
                duplicate facilities and functions and combine back office accounting,
                order processing and support
                functions.




The
      geographic distance between the companies, the complexity of the technologies
      and operations being integrated and the disparate corporate cultures being
      combined may increase the difficulties of combining an acquired company.
      Acquired businesses are likely to have different standards, controls, contracts,
      procedures and policies, making it more difficult to implement and harmonize
      company-wide financial, accounting, billing, information and other systems.
      Management’s focus on integrating operations may distract attention from our
      day-to-day business and may disrupt key research and development, marketing
      or
      sales efforts.




**With
      the diesel engine industry being fragmented and many of our competitors having
      greater resources than we do, we may not be able to compete successfully.**




The
      diesel engine industry in China is fragmented, and markets for industrial and
      agricultural equipment and automobile parts are competitive. Criteria for our
      customers and potential customers include:




·
            Quality;




·
            Price/cost
                competitiveness;




·
            Product
                performance;




·
            Reliability
                and timeliness of delivery;




·
            New
                product and technology development
                capability;




·
            Degree
                of global and local presence;




·
            Effectiveness
                of customer service; and




·
            Overall
                management capability.




Depending
      on the particular product market (original equipment manufacturers or
      aftermarket sales) and geographic market, the number of our competitors varies
      considerably. Many of our competitors have substantially greater revenues and
      financial resources than we do, as well as stronger brand names, consumer
      recognition, business relationships with industrial and agricultural equipment
      and automotive manufacturers, and geographic presence than we have, especially
      where we intend to enter a new application domain or geographic market. We
      may
      not be able to compete favorably and increased competition may substantially
      harm our competitive position.




Internationally,
      we face different market dynamics and competition. We may not be as successful
      as our competitors in generating revenues in international markets due to the
      lack of recognition of our brands, products or other factors. Developing product
      recognition overseas is expensive and time-consuming and our international
      expansion efforts may be more costly and less profitable than we expect. If
      we
      are not able to execute our business expansion in our target markets, our sales
      could decline, our margins could be negatively impacted and we could lose market
      share.


-
          16 -
 *Table
          of Contents*




**The
      growing use of electrical motors present a competitive obstacle for the company
      because they are cleaner and suitable for smaller
      equipment.**




We
      face
      competition from other power sources in the engine market, such as electrical
      motors. There is a trend in the market that industrial equipment such as
      forklifts will employ electrical motors because they are more environmentally
      friendly. Although electrical motors may have reduced power when compared with
      the diesel engines we sell, we anticipate that we will face competition against
      our sales in the small forklift market where the power produced by electrical
      motors is sufficient for the smaller loads of these sized vehicles. Currently
      management estimates that about 10% of forklifts sold in China use electrical
      motors. This percentage, management believes, is likely to grow to 20% over
      the
      next 5 to 10 years. We believe that we will need to deal with this challenge
      by
      introducing cleaner emission technology to Xinchai Holdings and our other future
      suppliers of diesel engines in China. If we fail to do so, then our sales will
      be affected with the result of reduced revenues and profits.




**The
      cyclical nature of industrial and agricultural equipment and medium and light
      duty commercial vehicle production and sales could result in a reduction in
      diesel engine sales, which could adversely affect our financial
      liquidity.**




Our
      sales
      to manufacturers rely on industrial and agricultural equipment and medium and
      light duty commercial vehicle production and sales by our customers, which
      are
      highly cyclical and depend on general economic conditions and other factors,
      including consumer spending and preferences. They also can be affected by
      government policies, labor relations issues, regulatory requirements, and other
      factors, which could give rise to fluctuations in the demand for our
      products.




**Increasing
      costs of goods from our suppliers as a result of increasing costs for
      manufactured components and raw materials may adversely affect our
      profitability.**




A
      broad
      range of manufactured components and raw materials are used in the production
      of
      diesel engines, including castings, electronic components, finished
      sub-components, molded plastic parts, fabricated metal, aluminum and steel,
      and
      resins. The prices of these products is increasing as a result of the growth
      of
      the Chinese economy. Our suppliers may increase diesel engine prices as a result
      of increasing prices for components and raw materials. Because it may be
      difficult for us to pass the increased costs on to our customers, any
      significant increase in the prices of our purchased goods could materially
      increase our operating costs and adversely affect our profit margins and
      profitability.




**We
      may be subject to product liability and warranty and recall claims, which may
      increase the costs of doing business and adversely affect our reputation,
      financial condition and liquidity.**




We
      face
      an inherent business risk of exposure to product liability and warranty claims
      if our products actually or allegedly fail to perform as expected or the use
      of
      our products results, or is alleged to result, in bodily injury and/or property
      damage. We may be exposed to potential liability even if we have product
      liability insurance. We cannot give any assurance that we will not incur
      significant costs to defend these claims or that we will not experience any
      product liability losses in the future. In addition, if any of our designed
      products are or are alleged to be defective, we may be required to participate
      in a recall of such products. We cannot assure you that the future costs
      associated with providing product warranties and/or bearing the cost of repair
      or replacement of our products will not have an adverse effect on our financial
      condition and liquidity.




**We
      are subject to environmental and safety regulations, which may increase our
      compliance costs.**




We
      are
      subject to the requirements of environmental and occupational safety and health
      laws and regulations in China and other countries where we sell our products.
      To
      the extent that we expect to expand our operations into other geographic areas,
      we will become subject to such laws and regulations of those countries as well.
      We cannot provide assurance that at all times we have been or will be in full
      compliance with all of these requirements, or that we will not incur material
      costs or liabilities in


-
          17 -
 *Table
          of Contents*




connection
      with these requirements. The capital requirements and other expenditures that
      may be necessary to comply with environmental requirements could increase and
      become a material expense of doing business.




**Our
      commercial viability depends significantly on our ability to operate without
      infringing the patents and other proprietary rights of third parties.**




In
      the
      event that our technologies infringe or violate the patent or other proprietary
      rights of third parties, we may be prevented from pursuing product development,
      commercialization or distribution of our products that utilize such
      technologies. There may be patents held by others of which we are unaware that
      contain claims that our products or operations infringe. In addition, given
      the
      complexities and uncertainties of patent laws, there may be patents of which
      we
      know that we may ultimately be held to infringe, particularly if the claims
      of
      the patent are determined to be broader than we believe them to be. As a result,
      avoiding patent infringement may be difficult.




If
      a
      third party claims that we infringe its patents, any of the following may occur:




·
            we
                may become liable for substantial damages for past infringement if
                a court
                decides that our technologies infringe upon a competitor’s
                patent;




·
            a
                court may prohibit us from selling or licensing our product without
                a
                license from the patent holder, which may not be available on commercially
                acceptable terms or at all, or which may require us to pay substantial
                royalties or grant cross-licenses to our patents;
                and




·
            we
                may have to redesign our product so that it does not infringe upon
                others’
                patent rights, which may not be possible or could require substantial
                funds or time.




In
      addition, employees, consultants, contractors, suppliers and others may use
      the
      trade secret information of others in their work for us or disclose our trade
      secret information to others. Either of these events could lead to disputes
      over
      the ownership of inventions derived from that information or expose us to
      potential damages or other penalties. If any of these events occurs, our
      business will suffer and the market price of our common stock will likely
      decline.




**Our
      international expansion plans subject us to risks inherent in doing business
      internationally, such as protectionist limitations, higher sales costs and
      additional importation taxes, all of which would affect our profitability.**




Our
      long-term business strategy relies on the expansion of our international sales
      outside China by targeting markets, such as Europe and the United States. Risks
      affecting our international expansion include challenges caused by distance,
      language and cultural differences, conflicting and changing laws and
      regulations, international import and export legislation, trading and investment
      policies, foreign currency fluctuations, the burdens of complying with a wide
      variety of laws and regulations, protectionist laws and business practices
      that
      favor local businesses in some countries, foreign tax consequences, higher
      costs
      associated with doing business internationally, restrictions on the export
      or
      import of technology, difficulties in staffing and managing international
      operations, trade and tariff restrictions, and variations in tariffs, quotas,
      taxes and other market barriers. These risks could harm our international
      expansion efforts, which in turn could materially and adversely affect our
      business, operating results and financial condition.




***Risks
      Related to Management***




**We
      do not intend to pay dividends on shares of our common stock in the foreseeable
      future.**




We
      have
      never paid cash dividends on our common stock. Our current board of directors
      does not anticipate that we will pay cash dividends in the foreseeable future.
      Instead, we intend to retain future


-
          18 -
 *Table
          of Contents*




earnings
      for reinvestment in our business and/or to fund future acquisitions.
      Determination of net income under PRC accounting standards and regulations
      may
      differ from determination under U.S. GAAP in significant aspects, such as the
      use of different principles for recognition of revenues and expenses. Under
      PRC
      law, our PRC joint venture is required to set aside a portion of its net income
      each year to fund designated statutory reserve funds. Therefore, there may
      be
      limitations on the availability of cash for the payment of
      dividends.




**The
      management persons own a controlling interest in the company and will be able
      to
      control management decisions, thereby limiting the ability of the public
      shareholders to influence the corporate direction and affairs for the
      foreseeable future.**




The
      management persons hold approximately 14,177,989 shares, currently representing
      approximately 50.3% of the issued and outstanding shares. As such, they have
      the
      ability to exert control over the business affairs of the company, including
      the
      ability to delay or prevent a change in our corporate control even if our other
      stockholders wanted it to occur. These stockholders will be able to exercise
      significant control over all matters requiring stockholder approval, including
      the election of directors and approval of significant corporate transactions.
      This could delay or prevent an outside party from acquiring or merging with
      us
      even if our other stockholders wanted it to occur.




**We
      currently have only one independent director and there is no assurance that
      any
      additional independent directors will be appointed or what their qualifications
      may be if they are appointed.**




We
      currently have only one independent director, Mr. Haining Liu. We plan on adding
      additional independent directors to comply with our commitment to the investors
      in the Offering. In the future, if we seek listing of our common stock on a
      national securities exchange or NASDAQ, we will be required to add independent
      directors. Such additions may also be for other reasons. We may not be able
      to
      identify independent directors qualified to be on our board.




**We
      may be exposed to potential risks relating to our internal controls over
      financial reporting and our ability to have those controls attested to by our
      independent auditors.**




As
      directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the
      Securities and Exchange Commission adopted rules requiring public companies
      to
      include a report of management on the company’s internal controls over financial
      reporting in their annual reports, including Form 10-K or 10-KSB. In addition,
      the independent registered public accounting firm auditing a company’s financial
      statements must also attest to and report on management’s assessment of the
      effectiveness of the company’s internal controls over financial reporting as
      well as the operating effectiveness of the company’s internal controls. We can
      provide no assurance that we will meet all of the requirements imposed thereby.
      There can be no assurance that we will receive a positive attestation from
      our
      independent auditors. In the event there are significant deficiencies or
      material weaknesses identified in our internal controls, and we cannot remediate
      in a timely manner, we may not be able to receive a positive attestation from
      our independent auditors with respect to our internal controls, investors and
      others may lose confidence in the reliability of our financial statements.




**Compliance
      with the Sarbanes-Oxley act could cost hundreds of thousands of dollars, require
      additional personnel and require hundreds of man hours of effort, and there
      can
      be no assurance that we will have the personnel, financial resources or
      expertise to comply with these regulations.**




The
      US
      Public Company Accounting Reform and Investor Protection Act of 2002, better
      known as Sarbanes-Oxley, has had a profound effect on publicly traded companies.
      Sarbanes-Oxley created a set of complex and burdensome regulations. Compliance
      with such regulations requires hundreds of thousands of dollars, additional
      personnel and hundreds of man hours of effort. There can be no assurance that
      we
      will have the personnel, financial resources or expertise to comply with these
      regulations.


-
          19 -
 *Table
          of Contents*




Although
      individual members of our management team have experience as officers of
      publicly-traded companies, much of that experience came prior to the adoption
      of
      the Sarbanes-Oxley Act. It may be time consuming, difficult and costly for
      us to
      develop and implement the internal controls and reporting procedures required
      by
      the Sarbanes-Oxley Act. We may need to hire additional financial reporting,
      internal controls and other finance staff in order to develop and implement
      appropriate internal controls and reporting procedures. If we are unable to
      meet
      the Sarbanes-Oxley Act’s internal controls requirements, we may not be able to
      obtain the independent accountant certifications that the Sarbanes-Oxley Act
      requires publicly-traded companies to obtain.




***Risks
      Related to Doing Business in China***




**We
      are subject to the risks associated with doing business in the People’s Republic
      of China.**




Our
      principal operating subsidiary, Zhejiang ZhongChai Machinery Co., Ltd., is
      a
      Sino-foreign joint venture organized under the laws of the PRC.




As
      the
      majority of our operations will be conducted and most of our assets are located
      in China, and we anticipate that China will be our primary sales base in the
      future, we are subject to special considerations and significant risks not
      typically associated with companies operating in North America and Western
      Europe. These include risks associated with, among other things, the political,
      economic and legal environments and foreign currency exchange environment of
      China which is a partially controlled economy. Our results may be adversely
      affected by changes in the political and social conditions in China and by
      changes in governmental policies with respect to social and commercial laws
      and
      regulations, anti-inflationary measures, currency controls, conversion
      restrictions and remittances abroad. The recent changes in the tax laws will
      also have an impact on the operations of our company.




Although
      the majority of productive assets in China are owned by the Chinese government,
      in the past years the government has implemented economic reform measures that
      emphasize decentralization and encourage private economic activity. Because
      these economic reform measures may be inconsistent or ineffectual, there are
      no
      assurances that:




·
            We
                will be able to capitalize on economic reforms;




·
            The
                Chinese government will continue its pursuit of economic reform
                policies;




·
            The
                economic policies, even if pursued, will be successful;




·
            Economic
                policies will not be significantly altered from time to time; and




·
            Business
                operations in China will not become subject to the risk of
                nationalization.




**Economic
      reform policies or nationalization could result in a total loss of investment
      in
      our common stock.**




Since
      1979, the Chinese government has implemented policies to reform its economic
      system, which reforms have accelerated in the last 15 years. Because many
      reforms are unprecedented or experimental in the China context, they are
      expected to be changed over time. Other political, economic and social factors,
      such as political changes, changes in the rates of economic growth, unemployment
      or inflation, or in the disparities in per capita wealth between regions within
      China, could lead to readjustment of the reform measures so far taken. Any
      refining and readjustment may negatively affect our operations or our profits.




Over
      the
      last few years, China’s economy has registered a particularly high growth rate.
      Recently, there have been indications that rates of inflation have increased.
      For example, employee costs are increasing as are the costs of raw materials.
      In
      response, the Chinese government has taken some measures to curb this
      excessively expansive economy. These measures include restrictions on the
      availability of domestic credit, reducing the purchasing capability of certain
      of its customers, and limited


-
          20 -
 *Table
          of Contents*




re-centralization
      of the approval process for purchases of some foreign products. There has been
      some revaluation of the currency which has increased the costs of imported
      products. The Chinese government may adopt additional measures to further combat
      inflation, including the establishment of freezes or restraints on certain
      projects or markets. These measures may adversely affect our manufacturing
      operations and margins.




To
      date,
      the basic reforms to China’s economic system have not adversely impacted our
      operations and are not expected to adversely impact operations in the
      foreseeable future. We, however, will be affected by the change in the tax
      structure and rising costs of an expanding and increasingly sophisticated
      economy. We cannot assure you that the reforms to China’s economic system will
      continue or that we will not be adversely affected by changes in China’s
      political, economic, and social conditions and by changes in policies of the
      Chinese government, such as changes in laws and regulations, measures which
      may
      be introduced to control inflation and changes in the rate or method of
      taxation.




On
      November 11, 2001, China signed an agreement to become a member of the World
      Trade Organization, sometimes referred to as the WTO, the international body
      that sets most trade rules, further integrating China into the global economy
      and significantly reducing the barriers to international commerce. China’s
      membership in the WTO was effective on December 11, 2001. China has agreed
      upon
      its accession to the WTO to reduce tariffs and non-tariff barriers, remove
      investment restrictions and provide trading and distribution rights for foreign
      firms. The tariff rate reductions and other enhancements will enable us to
      develop better investment strategies. In addition, the WTO’s dispute settlement
      mechanism provides a credible and effective tool to enforce members’ commercial
      rights. Also, with China’s entry to the WTO, it is believed that the relevant
      laws on foreign investment in China will be amplified and will follow common
      practices.




**The
      legal authorities in China are in the process of changing heretofore tax and
      fee
      benefits provided to foreign investors and companies to encourage development
      within the country such that these benefits will be lessened or removed with
      the
      consequence that expenses may rise and adversely impact margins and net
      income.**




The
      legal
      authorities are in the process of changing business income tax and fee benefits
      that have been available to foreign investors and foreign companies operating
      in
      China and reducing the availability of tax holidays for new enterprises. In
      the
      near term, there will be changes that substantially reduce or eliminate many,
      if
      not all, the tax and other governmental fee advantages that heretofore have
      been
      available to foreign entities and newly created entities whether or not such
      new
      entities are foreign. The goal is to institute greater equalization of tax
      and
      government fee treatment of all corporate and similar entities organized and
      operating in China. China is being encouraged to create this more equal
      treatment because of its WTO obligations and public opinion within China. There
      may be phase-ins of various taxes and fees for entities that currently benefit
      from either no or lower tax rates and fees compared to wholly Chinese companies
      and entities, but there can be no assurance of this. Even if there are phase-in
      periods, the length of such periods is not known. There may also be extended
      tax
      benefits for certain industries. Overall, it is expected that the cost of
      operating in China will increase for those companies and entities that have
      had
      various tax and fee advantages in the past. As a result, Usunco, a company
      which
      has had and expected to have benefits from some forms of preferential tax and
      fee rates, expects that in the near term certain of its costs will increase
      which may have an adverse impact on operating margins and will have an impact
      on
      net income.




**The
      Chinese legal system is not fully developed and has inherent uncertainties
      that
      could limit the legal protections available to investors.**




The
      Chinese legal system is a system based on written statutes and their
      interpretation by the Supreme People’s Court. Prior court decisions may be cited
      for reference but have limited legal precedents. Since 1979, the Chinese
      government has been developing a comprehensive system of


-
          21 -
 *Table
          of Contents*




commercial
      laws, and considerable progress has been made in introducing laws and
      regulations dealing with economic matters such as foreign investment, corporate
      organization and governance, commerce, taxation and trade. Two examples are
      the
      promulgation of the Contract Law of the People’s Republic of China to unify the
      various economic contract laws into a single code, which went into effect on
      October 1, 1999, and the Securities Law of the People’s Republic of China, which
      went into effect on July 1, 1999. However, because these laws and regulations
      are relatively new, and because of the limited volume of published cases and
      their non-binding nature, interpretation and enforcement of these laws and
      regulations involve uncertainties. In addition, as the Chinese legal system
      develops, changes in such laws and regulations, their interpretation or their
      enforcement may have a material adverse effect on our business operations.




**Enforcement
      of regulations in China may be inconsistent.**




Although
      the Chinese government has introduced new laws and regulations to modernize
      its
      securities and tax systems, China does not yet possess a comprehensive body
      of
      business law. As a result, the enforcement, interpretation and implementation
      of
      regulations may prove to be inconsistent and it may be difficult to enforce
      contracts.




**We
      may experience lengthy delays in resolution of legal disputes.**




As
      China
      has not developed a dispute resolution mechanism similar to the Western court
      system, dispute resolution over Chinese projects and joint ventures can be
      difficult and we cannot assure you that any dispute involving our business
      in
      China can be resolved expeditiously and satisfactorily.




**Impact
      of the United States Foreign Corrupt Practices Act on our
      business.**




We
      are
      subject to the United States Foreign Corrupt Practices Act, which generally
      prohibits United States companies from engaging in bribery or other prohibited
      payments to foreign officials for the purpose of obtaining or retaining
      business. Foreign companies, including some that may compete with us, are not
      subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft
      and other fraudulent practices occur from time-to-time in mainland China. We
      have attempted to implement safeguards to prevent and discourage such practices
      by our employees and agents. We cannot assure you, however, that our employees
      or other agents will not engage in such conduct for which we might be held
      responsible. If our employees or other agents are found to have engaged in
      such
      practices, we could suffer severe penalties and other consequences that may
      have
      a material adverse effect on our business, financial condition and results
      of
      operations.




**It
      may be difficult to serve us with legal process or enforce judgments against
      our
      management or us.**




Most
      of
      our assets are located in China. In addition, some of our directors and officers
      are non-residents of the United States, and all, or substantial portions of
      the
      assets of such non-residents, are located outside the United States. As a
      result, it may not be possible to effect service of process within the United
      States upon such persons. Moreover, there is doubt as to whether the courts
      of
      China would enforce:




·
            Judgments
                of United States courts against us, our directors or our officers
                based on
                the civil liability provisions of the securities laws of the United
                States
                or any state; or




·
            Original
                actions brought in China relating to liabilities against non-residents
                or
                us based upon the securities laws of the United States or any
                state.




-
          22 -
 *Table
          of Contents*




**The
      Chinese government could change its policies toward private enterprise or even
      nationalize or expropriate it, which could result in the total loss of your
      investment.**




Our
      business may be adversely affected by political, economic and social
      developments in China. Over the past several years, the Chinese government
      has
      pursued economic reform policies including the encouragement of private economic
      activity and greater economic decentralization. The Chinese government may
      not
      continue to pursue these policies or may significantly alter them to our
      detriment from time to time with little, if any, prior notice. Changes in
      policies, laws and regulations or in their interpretation or the imposition
      of
      confiscatory taxation, restrictions on currency conversion, restrictions or
      prohibitions on dividend payments to stockholders, devaluations of currency
      or
      the nationalization or other expropriation of private enterprises could have
      a
      material adverse effect on our business. Nationalization or expropriation could
      even result in the total loss of our investment in China and in the total loss
      of your investment.




**Our
      primary source of funds for dividend and other distributions will be from our
      operating subsidiary in China which is subject to various legal and contractual
      restrictions and uncertainties as well as the practice of such subsidiary in
      declaring dividends, and our ability to pay dividends or make other
      distributions to our shareholders is negatively affected by those restrictions,
      uncertainties and dividend practices.**




We
      conduct our core business operations mainly through our Chinese joint venture.
      As a result, our profits available for distribution to our shareholders are
      dependent on the profits available for distribution from our joint venture.
      Under current PRC law, our PRC joint venture is regarded as a foreign-invested
      enterprise in China. Although dividends paid by foreign invested enterprises
      will be subject to a low withholding rate in the future, PRC law permits payment
      of dividends only out of net income as determined in accordance with PRC
      accounting standards and regulations. Determination of net income under PRC
      accounting standards and regulations may differ from determination under U.S.
      generally accepted accounting principles in significant aspects, such as the
      use
      of different principles for recognition of revenues and expenses. Under PRC
      law,
      our PRC joint venture is required to set aside 10% of its net income each year
      to fund a designated statutory reserve fund until such funds reach 50% of
      registered share capital. These reserves are not distributable as cash
      dividends. As a result, our primary internal source of funds for dividend
      payments is subject to these and other legal and contractual restrictions and
      uncertainties, which in turn may limit or impair our ability to pay dividends
      to
      our shareholders although we do not presently anticipate paying any dividends.
      Moreover, any transfer of funds from us to our PRC joint venture, either as
      a
      shareholder loan or as an increase in registered capital, is subject to
      registration with or approval by PRC governmental authorities. These limitations
      on the flow of funds between us and our PRC joint venture could restrict our
      ability to act in response to changing market conditions. Additionally to date,
      our PRC Joint Venture has not distributed any profits and does not anticipate
      doing so for the near term.




**If
      relations between the United States and China worsen, our stock price may
      decrease and we may have difficulty accessing U.S. capital
      markets.**




At
      various times during recent years, the United States and China have had
      significant disagreements over political and economic issues. Controversies
      may
      arise in the future between these two countries. Any political or trade
      controversies between the United States and China, whether or not directly
      related to our business, could adversely affect the market price of our common
      stock and our ability to access U.S. capital markets.




-
          23 -
 *Table
          of Contents*




***Foreign
      Exchange Control Risks***




**Fluctuations
      in the value of the Chinese Renminbi relative to foreign currencies could affect
      our operating results.**




Substantially
      all our revenues and expenses are currently denominated in the Chinese Renminbi.
      However, we use the United States dollar for financial reporting purposes.
      The
      value of Chinese Renminbi against the United States dollar and other currencies
      may fluctuate and is affected by, among other things, changes in China’s
      political and economic conditions. The Chinese government recently announced
      that it is valuing the exchange rate of the Chinese Renminbi against a number
      of
      currencies, rather than just exclusively to the United States dollar. Although
      the Chinese government has stated its intention to support the value of the
      Chinese Renminbi, we cannot assure you that the government will not revalue
      it.
      As our operations are primarily in China, any significant revaluation of the
      Chinese Renminbi may materially and adversely affect our cash flows, revenues
      and financial condition. For example, to the extent that we need to convert
      United States dollars into Chinese Renminbi for our operations, appreciation
      of
      this currency against the United States dollar could have a material adverse
      effect on our business, financial condition and results of operations.
      Conversely, if we decide to convert our Chinese Renminbi into United States
      dollars for other business purposes and the United States dollar appreciates
      against this currency, the United States dollar equivalent of the Chinese
      Renminbi we convert would be reduced. To date, we have not engaged in any
      hedging transactions in connection with our operations.




The
      PRC
      government imposes control over the conversion of the Chinese Renminbi into
      foreign currencies. Under the current unified floating exchange rate system,
      the
      People’s Bank of China publishes an exchange rate, which we refer to as the PBOC
      exchange rate, based on the previous day’s dealings in the inter-bank foreign
      exchange market. Financial institutions authorized to deal in foreign currency
      may enter into foreign exchange transactions at exchange rates within an
      authorized range above or below the PBOC exchange rate according to market
      conditions.




Pursuant
      to the Foreign Exchange Control Regulations of the PRC issued by the State
      Council which came into effect on April 1, 1996, and the Regulations on the
      Administration of Foreign Exchange Settlement, Sale and Payment of the PRC
      which
      came into effect on July 1, 1996, regarding foreign exchange control, conversion
      of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs,
      for use on current account items, including the distribution of dividends and
      profits to foreign investors, is permissible. FIEs are permitted to convert
      their after-tax dividends and profits to foreign exchange and remit such foreign
      exchange to their foreign exchange bank accounts in the PRC.




Conversion
      of Renminbi into foreign currencies for capital account items, including direct
      investment, loans, and security investment, is still subject to certain
      restrictions. On January 14, 1997, the State Council amended the Foreign
      Exchange Control Regulations and added, among other things, an important
      provision, which provides that the PRC government shall not impose restrictions
      on recurring international payments and transfers under current account items.




Enterprises
      in the PRC (including FIEs) which require foreign exchange for transactions
      relating to current account items, may, without approval of the State
      Administration of Foreign Exchange, or SAFE, effect payment from their foreign
      exchange account or convert and pay at the designated foreign exchange banks
      by
      providing valid receipts and proofs.




Convertibility
      of foreign exchange in respect of capital account items, such as direct
      investment and capital contribution, is still subject to certain restrictions,
      and prior approval from the SAFE or its relevant branches must be
      sought.




***Risks
      Related to Our Common Stock***




**An
      active trading market for Equicap’s common stock may not develop or be
      sustained.**




Currently,
      there is almost no trading in our common stock. Equicap intends to use its
      commercially reasonable efforts to have its shares of common stock commence
      quotation on NASDAQ Capital Markets (“NASDAQ”) or continue the listing on the
      Over-the-Counter Bulletin Board (“OTC BB”). However, there can be no assurance
      as to when and if the shares of common stock will become


-
            24 -
 *Table
            of Contents*




quoted
      on
      NASDAQ. Even if the shares of common stock are quoted on either venue, there
      can
      be no assurance that an active trading market will develop for such shares.
      If
      an active public trading market does not develop or continue, you may have
      limited liquidity and may be forced to hold your investment in the company
      for
      an indefinite period of time. Further, the prices and volume of trading in
      the
      common stock may be adversely affected if its securities are not listed or
      quoted.




**The
      offering price of the common stock in connection with the March 2007 offering
      was arbitrary and the stock price may decline after the Share Exchange.**




The
      offering price of the common stock in the private placement consummated on
      March
      9, 2007, offering was determined by negotiations between the Usunco management,
      vFinance Investment, Inc., as placement agent, and some of the investors, and
      was not based on any objective criteria of value. The price per share in the
      offering does not bear any direct relationship to the company assets, net worth,
      book value (loss) per share or net loss. Accordingly, the stock price may suffer
      a decline from the price paid by investors.




**There
      may be substantial sales of the common stock by existing stockholders and by
      the
      selling security holders who purchased shares in the offering consummated March
      9, 2007 which could cause the price of the stock to fall.**




Future
      sales of substantial amounts of the common stock in the public market, if one
      develops, or the perception that such sales might occur due to the various
      registration rights, could cause the market price of its common stock to decline
      and could impair the value of an investment in the common stock and its ability
      to raise equity capital in the future. Equicap has 28,169,013 shares of common
      stock outstanding, of which 185,550 shares may be sold immediately without
      restriction and up to 9,773,969 shares subject to immediate registration rights.
      Of these shares, 8,450,704 have a cost basis of approximately $1.42 and
      approximately 1,061,632 have a cost basis of less than $1.42. There can be
      no
      assurance that the shares of common stock subject to registration rights will
      become registered under the Securities Act. The sales of common stock by the
      stockholders having registration rights or even the appearance that such holders
      may make such sales once a registration statement becomes effective may depress
      any trading market that develops.




**If
      the Equicap common stock is traded, it expects that the stock will be subject
      to
      the “penny stock” rules for the foreseeable future.**




Equicap
      is subject now and expects in the future to be subject to the SEC’s “penny
      stock” rules if its common stock sells below $5.00 per share. Penny stocks
      generally are equity securities with a price of less than $5.00. The penny
      stock
      rules require broker-dealers to deliver a standardized risk disclosure document
      prepared by the SEC which provides information about penny stocks and the nature
      and level of risks in the penny stock market. The broker-dealer must also
      provide the customer with current bid and offer quotations for the penny stock,
      the compensation of the broker-dealer and its salesperson, and monthly account
      statements showing the market value of each penny stock held in the customer’s
      account. The bid and offer quotations, and the broker-dealer and salesperson
      compensation information must be given to the customer orally or in writing
      prior to completing the transaction and must be given to the customer in writing
      before or with the customer’s confirmation.




In
      addition, the penny stock rules require that prior to a transaction, the broker
      and/or dealer must make a special written determination that the penny stock
      is
      a suitable investment for the purchaser and receive the purchaser’s written
      agreement to the transaction. The penny stock rules are burdensome and may
      reduce purchases of any offerings and reduce the trading activity for the common
      stock. As long as the common stock is subject to the penny stock rules, the
      holders of its shares may find it more difficult to sell their
      securities.




-
          25 -
 *Table
          of Contents*




**Equicap’s
      articles of incorporation authorize the issuance of shares of preferred stock,
      the rights, preferences, designations and limitations of which may be set by
      the
      board of directors.**




Equicap’s
      articles of incorporation have authorized issuance of up to 10,000,000 shares
      of
      preferred stock in the discretion of its board of directors. Any undesignated
      shares of preferred stock may be issued by the Equicap board of directors;
      no
      further shareholder action is required. If issued, the rights, preferences,
      designations and limitations of such preferred stock would be set by the board
      of directors and could operate to the disadvantage of the outstanding common
      stock. Such terms could include, among others, preferences as to dividends
      and
      distributions on liquidation, or could be used to prevent possible corporate
      takeovers.




**Item
              2.**
            **Description
                of
                Properties**




The
      company has three offices in the United States and China and one
      operating facility in China.




The
      principal executive offices of the company are located in Santa Anna,
      California, which space is rented on a month to month basis for a
      total annual rent of $4,200.  The other two executive offices are located
      in the cities of Hangzhou and Beijing in China, where the company leases an
      aggregate of approximately 4,000 square feet at an approximate, aggregate annual
      rent of $28,374.  These leases have terms of two and one years,
      respectively. These three offices mainly handle general corporate affairs,
      administrative matters, accounting activities and other supporting functions.




The
      ZhongChai JV and Shengte conduct operations from a facility in Xinchang
      County, Zhejiang Province in China, with an aggregate space of
      approximately 36,600 square feet. Currently the operating facility is under
      a
      rent holiday that is expected to end October, 2008, after which the company
      will
      pay market rates to be negotiated based on the term of the lease and market
      conditions.




**Item
              3.**
            **Legal
                Proceedings**




The
      Company is not currently a party to any material legal proceedings.




**Item
              4.**
            **Submission
                of Matters to a Vote by Security
                Holders**




During
      the fourth quarter of fiscal year 2007, no matters were submitted to a vote
      by
      security holders.




**PART
      II**




**Item
              5.**
            **Market
                for Common Equity, Related Stockholder Matters****and Small Business Issuer Purchases of Equity
                Securities**




**Market
      Information**




The
      company became subject to Securities Exchange Act reporting requirements in
      July
      2000. The symbol “EQPI.OB”: was assigned for the common stock at that time.
      There is a very limited trading market for our stock. During calendar year
      2006,
      approximately 3,466 shares of our stock traded on the OTCBB with a high price
      of
      $1.25 and a low price of $0.60. There can be no assurance that a highly-liquid
      market for our securities will ever develop. The last trade in the calendar
      year
      2006 was 100 shares at $1.25 per share on November 28, 2006. The only trade
      in
      calendar year 2007, to date, was 100 shares at $1.30 per share on April 9,
      2007.




Our
      common stock is designated as “penny stock” and thus may be illiquid for that
      reason. The


-
          26 -
 *Table
          of Contents*


SEC
      has
      adopted rules (Rules 15g-2 through l5g-6 of the Exchange Act), which regulate
      broker-dealer practices in connection with transactions in “penny stocks.” Penny
      stocks generally are any non-NASDAQ equity securities with a price of less
      than
      $5.00, subject to certain exceptions. The penny stock rules require a
      broker-dealer to deliver a standardized risk disclosure document to provide
      the
      customer with current bid and offer quotations for the penny stock, the
      compensation of the broker-dealer and its salesperson in the transaction,
      monthly account statements showing the market value of each penny stock held
      in
      the customers account, to make a special written determination that the penny
      stock is a suitable investment for the purchaser and receive the purchaser’s
      written agreement to the transaction. These disclosure requirements may have
      the
      effect of reducing the level of trading activity, if any, in the secondary
      market for a stock that is subject to the penny stock rules. Since our common
      shares are subject to the penny stock rules, persons holding or receiving such
      shares may find it more difficult to sell their shares. The market liquidity
      for
      the shares could be severely and adversely affected by limiting the ability
      of
      broker-dealers to sell the shares and the ability of stockholders to sell their
      stock in any secondary market.




The
      trading volume in our common stock has been and is extremely limited. The
      limited nature of the trading market can create the potential for significant
      changes in the trading price for the common stock as a result of relatively
      minor changes in the supply and demand for our common stock and perhaps without
      regard to our business activities.




The
      market price of our common stock may be subject to significant fluctuations
      in
      response to numerous factors, including: variations in our annual or quarterly
      financial results or those of our competitors; conditions in the economy in
      general; announcements of key developments by competitors; loss of key
      personnel; unfavorable publicity affecting our industry or us; adverse legal
      events affecting us; and sales of our common stock by existing
      stockholders.




**Holders**




We
      have
      approximately 420 record holders of our common stock. We
      believe that in addition to the record ownership there are additional beneficial
      owners who hold their shares in street name or through other nominees, but
      we
      have not yet been able to ascertain the number of such persons.




**Dividend
      Policy**




We
      plan
      to retain all earnings generated by our operations, if any, for use in our
      business. We do not anticipate paying any cash dividends to our stockholders
      in
      the foreseeable future. The payment of future dividends on the common stock
      and
      the rate of such dividends, if any, and when not restricted, will be determined
      by our board of directors in light of our earnings, financial condition, capital
      requirements, the requirements of PRC law and other factors.




**Recent
      Sales of Unregistered Securities**




Except
      as
      previously reported, during the period covered by this report and as disclosed
      under “Item 1. Business - Background of Equicap,” we have not issued any
      unregistered equity securities.




**Transfer
      Agent**




The
      transfer agent and registrar for the common shares of Equicap is Executive
      Registrar & Transfer, Inc., 3615 S. Huron Street, Englewood, Colorado,
      80110.




**Equity
      Compensation Plan Information**




The
      following table gives information about our common stock that may be issued
      upon
      the exercise of options, warrants or rights under our existing equity
      compensation plans. The information in this
      table is as of June 30, 2007.




-
          27 -
 *Table
          of Contents*




**Plan
                Category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,****warrants
                and rights**
            
            **Weighted
                average exercise price of outstanding options,****warrants,
                and rights**
            
            **Number
                of securities****remaining
                available**Equity
                compensation plans approved by security holders
            
            
            -0-
            
            
            -0-
            
            
            -0-Equity
                compensation plans not approved by security holders
            
            
            366,550
            
            $
            1.065
            
            
            1,604,148Total
            
            
            366,550
            
            $
            1.065
            
            
            1,604,148




**Item
              6.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation**




The
      following is management’s discussion and analysis of certain significant factors
      that have affected our financial position and operating results during the
      periods included in the accompanying consolidated financial statements, as
      well
      as information relating to the plans of our current management. This report
      includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
      terminology are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties, including, but not limited
      to,
      those described in the “Risk Factors” set forth in Item 1 - Business and the
      matters set forth in other reports or documents we file with the Securities
      and
      Exchange Commission from time to time, which could cause actual results or
      outcomes to differ materially from those projected. Undue reliance should not
      be
      placed on these forward-looking statements that speak only as of the date
      hereof. We undertake no obligation to update these forward-looking
      statements.




The
      following discussion and analysis should be read in conjunction with our
      consolidated financial statements and the related notes included in this
      report.




*Overview*




Equicap,
      Inc. (“Equicap”) does business through its subsidiary, Usunco Automotive Limited
      (“Usunco”) 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/Diesel Power Segment”). Through its operating subsidiaries, the company
      is engaged in the development and distribution of automotive parts, diesel
      engines, gears and related products in industrial and agricultural sectors,
      sourced from China and sold to customers located primarily in China and North
      America.




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


-
          28 -
 *Table
          of Contents*




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.




In
      connection with the Share Exchange, vFinance Investments, Inc., for advice
      in
      connection with the transaction, was issued 161,633 shares of common stock
      as
      compensation. The shares were issued as restricted stock. These shares have
      registration rights.




Since
      the
      former shareholders of Usunco own approximately 65% of the shares of common
      stock of Equicap, the former shareholders of Usunco have control over Equicap.
      As a result, Usunco is deemed to have been the acquiring company in the Share
      Exchange for accounting purposes, and the Share Exchange transaction is 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
      September 30, 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.




*Private
      Placement Offering*




As
      a
      condition to the Share Exchange, Equicap and Usunco conducted a private
      placement offering of its common stock to accredited, institutional investors
      in
      which Equicap raised gross proceeds of $12 million (“Offering”) from 11
      investors under an exemption from registration under Section 4(2) of the
      Securities Act. 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.




vFinance
      Investment, Inc. was the exclusive placement agent for the Offering. For their
      services as placement agent, Equicap paid vFinance a fee equal to 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


-
          29 -
 *Table
          of Contents*




$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 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 are distributed to the investors, Equicap will be obligated
      to
      register these shares in addition. If any of the above 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 time limit of the
      registration rights agreement, and Equicap had to have the registration
      statement effective within 150 days of the closing date of the Offering, and
      if
      these actions are not achieved by those dates then Equicap must pay each of,
      and
      only, the investors 1% of the share purchase price paid by such investor for
      each month thereafter that the investors cannot publicly sell the shares of
      common stock covered by that registration statement The same 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
      are
      subject to various conditions, and the registration statements are 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 must be kept effective until all the shares of
      these parties are sold or may be sold without limitation under Rule 144k.
      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 Rule 144k. The
      company is obliged to keep this registration statement effective until all
      the
      shares have been sold or are eligible for sale under Rule 144k.




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. Future capital contributions between
      the parties are to be on a 75% - 25% basis, with Usunco being the majority
      party.




*Critical
      Accounting Policies And Estimates*




Below
      is
      a description of accounting policies that we consider critical to the
      preparation and understanding of our financial statements. In addition, certain
      amounts included in or affecting our financial statements and related disclosure
      must be estimated, which requires us to make assumptions with respect to values
      or conditions which cannot be known with certainty at the time the financial
      statements are prepared. Actual results may differ from these estimates under
      different assumptions or conditions. The selection of critical accounting
      policies, the judgments and other uncertainties affecting the application of
      those policies and the sensitivity of reported results to changes in conditions
      and assumptions are factors to be considered when reviewing our consolidated
      financial statements.


-
          30 -
 *Table
          of Contents*




We
      believe that the critical accounting policies set forth below involve the most
      significant judgments and estimates used in the preparation of our consolidated
      financial statements. We regularly evaluate these policies, in light of
      historical results and experience, consultation with experts, trends and other
      methods we consider reasonable in the particular circumstances, as well as
      our
      forecasts as to how these might change in the future.




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of the parent company
      and
      the subsidiaries. Inter-company accounts and transactions 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*




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/Diesel Power segment,
      the 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.
      We
      evaluate the net realizable value of our 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.




*Revenue
      Recognition*




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 return of products once sold to customers. Instead,
      the company 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


-
          31 -
 *Table
          of Contents*




defective
      products or accepts returns by crediting the customer's account. Such
      replacements or returns as well as handling costs therefrom are passed through
      to the suppliers.




*Advertising
      Costs*




The
      company expenses the cost of advertising as incurred. Advertising costs for
      the
      years ended June 30, 2006 and 2007 were insignificant.




*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 year ended June 30, 2007. For the China/Diesel Power
      segment, the Zhongchai JV is located in the PRC, and is 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 tax
      rate is 33%.




*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.




*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.




Operating
      Results




*The
      Fiscal Year Ended June 30, 2007 Compared to the Fiscal Year Ended June 30,
      2006*




Revenue




Revenue
      increased by $855,632 or 89% to $1,817,264 for the year ended June 30, 2007
      compared with $961,632 for the year ended June 30, 2006. Revenue for the year
      ended 2007 consists of sales of automotive parts in North America and sales
      of
      diesel engines and gears in China, for $1,324,819 and $492,445, respectively.
      All sales revenue for the year ended June 30, 2006 were generated by its IBC
      subsidiary, incepted on May 14, 2004, from distribution of starters and
      alternators.




Cost
      of
      Sales and Gross Margin




Cost
      of
      sales was $1,627,739 for the year ended June 30, 2007, increasing by 868,972
      or
      115%, from $758,767 for the year ended June 30, 2006. The gross margin was
      approximately 10% for the year ended June 30, 2007 compared to approximately
      21%
      for the year ended June 30, 2006. Drop in gross margin was mainly attributed
      to
      the tougher business environment in China. The raw material prices have been
      soaring in China in the past year, which affected the financial performance
      of
      both auto parts and diesel power segments. RMB appreciation against USD also
      led
      to higher cost of sales for the auto parts distribution business, where all
      products are sourced from China. The Company could not pass all rising costs
      onto down stream customers due to competition. Some customers in the USA for
      auto parts


-
          32 -
 *Table
          of Contents*




business,
      such as BBB and OCA, merged in the past year, gaining broader supplier base,
      including certain ultimate starter and alternator manufacturers, and thus much
      greater bargaining power for reduced prices.




Selling,
      General and Administrative Expenses




Selling,
      general and administrative (“SG&A”) expenses consisted primarily of labor
      cost and related 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).




SG&A
      expenses increased by $1,443,065 to $1,513,458 in the year ended June 30, 2007
      from $70,393 in year ended June 30, 2006. The increase was mainly attributed
      to
      the recognition of expense of $897,131 as a result of the conversion of the
      outstanding convertible notes in aggregate principal amount and accrued interest
      of approximately $100,000 into 702,132 shares of common stock, at a discount
      to
      the sale price of the shares in the private placement offering. Increase in
      SG&A was also attributed to the increase in costs related to being a public
      company including professional services related to auditing, legal and other
      services, costs associated with the new recruitments and operating expenses
      in
      China, and non-cash expenses amounting to $45,184 recognized for stock based
      compensation related to stock options and warrants granted in the period
      pursuant to SFAS 123(R).




Unusual
      Charge




As
      elaborated in the section “Share Exchange and Private Placement”, 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,
      have agreed to place into escrow an aggregate of 10,140,846 shares of common
      stock issued in the Share Exchange. If the consolidated financial statements
      of
      Equicap for the fiscal year ending June 30, 2007, prepared in accordance with
      United States generally accepted accounting principles, consistently applied,
      reflect either (i) less than $2,320,000 of after-tax net income or (ii) earnings
      before income tax provision and before minority interest of less than
      $3,200,000, then 3,042,254 shares of common stock in escrow will be distributed
      to the investors on a pro rata basis for no additional consideration. Any shares
      not distributed to the investors will be released to the persons who placed
      them
      in escrow.




According
      to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
      if the performance criteria are not met, these shares will be released to the
      investors and treated as an expense for the amount of the market value of the
      shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based
      Compensation, if the performance criteria are met, the shares will be released
      back to the former shareholders of Usunco and treated as an expense for the
      amount of the market value of the shares as of the date of release. Since the
      performance criteria for the year ended June 30, 2007 are not met, based upon
      the current market value of $1.30 per share, the total expense recognized for
      the fiscal year of 2007 is $3,954,930. Such expense is treated as an unusual
      item since it is deemed to be unusual in nature but may not be infrequent in
      occurrence. This recognition of expense will not occur if the shares are
      forfeited or cancelled and are not released to either the investors or the
      former shareholders of Usunco.




Net
      Income (Loss)




Net
      loss
      reached $5,279,437 in year ended June 30, 2007 compared with net income of
      $60,557 year ended June 30, 2006. The net loss was mainly attributed to the
      increase in general and administrative expenses, comprised of expenses
      recognized for conversion of convertible notes, costs related to being a public
      company including professional services related to auditing, legal and other
      services, costs associated with the new recruitments and operating expenses
      in
      China, and non-cash expenses recognized for stock based compensation related
      to
      stock options and warrants granted in the period pursuant to


-
          33 -
 *Table
          of Contents*




SFAS
      123(R); and to the recognition of $3,954,930 unusual loss arising from the
      make
      good arrangement for fiscal year 2007, partially offset by the net interest
      income amounting to $54,759.




Potential
      Impact on Future Results from Make Good Arrangement




As
      elaborated in the section “Share Exchange and Private Placement”, 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,
      have agreed to place into escrow an aggregate of 10,140,846 shares of common
      stock issued in the Share Exchange. If the consolidated financial statements
      of
      Equicap for the fiscal years ending June 30, 2008, respectively, prepared in
      accordance with United States generally accepted accounting principles,
      consistently applied, do not meet certain performance criteria, then 7,098,592
      shares of common stock in escrow will be distributed to the investors on a
      pro
      rata basis for no additional consideration. Any shares not distributed to the
      investors will be released to the persons who placed them in
      escrow.




According
      to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
      if the performance criteria are not met these shares will be released to the
      investors and treated as an expense for the amount of the market value of the
      shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based
      Compensation, if the performance criteria are met, the shares will be released
      back to the former shareholders of Usunco and treated as an expense for the
      amount of the market value of the shares as of the date of release. Therefore,
      whether or not such performance criteria are met, based upon the current market
      value of $1.30, the potential impact of the release of shares (either to the
      investors or back to the former Usunco shareholders) upon the financial
      statements is estimated to be approximately $9.2 million for fiscal years 2008.
      This recognition of expense will not occur if the shares are forfeited or
      cancelled and are not released to either the investors or the former
      shareholders of Usunco.




Liquidity
      and Capital Resources




As
      of
      June 30, 2007, Equicap had assets equal to $13,893,621 which primarily were
      comprised of cash and cash equivalents of $ 7,848,812 and net receivables and
      other receivables of $4,642,242. Equicap’s current liabilities as of June 30,
      2007 were $1,229,925, which primarily were comprised of trade accounts payable
      and accrued expenses. At June 30, 2007, Equicap had working capital of
      $12,342,444. Equicap believes that it has sufficient operating capital for
      its
      current operations.




Equicap
      has funded its operations from income generated by its IBC subsidiary and to
      a
      much lesser extent by Usunco and its PRC subsidiaries and from the sale of
      equity securities. The 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 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.




Subsequent
      to the fiscal year end of June 30, 2007, 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 and transmissions systems mainly used with diesel engines
      for industrial and agricultural machinery. We expect that future cash flows
      generated from the operation of transmission business will be sufficient to
      cover Shengte’s working capital requirements.




Also
      subsequent to the fiscal year end of the June 30, 2007 quarter, Equicap did
      not
      have the


-
          34 -
 *Table
          of Contents*


registration
      statement declared effective within the time period specified in the
      registration rights agreement for the March 2007 offering. As a result Equicap
      was obligated to pay the liquidated damage amount provided in the agreement
      to
      the investors which was an aggregate of $32,000. The maximum amount of
      liquidated damages is 10% of the amount paid for the common stock purchased
      by
      the investors.





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, it believes that it will be able to find
      additional funding for its capitalization needs. Such capital may be in the
      form
      of either debt or equity or a 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.




*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).




**Item
              7.**
            **Financial
                Statements**




The
      information required by this Item is incorporated herein by reference to the
      financial statements beginning on page F-1.




**Item
                8.**
            **Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure******




On
      April
      5, 2007, Equicap dismissed Paritz & Company, P.A., as its independent
      certified public accountants. The decision was approved by the board of
      directors of the Equicap.




During
      the company’s fiscal year ended December 31, 2006, and any subsequent interim
      period preceding the termination, there were no disagreements with Paritz &
Company, P.A. on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which disagreements,
      if
      not resolved to the satisfaction of Paritz & Company, P.A. would have caused
      Paritz & Company, P.A. to make reference to the subject matter of the
      disagreements in connection with its report on the financial statements for
      such
      years or subsequent interim periods.




In
      connection with the year ended December 31, 2006, the Report of Independent
      Registered Public Accounting Firm, issued by Paritz & Company, PA with
      respect to the company audited financial statements stated the
      following:




“The
      accompanying financial statements have been prepared assuming that the company
      will continue as a going concern. The company has suffered recurring net losses
      and as of December 31, 2006 its current liabilities and total liabilities
      exceeded its current assets and total assets by $105,445. These factors raise
      substantial doubt about the company’s ability to continue as a going concern.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.”


-
          35 -
 *Table
          of Contents*




In
      connection with the year ended December 31, 2005, the Report of Independent
      Registered Public Accounting Firm, issued by Paritz & Company, PA with
      respect to the company audited financial statements stated the
      following:




“The
      accompanying financial statements have been prepared assuming that the company
      will continue as a going concern. The company has suffered recurring net losses
      and as of December 31, 2005 its current liabilities and total liabilities
      exceeded its current assets and total assets by $13,617. These factors raise
      substantial doubt about the company’s ability to continue as a going concern.
      The accompanying financial statements do not include any adjustments that might
      result from the outcome of this uncertainty.”




Equicap
      requested that Paritz & Company P.A. furnish it with a letter addressed to
      the Securities and Exchange Commission stating whether or not it agrees with
      the
      company’s statements in Item 4.01(a) of the Form 8-K Current Report for the
      change in accountants. A copy of the letter furnished by Paritz & Company,
      P.A. in response to that request, dated April 5, 2007, is filed as Exhibit
      16.1
      to the Form 8-K reporting the change.




On
      April
      5, 2007, Patrizio & Zhao, LLC was engaged as the new independent certified
      accountants to Equicap. During the two most recent fiscal years and the interim
      period preceding the engagement of Patrizio & Zhao, LLC, Equicap has not
      consulted with Patrizio & Zhao, LLC regarding either: (i) the application of
      accounting principles to a specified transaction, either completed or proposed,
      or the type of audit opinion that might be rendered on the company’s financial
      statements; or (ii) any matter that was either the subject of a disagreement
      or
      event identified in paragraph (a)(1)(iv) of Item 304 of Regulation
      S-B.




**Item
              8A.**
            **Controls
                and
                Procedures**




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in company reports filed or
      submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is
      recorded, processed, summarized and reported, within the time periods specified
      in the Securities and Exchange Commission’s rules and forms. Disclosure controls
      and procedures include, without limitation, controls and procedures designed
      to
      ensure that information required to be disclosed in the Equicap reports filed
      under the Exchange Act is accumulated and communicated to management, including
      the Presiden t
      and
      Chief Financial Officer (the
      “Certifying Officers”), as appropriate to allow timely decisions regarding
      required disclosure.




As
      required by Rules 13a-15 and 15d-15 under the Exchange Act, the Certifying
      Officers carried out an evaluation of the effectiveness of the design and
      operation of Equicap’s disclosure controls and procedures as
      of
      June 30, 2007. Their evaluation was carried out with the participation of other
      members of the Equicap management. Based upon their evaluation, the Certifying
      Officers concluded that Equicap’s disclosure controls
      and procedures were effective .




Equicap’s
      internal control over financial reporting is a process designed by, or under
      the
      supervision of, the Certifying Officers and effected by the Board of Directors,
      management and other personnel, to
      provide reasonable assurance regarding
      the reliability of Equicap’s financial reporting and the preparation of the
      Equicap financial statements for external purposes in accordance with generally
      accepted accounting principles. Internal control over financial reporting
      includes policies and procedures that pertain to the maintenance of records
      that
      in reasonable detail accurately and fairly reflect the transactions and
      dispositions of the Company’s assets; provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of the Equicap
      financial statements in accordance with generally accepted accounting
      principles, and that the receipts and expenditures are being made only
      in


-
          36 -
 *Table
          of Contents*




accordance
      with the authorization of the Board of Directors and management; and provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of the Company assets that could have a material
      effect on its financial statements.  There
      were no changes 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.




**Item
              8B.**
            **Other****Information**




None.




**PART
      III**




**Item
                9.**
            **Directors,
                Executive Officers, Promoters and Control Persons; Compliance With
                Section
                16(a) of the Exchange Act******




The
      following table sets forth certain information about each of the members of
      the
      Board of Directors and each executive officer:




Name
            
            Age
            
            Position
                with company
            
            Serving
                as a Director or an
              Officer
                SincePeter
                Wang
            
            53
            
            Chairman
                and President
            
            2007Jason
                Lu
            
            51
            
            Director,
                Chief Executive Officer
            
            2007Haining
                Liu
            
            54
            
            Director
            
            2007David
                Ming He
            
            37
            
            Chief
                Financial Officer
            
            2007




Mr.
      Peter
      Wang has been the Chairman of the board of directors since the inception of
      Usunco in April 2006. He has more than 20 years of experience in technology
      and
      service area with strong background in research and development, operations
      and
      corporate management. Mr. Wang successfully co-founded a telecom venture in
      China, Unitech Telecom (now named UTStarcom, NASDAQ: UTSI) in 1990 and was
      the
      Executive Vice President until August 30, 1995. From August 1995 to December
      2000, Mr. Wang was the Chairman and CEO of World Communication Group. From
      December 2000 to the present, Mr. Wang was Chairman and CEO of China Quantum
      Communication Limited (later changed to Techedge, Inc. and then to China
      Biopharma, Inc.) Before forming his own companies, Mr. Wang worked at AT&T
      Bell Labs during 1987-1990 and Racal-Milgo Information System during 1983-1987.
      Mr. Wang was also a co-chairman of Business Advisory Council of the National
      Republican Congressional Committee during the period 1994-1995. In 2004, Mr.
      Wang received Outstanding 50 Asian Americans in Business Award. Mr. Wang earned
      his BS in Math & Computer Science and MS in Electrical Engineering from
      University of Illinois in 1983, as well as MBA in Marketing from Southeast-Nova
      University in 1986. Mr. Wang is a director of China Biopharma, Inc. (OTCBB:
      CBPC), a company involved in biopharmaceutical distribution.




Mr.
      Jason
      Lu has been the Chief Executive Officer of Usunco since its inception in April
      2006, and the Executive Vice President of IBC Automotive Products, Inc., its
      wholly-owned subsidiary. He spent more than 20 years in Sino-U.S. business
      development with strong experience in corporate operations and management.
      Between February 1990 and March 1993, Mr. Lu served as the
      Deputy


-
          37 -
 *Table
          of Contents*




General
      Manager for Hubei International Trading Corporation. He served as the Vice
      President of California-headquartered Andus Group from November 2001 until
      June,
      2003, and served as the Vice President of Century Automotive Mfg., Inc from
      July
      2003 until November, 2006. Between 1999 and 2001, he acted as the Executive
      Vice
      President of Means Come Enterprises. He was elected the Deputy General Secretary
      of Association of International Laws, Hubei Branch, for the tenure between
      1985
      and 1988. Mr. Lu received BA of English Literature and Language from Wuhan
      University, China in 1982 and Master of Laws from Law School of Wuhan
      University, China in 1984.




Mr.
      Haining Liu has been a director of Usunco since its inception in April 2006.
      He
      has been the Chairman and President of Zhejiang Province Science &
Technology Venture Capital since 1995. This fund has brought nine of its
      portfolio companies to the public market in China. Before joining the fund,
      Mr.
      Liu served as the President of Zhejiang Keji Qicai Company, which is under
      direct supervision of Zhejiang Province Science and Technology Commission,
      handling technology licensing and scientific instruments import and export.




Mr.
      David
      Ming He joined Usunco in January 2007 as the Chief Financial Officer. From
      October 2004 until January 2007 Mr. He served as the Senior Manager of SORL
      Auto
      Parts, Inc. (NASDAQ: SORL) in charge of capital market operations, investor
      relations, SEC filings and corporate internal controls. In his two years with
      SORL, Mr. He has been instrumental in SORL’s progress in US capital market from
      an OTC BB company to a NASDAQ Global Market listed company, and also
      successfully completed a secondary public offering in November 2006. Before
      going to graduate school, from 1994 to 2001, Mr. He was a senior manager in
      corporate banking with Credit Agricole Indosuez (now Calyon) in Shanghai. Mr.
      He
      holds the designations of Chartered Financial Analyst and Illinois Certified
      Public Accountant. Mr. He pursued graduate degrees from 2001 to 2004 and
      received his Master of Science degree in Accountancy in 2004 and Master of
      Business Administration degree in Finance in 2003 from University of Illinois
      at
      Urbana-Champaign. He also received his BA from Shanghai Institute of Foreign
      Trade in 1992.




All
      directors are elected to annual terms by the holders of common stock. All
      directors hold office until the next annual meeting of shareholders and the
      election and qualification of their successors. Outside directors receive no
      fee
      for meetings attended but are reimbursed for expenses. Officers are elected
      annually by the board of directors and serve at the discretion of the
      Board.




There
      are
      no family relationships (whether by blood, marriage or adoption) among the
      Equicap directors or executive officers.




The
      business address of the directors is: 10510 Hillsboro Road, Santa Ana, CA 92705,
      U.S.A.




**Description
      of Other Officers of the Corporation**




All
      of
      the officers of the corporation are appointed by the board of directors to
      serve
      until the annual meeting of the directors and the election and qualification
      of
      their successors. Another officer of Equicap not identified above is as
      follows:




Mr.
      Philip Widmann, 63 year old, has served as the SVP, Global Marketing for Usunco
      since its inception, and the President of IBC Automotive Products, Inc., a
      wholly owned subsidiary of Usunco. He has over 27 years experience in senior
      management and business development, with a strong background in strategic
      and
      financial planning, strategic alliances, product and program development. Mr.
      Widmann has been credited with establishing the global strategic plans for
      Chinese factories and corporations entering the global marketplace. Before
      establishing and building IBC, he served as Executive Vice President and General
      Manager with Century Automotive MFG., Inc. from February 2002 to June 2003,
      and
      led the company in establishing its global business plan, creating internal
      infrastructure, and selecting American management teams. Mr. Widmann spent
      24
      years. years in the senior management of Japanese automotive systems suppliers
      including Hitachi and Nippondenso. From 1984 through 2002 he developed Hitachi’s
      global service parts marketing plan. He also created programs in product
      development etc. with


-
          38 -
 *Table
          of Contents*




all
      major
      automotive companies such as Ford, General Motors, Toyota, Nissan, and Honda.
      Between 1976 and 1983, he established Nippondenso as electronics leader in
      the
      North American automotive marketplace.




**Director
      Compensation**




The
      board
      of directors will consider granting stock options or additional equity
      compensation to outside directors as it determines from time to time, but there
      is no established plan at this time for such awards. Equicap does not provide
      cash compensation to directors for attending meetings, but it does reimburse
      them for their out-of-pocket expenses for attending meetings.




The
      following Director Compensation Table summarizes the compensation of our
      non-employee directors for services rendered by Equicap during the fiscal year
      ended June 30, 2007.




**NON-EMPLOYEE
      DIRECTOR COMPENSATION TABLE**




**Name**
            **Fees
                Earned****or
                Paid in Cash**
            **Option
                Awards****(1)**
            **Total**Haining
                Liu
            $-0-
            $-0-
            $-0-




**Section
      16(a) Beneficial Ownership Reporting Compliance** ****




Section
      16(a) of the Securities Exchange Act of 1934 requires Equicap’s officers and
      directors, and persons who own more than ten percent of a registered class
      of
      Equicap’s equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission (the “Commission”).
      Officers, directors and greater than ten percent beneficial owners are required
      by Commission regulations to furnish the Company with copies of all forms they
      file pursuant to Section 16(a). Based solely on the Company’s review of the
      copies of such forms it received and written representations from reporting
      persons required to file reports under Section 16(a), to Equicap’s knowledge all
      of the Section 16(a) filing requirements applicable to such persons with respect
      to fiscal 2007 were complied with.




**Board
      Committees**




The
      board
      of directors considers all major decisions. The board has not established any
      standing committees thereunder. The board has affirmatively determined that
      Mr.
      Haining Liu is an independent director as defined by applicable securities
      law
      and corporate governance guidelines.




If
      Equicap seeks listing of its shares with the Capital Market, then it will take
      action prior to listing to comply with all corporate governance requirements
      of
      NASDAQ, including having audit and executive compensation
      committees.




The
      board
      of directors does not have a nominations committee because there are a limited
      number of directors, and the board believes that shareholder suggestions would
      be known to the entire board if and when communicated to the company. As such,
      the board of directors believes there will be sufficient communication by
      shareholders with the board about matters and nominees to be brought to its
      attention.




Currently
      the board of directors functions as an audit committee and performs some of
      the
      same functions as an audit committee including: (1) selection and oversight
      of
      our independent accountant; (2) establishing procedures for the receipt,
      retention and treatment of complaints regarding accounting, internal
      controls and auditing matters; and (3) engaging outside advisors. The company
      is
      not a "listed company" under SEC rules and is therefore not required to have
      an
      audit committee comprised of independent directors. The board has determined
      that its members do not include a person who is an "audit committee financial
      expert" within the meaning of the rules and regulations of the SEC. The board
      has determined, however, that each of its members is able to read and understand
      fundamental financial statements and has substantial business experience that
      results in that member's financial sophistication. Accordingly, the board
      believes that each of its members have the sufficient knowledge and experience
      necessary to fulfill the duties and obligations that an audit committee would
      have.




-
          39 -
 *Table
          of Contents*




**Code
      of Ethics**




A
      code of
      ethics relates to written standards that are reasonably designed to deter
      wrongdoing and to promote:




1)  Honest
      and ethical conduct, including the ethical handling of actual or apparent
      conflicts of interest between personal and professional
      relationships;




2)  Full,
      fair, accurate, timely and understandable disclosure in reports and documents
      that are filed with, or submitted to the Securities and Exchange Commission
      and
      in other public communications made by Equicap;




3)  Compliance
      with applicable government laws, rules and regulations;




4)  The
      prompt internal reporting of violations of the code to an appropriate person
      or
      persons identified in the code; and




5)  Accountability
      for adherence to the code.




Equicap
      adopted a formal code of ethics statement that is designed to deter wrong doing
      and to promote ethical conduct and full, fair, accurate, timely and
      understandable reports that Equicap files or submits to the SEC and others. A
      copy of
      the form of Equicap’s code of ethics is filed as an exhibit to a Report on Form
      8-K dated March 9, 2007. Requests for copies of Equicap’s code of ethics should
      be sent in writing to 10510 Hillsboro Road, Santa Ana, CA 92705, U.S.A.,
      Attention: Secretary.




**Limitation
      of Director Liability; Indemnification**




Under
      Nevada law and the Equicap bylaws, the company is required to indemnify its
      officers, directors, employees and agents in certain situations. In some
      instances, a court must approve indemnification. As permitted by Nevada
      statutes, the articles of incorporation eliminate in certain circumstances
      the
      monetary liability of its directors for a breach of their fiduciary duties.
      These provisions do not eliminate a director’s liability for:




·
            a
                willful failure to deal fairly with us or our shareholders in connection
                with a matter in which the director has a material conflict of
                interest,




·
            a
                violation of criminal law unless the director had reasonable cause
                to
                believe that his or her conduct was lawful or no reasonable cause
                to
                believe that his or her conduct was
                unlawful,




·
            a
                transaction from which the director derived an improper personal
                profit,
                and




·
            willful
                misconduct.




As
      to
      indemnification for liabilities arising under the Securities Act of 1933 for
      directors, officers or persons controlling the company, we have been informed
      that, in the opinion of the Securities and Exchange Commission, such
      indemnification is against public policy and therefore
      unenforceable.




**Item
                10.**
            **Executive
                Compensation**




The
      table
      below sets forth for the fiscal year ended June 30, 2007, the compensation
      of
      the President and the two other most highly compensated executive officers
      of
      Equicap.




-
          40 -
 *Table
          of Contents*




**SUMMARY
      COMPENSATION TABLE**




**Name
                and Principal****Position**
            **Fiscal
                Year**
            **Salary**
            **Bonus**
            **Option
                Awards****($)**
            **Non-Equity
                Incentive Plan Compensation****($)**
            **Nonqualified
                Deferred Compensation****Earnings
                ($)**
            **All
                Other Compensation****($)**
            **Total**
              **($)****Peter
                Wang, Chairman and President(1)**
            2006
            -
            -
            -
            -
            -
            -
            -2007
            $25,000
            -
            -
            -
            -
            -
            $25,000**Jason
                Lu, Chief Executive Officer(2)**
            2006
            -
            -
            -
            -
            -
            -
            -2007
            $18,750
            -
            -
            -
            -
            -
            $18,750**David
                Ming He, Chief Financial Officer(3)**
            2006
            -
            -
            -
            -
            -
            -
            -2007
            $22,000
            -
            $16,355
            -
            -
            -
            $38,355**Philip
                Widmann, SVP Global Marketing(4)**
            2006
            -
            -
            -
            -
            -
            -
            -2007
            $31,000
            -
            -
            -
            -
            -
            $31,000







(1)
            Covers
                the period commencing January 1,
                2007




(2)
            Covers
                the period commencing April 1, 2007




(3)
            Covers
                the period commencing January 15,
                2007




(4)
            Covers
                the period commencing July 1, 2006




The
      following table sets forth information concerning the other compensation granted
      to the named executive officers for the fiscal year ended June 30,
      2007.




**Name**
            **Year**
            **Medical
                Premiums**
            **401K
                Employer Match**Peter
                Wang
            2007
            $6,000
            -Jason
                Lu
            2007
            $3,000
            -David
                Ming He
            2007
            $5,500
            -Philip
                Widmann
            2007
            $11,392
            -




The
      following table sets forth information concerning the outstanding equity awards
      granted to the named executive officers at June 30, 2007.




**Name**
            **Number
                of Securities Underlying Unexercised Options**
              **(#)
                Exercisable**
            **Number
                of Securities Underlying Unexercised Options**
              **(#)
                Unexercisable**
            **Option
                Exercise****Price
                ($)**
            **Option
                Expiration****Date**David
                Ming He
            -
            183,275
            $1.065
            1/14/2012




**Employment
      Agreements** ****




Currently,
      all employees of Equicap are employed on “at will” employment agreements except
      Mr. David Ming He, the Chief Financial Officer, who has signed an employment
      agreement with the company. The company intends to establish formal employment
      contracts for certain other key employees in the future.




-
          41 -
 *Table
          of Contents*




The
      employment agreement with Mr. He provides for a term of employment ending
      January 2012, unless terminated in accordance with the agreement. Mr. He will
      devote substantially all of his employment time and attention to the affairs
      of
      the company. Mr. He will report to the Chief Executive Officer. He will be
      entitled to a base salary of $48,000 which will be reviewed annually by the
      Chief Executive Officer or the compensation committee if there is one to
      determine if increases should be made in light of the size and performance
      of
      the company. There is provided a 10% increase on January 15, 2009. Mr. He is
      entitled to a bonus in each of the fiscal years during the term of the
      agreement, and may be in the form of cash, stock options or stock. Mr. He will
      also be eligible to participate in the stock option and similar plans of the
      company. He will be granted an option for 183,275 shares of common stock, of
      which one third will vest 12 months after the commencement of employment and
      the
      balance will pro rate each month thereafter. Mr. He will be provided insurance
      under the company health plans or paid $1,000 in respect of premiums if not
      so
      covered. He will also be entitled to $1,000 per month as a non accountable
      expense account, in addition to reimbursement for all other actual travel and
      other business related expenses. The employment agreement provides for
      non-competition and non-solicitation restrictions, confidentiality obligations
      and restrictions on engaging in other employment. In the event of termination
      without cause or for good reason by the executive or upon a change of control,
      Mr. He will be paid the consideration due for the balance of the employment
      period of the contract, bonuses for the prior and current year of termination
      and insurance coverage.




**2006
      Stock Option Plan**




Usunco
      adopted its 2006 Stock Option Plan on May 18, 2006 by the board of directors
      and
      approved by the shareholders on May 18, 2006. The plan provides for the issuance
      of up to 1,970,698 shares of common stock under incentive or non-statutory
      stock
      options. The plan is administered by the board of directors. The board of
      directors, at the time of a grant, will determine the type of option, the
      exercise price, vesting schedule, and expiration date, as well as any other
      terms of the grant. The minimum exercise price of incentive stock option cannot
      be less than 75% (or 100% if granted to an Employee who, at the time of grant
      of
      such option, owns stock representing more than ten percent (10%) of the voting
      power of all classes of stock of the company or any parent or subsidiary) of
      the
      fair market value on the date of the grant, and the minimum exercise price
      of
      non-statutory stock option cannot be less than 100% of the fair market value
      on
      the date of the grant. Incentive stock options may be granted only to employees,
      otherwise options may be granted to officers, directors, employees and
      consultants, or collectively “Service Providers”. No stock options were awarded
      during the fiscal year ended June 30, 2006. Currently, there are 366,550 shares
      which Usunco has committed to issue as incentive stock option grants under
      the
      plan at an average weighted exercise of $1.065 per share. The company plans
      to
      take steps to provide any options that were committed to be issued under this
      plan are modified to provide that they will be issued under a plan under which
      the shares to be issued will be those of Equicap rather than Usunco.




**Executive
      Compensation Determination**




It
      is the
      intention of Equicap to determine executive compensation by a decision of the
      majority of the independent directors, at a meeting at which the chief executive
      officer will not be present. In the future, the board may establish a
      compensation committee.




From
      time
      to time key employees may receive a cash bonus as rewards for their job
      performance that meet or exceed the operation goals and results set up by the
      board of directors or high-level management. The company will also consider
      other employee benefits for which it will assume the cost, such as health and
      dental insurance benefits. The company also will reimburse employees for their
      travel expenses.




-
          42 -
 *Table
          of Contents*




**Item
                11.**
            **Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters******




The
      following table sets forth certain information regarding common stock
      beneficially owned on September 15, 2007, for (i) each stockholder known to
      be
      the beneficial owner of 5% or more of the outstanding common stock, (ii) each
      current executive officer and director, and (iii) all executive officers and
      directors as a group. The table assumes a total of 28,169,013 shares of common
      stock outstanding and does not reflect any change for a distribution that may
      be
      made under the terms of the Make Good Agreement.




**Name
                  and Address of Beneficial Owner**
              
              **Number
                  of Shares Beneficially Owned (1)**
              
              **%
                  of common stock Beneficially Owned**Sinoquest
                  Management Ltd. (2)
                75
                  Shuguang Lu, Building B Hangzhou, 310007 P.R.C.
              
              
              6,164,343
              
              
              21.88
              %SIJ
                  Holding Ltd.
                75
                  Shuguang Lu, Building B
                Hangzhou,
                  310007 P.R.C.
              
              
              2,719,563
              
              
              9.65
              %Peter
                  Wang (2)
                10510
                  Hillsboro Road
                Santa
                  Ana, CA 92705 U.S.A.
              
              
              2,928,063
              
              
              10.39
              %Haining
                  Liu
                Huanchen
                  Beilu
                Hangzhou,
                  310007 P.R.C.
              
              
              -
              
              
              *Jason
                  Zhongyuan Lu
                10510
                  Hillsboro Road
                Santa
                  Ana, CA 92705 U.S.A.
              
              
              5,141,945
              
              
              18.25
              %David
                  Ming He (3)
                10510
                  Hillsboro Road
                Santa
                  Ana, CA 92705 U.S.A.
              
              
              -
              
              
              *Philip
                  Widmann
                10510
                  Hillsboro Road
                Santa
                  Ana, CA 92705 U.S.A.
              
              
              2,690,397
              
              
              9.55
              %Pinnacle
                  China Fund, L.P.(4)
                4965
                  Preston Park Blvd.
                Suite
                  240
                Plano,
                  TX 75093
              
              
              2,816,902
              
              
              10.0
              %The
                  Pinnacle Fund, LP(5)
                4965
                  Preston Park Blvd.
                Suite
                  240
                Plano,
                  TX 75093
              
              
              1,408,451
              
              
              5.0
              %Jayhawk
                  Private Equity Fund, L.P.(6)
                c/o
                  Genesis Fund Service Limited
                5410
                  West 61stPlace
                Suite
                  100
                Mission,
                  KS 66205
              
              
              1,586,368
              
              
              5.6
              %All
                  Directors and Executive Officers as a Group (4 persons)
                  (7)
              
              
              8,070,008
              
              
              28.65
              %





*
            Less
                than 1%




(1)
            Beneficial
                ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission, which include holding voting and investment
                power
                with respect to the securities. Shares of common stock subject to
                options
                or warrants currently exercisable, or exercisable within 60 days,
                are
                deemed outstanding for computing the percentage of the total number
                of
                shares beneficially owned by the designated person, but are not deemed
                outstanding for computing the percentage for any other
                person.




(2)
            Peter
                Wang has a 47.5% beneficial ownership in Sinoquest Management
                Limited.




(3)
            David
                Ming He has been granted options to purchase 183,275 shares at an
                exercise
                price of $1.065 per share, none of which will vest and become exercisable
                within 60 days.




(4)
            Mr.
                Barry M. Kitt, the Manager of Kitt China Management, LLC, the Manager
                of
                Pinnacle China Management, L.L.C., the General Partner of Pinnacle
                China
                Advisors, L.P., the General Partner of Pinnacle China Fund, L.P.
                has
                dispositive and voting power over the
                shares.




(5)
            Mr.
                Barry M. Kitt, the Sole Member, Pinnacle Fund Management, L.L.C.,
                the
                General Partner of Pinnacle Advisers, L.P., the General Partner of
                the
                Pinnacle Fund, L.P. has dispositive and voting power over the
                shares.




(6)
            Mr.
                Kent C. McCarthy has dispositive and voting power over the shares
                held by
                Jayhawk Private Equity Fund, L.P.




(7)
            Consists
                of Peter Wang, Haining Liu, Jason Zhongyuan Lu and David Ming
                He.




-
          43 -
 *Table
          of Contents*




**Item
                12.**
            **Certain
                Relationships and Related
                Transactions**




Equicap
      and Fountainhead Capital Partners Limited, an affiliate of Equicap until the
      consummation of the Share Exchange, entered into a convertible note on September
      30, 2006, the principal
      of which was for working capital and discharge of then accrued payables of
      Equicap. The note was due on December 31, 2007 and carried an interest rate
      of
      3% per annum, payable at the end of the calendar year. The conversion rate
      was
      to be determined at the time of conversion based by the board of directors
      and
      the noteholder. As part of the Share Exchange, in negotiations with the
      stockholders of Usunco, 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. The rate of conversion
      represents a significant discount to the sale price of the shares in the private
      placement offering. Upon the conversion, the note was cancelled.




**Item
                13.**
            **Exhibits**




**Exhibit
                No.**
            **Description**3.1
            Certificate
                of Incorporation - (Incorporated by reference from Form 10-KSB for
                fiscal
                year ended December 31, 2004, Exhibit 3.1)3.2
            By-laws
                (Incorporated by reference from Form 10-KSB for fiscal year ended
                December
                31, 2004, Exhibit 3.2)4.1
            Form
                of Common Stock Purchase Warrant Agreement issued to vFinance Investments,
                Inc. dated March 7, 2007 (Incorporated by reference from Form 8-K,
                Current
                Report, Event dated March 9, 2007, Exhibit 4.1)10.1
            Form
                of Securities Purchase Agreement with investor in March 2007 private
                placement. (Incorporated by reference from Form 8-K, Current Report,
                Event
                dated March 9, 2007, Exhibit 10.1)10.2
            Form
                of Lock up Agreement for certain management persons, dated March
                7, 2007
                (Incorporated by reference from Form 8-K, Current Report, Event dated
                March 9, 2007, Exhibit 10.2)10.3
            Form
                of Registration Rights Agreement with investors and others dated
                March 7,
                2007 (Incorporated by reference from Form 8-K, Current Report, Event
                dated
                March 9, 2007, Exhibit 10.4)10.4
            Make
                Good Agreement with investors and certain management persons of Equicap,
                Inc., dated March 7, 2007 (Incorporated by reference from Form 8-K,
                Current Report, Event dated March 9, 2007, Exhibit 10.3)10.5
            Joint
                Venture Agreement dated July 4, 2007 2006 between Xinchai Holding
                Group
                Co., Ltd and Usunco Automotive Limited in respect of Zhejiang Zhongchai
                Machinery Co., Ltd. (Incorporated by reference from Form 8-K, Current
                Report, Event dated March 9, 2007, Exhibit 10.1)10.6
            Exclusive
                Distribution Agreement between Xinchai Holding Group C., Ltd and
                Zhejiang
                Zhongchai Machinery Co., Ltd., Dated as of January 28, 2007 (Incorporated
                by reference from Form 8-K, Current Report, Event dated March 9,
                2007,
                Exhibit 10.6)10.7
            Share
                Exchange Agreement dated March 7, 2007, among Usunco Automotive Limited
                and Equicap, Inc. (Incorporated by reference from Form 8-K, Current
                Report, Event dated March 9, 2007, Exhibit 10.7)10.8
            Convertible
                Note Conversion Agreement dated March 7, 2007 with Fountainhead Capital
                Partners Limited (Incorporated by reference from Form 8-K, Current
                Report,
                Event dated March 9, 2007, Exhibit 10.8)10.9
            Consulting
                Agreement with Fountainhead Capital Partners Limited dated March
                7, 2007
                (Incorporated by reference from Form 8-K, Current Report, Event dated
                March 9, 2007, Exhibit 10.9)10.10
            Lock
                Up agreement with former Equicap, Inc. stockholders (Incorporated
                by
                reference from Form 8-K, Current Report, Event dated March 9, 2007,
                Exhibit 10.12)14.1
            Code
                of Ethics (Incorporated by reference from Form 8-K, Current Report,
                Event
                dated March 9, 2007, Exhibit 14.1)21.1
            Subsidiaries
                of Equicap, Inc. *31.1
            Certificate
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Peter
                Wang
                *31.2
            Certificate
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 -David
                Ming He
                *32.1
            Certificate
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Peter
                Wang
                *32.2
            Certificate
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - David
                Ming He
                *





*
            Filed
                herewith




b.
            Reports
                onForm8-K.




N/A




-
          44 -
 *Table
          of Contents*




**Item
                14.**
            **Principal
                Accountant Fees and
                Services**




The
      following table shows the fees paid or accrued for the audit and other services
      provided by Patrizio & Zhao for the fiscal years ended June 30, 2006 and
      June 30, 2007:




June
                30, 2006
            
            June
                30, 2007Audit
                Fees
            
            $
            25,000
            
            $
            91,500Audit
                Related Fees
            
            
            -
            
            
            -Tax
                Fees
            
            
            -
            
            
            -All
                Other Fees
            
            
            -
            
            
            -$
            25,000
            
            $
            91,500




Audit
      services of Patrizio & Zhao for the fiscal years 2006 and 2007 consisted of
      the audit of the year end financial statements and the review of the quarterly
      financial statements of Equicap and registration statements and other SEC
      filings.




Because
      the board of directors of Equicap does not have an audit committee, the above
      services and engagements were approved by the board of directors.




-
          45 -
 *Table
          of Contents*




**EQUICAP,
      INC.**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**




**FINANCIAL
                  STATEMENTS**Report
                  of Independent Registered Public Accounting
                  Firm
              F-2Consolidated
                  Balance Sheet
              F-3Consolidated
                  Statements of Operations and Comprehensive
                  Income
              F-4Consolidated
                  Statements of Cash Flows
              F-5Consolidated
                  Statements of Stockholders’
                  Equity
              F-6Notes
                  to Consolidated Financial
                  Statements
              F-7


F-1
 *Table
          of Contents*




**Report
      of Independent Registered Public Accounting
      Firm**








To
      the
      Board of Directors


Equicap,
      Inc.





We
      have
      audited the accompanying consolidated balance sheet of Equicap, Inc. as of
      June
      30, 2007, and the related consolidated statements of operations and
      comprehensive income, stockholders’ equity, and cash flows, for the years ended
      June 30, 2007 and 2006. These consolidated financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Equicap, Inc. as of June 30, 2007,
      and the results of its operations and its cash flows for each of the two years
      then ended, in conformity with accounting principles generally accepted in
      the
      United States of America.






Parsippany,
      New Jersey


September
      26, 2007






F-2
 *Table
          of Contents*




**EQUICAP,
      INC.**




**CONSOLIDATED
      BALANCE SHEET**




**JUNE
      30, 2007**




**ASSETS**


**CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            7,848,812Accounts
                receivable, net of allowance of $37,511
            
            
            695,179Inventory
            
            
            378,075Other
                receivables
            
            
            3,947,063Advance
                payments
            
            
            675,195Prepaid
                expenses
            
            
            28,045**Total
                Current Assets**
            
            
            **13,572,369****PROPERTY
                AND EQUIPMENT, NET**
            
            
            **40,068****OTHER
                ASSET**Deferred
                compensation
            
            
            **281,184****Total
                Assets**
            
            **$**
            **13,893,621****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            1,017,657Taxes
                payable
            
            
            39,871Other
                payables
            
            
            172,397**Total
                Current Liabilities**
            
            
            **1,229,925****MINORITY
                INTEREST**
            
            
            **2,617,299****STOCKHOLDERS’
                EQUITY**Preferred
                stock, $.001 par value, 10,000,000 sharesauthorized,
                -0- shares issued and outstanding
            
            
            -Common
                stock, $.001 par value, 500,000,000 sharesauthorized,
                28,169,013 shares issued and outstanding
            
            
            28,169Stock
                Subscription Receivable - IBC
            
            
            (4,280
            )Stock
                Subscription Receivable - Usunco
            
            
            (33,120
            )Additional
                paid-in capital
            
            
            15,092,331Accumulated
                deficit
            
            
            (5,218,880
            )Accumulated
                other comprehensive income
            
            
            182,177**Total
                Stockholders’ Equity**
            
            
            **10,046,397****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **13,893,621**


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




F-3
 *Table
          of Contents*




**EQUICAP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE
      INCOME**


**For
                the Years Ended****June
                30,****2007**
            
            **2006****REVENUE**
            
            **$**
            **1,817,264**
            
            **$**
            **961,632****COST
                OF SALES**
            
            
            **1,627,739**
            
            
            **758,767****GROSS
                PROFIT**
            
            
            **189,525**
            
            
            **202,865****OPERATING
                EXPENSES**Selling,
                general and administrative
            
            
            1,513,458
            
            
            70,393**INCOME
                (LOSS) FROM OPERATIONS**
            
            
            **(1,323,933**
            **)**
            
            **132,472****OTHER
                INCOME (EXPENSE)**Interest
                Income
            
            
            46,297
            
            
            **-**Interest
                Expense
            
            
            (38,034
            )
            
            (30,449
            )Other
                Income (expense), net
            
            
            8,462
            
            
            -Unusual
                Charge- make good provision
            
            
            (
                3,954,930
            )
            
            -**Total
                other income (expense)**
            
            
            **(3,938,205**
            **)**
            
            **(30,449**
            **)****INCOME
                (LOSS) BEFORE PROVISION FOR INCOME TAX**
            
            
            **(5,262,138**
            **)**
            
            **102,023****PROVISION
                FOR INCOME TAX**
            
            
            **-**
            
            
            **41,466****MINORITY
                INTEREST**
            
            
            **17,299**
            
            
            **-****NET
                INCOME (LOSS)**
            
            
            **(5,279,437**
            **)**
            
            **60,557****COMPREHENSIVE
                INCOME**Foreign
                currency translation adjustment
            
            
            **182,177**
            
            
            **-****COMPREHENSIVE
                INCOME (LOSS)**
            
            
            **($5,097,260**
            **)**
            **$**
            **60,557****INCOME
                (LOSS) PER COMMON SHARE**Basic
            
            
            **($
                0.24**
            **)**
            $
            -Diluted
            
            
            **($
                0.24**
            **)**
            $
            -**WEIGHTED
                AVERAGE SHARES OF****COMMON
                STOCK**Basic
            
            
            **21,718,329**
            
            
            **18,323,944**Diluted
            
            
            **21,718,329**
            
            
            **18,323,944**


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


F-4
 *Table
          of Contents*




**EQUICAP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                the Years Ended****June
                30,****2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                Income (loss)
            
            
            ($
                5,279,437
            )
            $
            60,557Adjustments
                to reconcile net income (loss) to net cashprovided
                (used) by operating activities:Minority
                interest
            
            
            17,299
            
            
            -Depreciation
            
            
            78
            
            
            -Unusual
                Charge- make good provision
            
            
            3,954,930
            
            
            -Allowance
                for bad debts
            
            
            26,714
            
            
            10,797Stock
                based compensation
            
            
            942,315Non-cash
                payments of rent
            
            
            4,200
            
            
            4,200Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (366,184
            )
            
            (363,604
            )Inventory
            
            
            (254,605
            )
            
            (120,722
            )Other
                receivables
            
            
            (3,914,046
            )
            
            -Advanced
                payments
            
            
            (669,547
            )
            
            -Prepaid
                expenses
            
            
            (27,841
            )
            
            -Accounts
                payable and accrued expenses
            
            
            515,806
            
            
            496,405Taxes
                payable
            
            
            -
            
            
            39,866Other
                payables
            
            
            170,155
            
            
            2,099**Total
                Adjustments**
            
            
            **399,274**
            
            
            **69,041****Net
                Cash (Used) Provided By Operating Activities**
            
            
            **(4,880,163**
            **)**
            
            **129,598****CASH
                FLOWS FROM INVESTING ACTIVITIES**Additions
                to property, plant and equipment
            
            
            (35,665
            )
            
            -Additions
                to construction in progress
            
            
            (4,145
            )
            
            -**Net
                Cash (Used) By Investing Activities**
            
            
            **(39,810**
            **)**
            
            -**CASH
                FLOWS FROM FINANCING ACTIVITIES**Proceeds
                from capital stock and subscriptions
            
            
            9,970,219
            
            
            200Proceeds
                from minority interest
            
            
            2,617,299
            
            
            -**Net
                Cash Provided By Financing Activities**
            
            
            **12,587,518**
            
            
            **200****EFFECT
                OF FOREIGN CURRENCY CONVERSION ON CASH**
            
            
            **51,469**
            
            
            **-****NET
                INCREASE IN CASH AND CASH EQUIVALENTS**
            
            
            **7,719,014**
            
            
            **129,798****CASH
                AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
            
            
            **129,798**
            
            
            **-****CASH
                AND CASH EQUIVALENTS AT END OF YEAR**
            
            **$**
            **7,848,812**
            
            **$**
            **129,798****SUPPLEMENTAL
                INFORMATION:****CASH
                PAID FOR INCOME TAXES**
            
            $
            -
            
            $
            1,600**CASH
                PAID FOR INTEREST**
            
            $
            38,034
            
            $
            30,449


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


F-5
 *Table
          of Contents*




**EQUICAP,
      INC.**




**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’
EQUITY**


FOR
      THE YEARS ENDED JUNE 30, 2007 AND
      2006




**Stock**
            
            
            
            
            
            **Accumulated****Stock**
            
            **Subscriptions**
            
            **Additional**
            
            
            
            **Other**
            
            **Total****Common
                Stock**
            
            **Subscriptions**
            
            **Receivable**
            
            **Paid-in**
            
            **Accumulated**
            
            **Comprehensive**
            
            **Stockholders’****Shares**
            
            **Par
                Value**
            
            **Receivable
                - IBC**
            
            **Usunco**
            
            **Capital**
            
            **Deficit**
            
            **Income**
            
            **Equity****BALANCE-JUNE
                30, 2005**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Issuance
                of common stock
            
            
            18,323,944
            
            
            18,324
            
            
            (12,680
            )
            
            (33,120
            )
            
            27,676
            
            
            -
            
            
            -
            
            
            200Shareholder
                contribution
            
            
            -
            
            
            -
            
            
            4,200
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            4,200Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            60,557
            
            
            -
            
            
            60,557**BALANCE-JUNE
                30, 2006**
            
            
            **18,323,944**
            
            
            **18,324**
            
            
            **(
                8,480**
            **)**
            
            **(33,120**
            **)**
            
            **27,676**
            
            
            **60,557**
            
            
            **-**
            
            
            **64,957**Issuance
                of common stock
            
            
            9,845,069
            
            
            9,845
            
            
            -
            
            
            -
            
            
            9,886,226
            
            
            -
            
            
            -
            
            
            9,896,071Shareholder
                Contribution
            
            
            -
            
            
            -
            
            
            4,200
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            4,200Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            326,368
            
            
            -
            
            
            -
            
            
            326,368Conversion
                of notes
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            897,131
            
            
            -
            
            
            -
            
            
            897,131Make
                Good
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,954,930
            
            
            -
            
            
            -
            
            
            3,954,930Net
                Income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,279,437
            )
            
            -
            
            
            (5,279,437
            )Foreign
                Currency Translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            182,177
            
            
            182,177**BALANCE-JUNE
                30, 2007**
            
            
            **28,169,013**
            
            **$**
            **28,169**
            
            
            **(4,280**
            **)**
            
            **(33,120**
            **)**
            
            **15,092,331**
            
            
            **(5,218,880**
            **)**
            
            **182,177**
            
            **$**
            **10,046,397**






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


F-6
 *Table
          of Contents*




**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**






**NOTE
      1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**





Equicap,
      Inc. (“the Company”), a Nevada corporation, is a developer and distributor of
      diesel engine products and automotive parts sourced from China and sold to
      customers primarily located in China and North America.





On
      March
      7, 2007, the Company and Usunco Automotive, Ltd. (“Usunco”) 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
      common stock of Equicap, Inc.





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 is 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.


.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**PRINCIPLES
      OF CONSOLIDATION**





The
      consolidated financial statements include the accounts of the parent company
      and
      the subsidiaries. Intercompany accounts and transactions 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**





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/Diesel Power segment,
      the 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.  We evaluate the net realizable value of our 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.


F-7
 *Table
          of Contents*


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**






**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





**REVENUE
      RECOGNITION**





Revenue
      consists of sales of automotive parts, diesel engines and gears. 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 return of products once sold to customers. Instead,
      the company 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 handling costs therefrom are passed through to the suppliers.





**ADVERTISING
      COSTS**





The
      Company expenses the cost of advertising as incurred. Advertising costs for
      the
      year ended June 30, 2006 and 2007 were insignificant.




**RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a
      recognition threshold and measurement attribute for financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return, and also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure, and
      transition. FIN 48 is effective for fiscal years beginning after December 15,
      2006. The adoption of this statement did not have a material impact on the
      Company’s financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and requires enhanced disclosures about fair value measurements. SFAS
      157
      requires companies to disclose the fair value of its financial instruments
      according to a fair value hierarchy (i.e., levels 1, 2, and 3, as defined).
      Additionally, companies are required to provide enhanced disclosure regarding
      instruments in the level 3 category, including a reconciliation of the beginning
      and ending balances separately for each major category of assets and
      liabilities. SFAS 157 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007 and interim periods within those fiscal
      years. The Company does not believe adoption of this statement will have a
      material impact on the Company’s financial statements.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106 and 132®” (“SFAS 158”) requires employers to recognize the
      overfunded or underfunded status of a defined benefit post-retirement plan
      as an
      asset or liability in its statement of financial position. Further, SFAS 158
      requires employers to recognize changes in the funded status in the year in
      which the changes occur through comprehensive income. SFAS 158 is effective
      for
      fiscal years ending after December 15, 2006. The adoption of this statement
      did
      not have a material impact on the Company’s financial
      statements.


F-8
 *Table
          of Contents*


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**








**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





**RECENT
      ACCOUNTING PRONOUNCEMENTS** (continued)





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108 “Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The SEC staff believes that registrants should quantify errors using both a
      balance sheet and income statement approach and evaluate whether either approach
      results in quantifying a misstatement that, when all relevant quantitative
      and
      qualitative factors considered, is material. SAB 108 is effective for fiscal
      years ending on or after November 15, 2006, with early application encouraged.
      The adoption of this statement did not have a material impact on the Company’s
      financial statements.




**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 year ended June 30, 2007. For the China/Diesel Power
      segment, the Zhongchai JV is located in the PRC, and is 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 tax
      rate is 33%.





**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.





**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.




F-9
 *Table
          of Contents*




**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** (continued)





**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 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.




**Year
                Ended June 30, 2007****Net
                Income (Loss)**
            
            **Shares**
            
            **Per
                Share**Basic
                EPS
            
            
            ($5,279,437
            )
            
            21,718,329
            
            
            ($0.24
            )Effect
                of dilutive securities
            
            
            -
            
            
            -
            
            
            -Diluted
                EPS
            
            
            ($5,279,437
            )
            
            21,718,329
            
            
            ($0.24
            )




**Year
                Ended June 30, 2006****Net
                Income (Loss)**
            
            **Shares**
            
            **Per
                Share**Basic
                EPS
            
            $
            60,557
            
            
            18,323,944
            
            $
            -Effect
                of dilutive securities
            
            
            -
            
            
            -
            
            
            -Diluted
                EPS
            
            $
            60,557
            
            
            18,323,944
            
            $
            -


**NOTE
      3 - INVENTORY**




Inventory
      at June 30, 2007 consisted of the following:




Starters
                & Alternators
            
            $
            49,556Gears
                products
            
            
            328,519Total
            
            $
            378,075





**NOTE
      4 - RENTAL EXPENSE**





The
      Company's U.S. office site is located in the state of California. Rental expense
      for the years ended June 30, 2007 and 2006 was $4,200 and $4,200, respectively.
      The Company’s Chinese operation is located in Hangzhou, China, and the rental
      expense for the years ended June 30, 2007 and 2006 was $21,628 and $-0-,
      respectively.





**NOTE
      5 - RISK FACTORS**





The
      Company had three major customers, Ltd/Visteon, BBB/OAC, and Maxpower
      Rebuilders, Inc., who accounted for approximately 41%, 34% and 21%, respectively
      of the Company's net revenue of the auto parts segment for the year ended June
      30, 2007. For the diesel power segment, two customers, Zhejiang Xinchai Power
      Co., Ltd. and Zhejiang Hangcha Engineering Machinery Co., Ltd., accounted for
      80% and 20%, respectively, of the net revenue in China, for the year ended
      June
      30, 2007. These five customers accounted for 30%, 25%, 15%, 20% and 5%,
      respectively, of the Company’s consolidated revenue for the year ended June 30,
      2007.





The
      Company had three major vendors, SIIG International, Zhejiang Yongkang Boyu
      and
      Wuxi Susun who provided approximately 61%, 21%, and 6%, respectively of the
      Company's purchases of the auto parts segment for the year ended June 30, 2007.
      For the diesel power segment, one major supplier, Zhejiang Shengte Transmission
      Co., Ltd., accounted for 54% of the total purchases, for the year ended June
      30,
      2007. These four suppliers accounted for 37%, 13%, 4%, and 21%, respectively,
      of
      the Company’s consolidated purchases for the year ended June 30,
      2007.





The
      Company's Articles of Association stipulate that shares which are not fully
      paid
      for on issue are subject to forfeiture provisions set forth in the regulation
      and for this purpose shares issued for a promissory note, other written
      obligation to contribute money or property or a contract for future services
      are
      deemed to be not fully paid.


F-10
 *Table
          of Contents*




**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**




**NOTE
      6 - DEFERRED COMPENSATION**





As
      described in Note 8 (“Stock-based compensation), the Company granted options to
      employees and warrants to the private placement agent. Following SFAS No. 123R,
      the Company recognizes expenses on the fair value of the options and warrants.
      Deferred compensation represents stock-based compensation that will be expensed
      in future periods based on the vesting time of such options and warrants.





**NOTE
      7 - SEGMENT REPORTING**





The
      Company’s reporting segments have been determined based on the geographic
      location of the operations and meanwhile 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 the China and
      distributing them in North America and other regions. The China/Diesel Power
      Segment, represented by the 75% owned subsidiary Zhejiang ZhongChai Machinery
      Co., Ltd. in Hangzhou, China, currently focuses on distribution of mid-sized
      diesel engines and engine related products, such as gears, for the industrial
      and agricultural 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 evaluate
      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 years ended June 30, 2007 and 2006.





**Years
                ended June 30,****Segment
                revenues**
            
            **2007**
            
            **2006**North
                America/Auto Parts
            
            $
            1,324,819
            
            $
            961,632China/Diesel
                Power
            
            $
            492,445
            
            $
            -$
            1,817,264
            
            $
            961,632




**Years
                ended June 30,****Segment
                operating earnings (loss)**
            
            **2007**
            
            **2006**North
                America/Auto Parts
            
            $
            (95,112
            )
            $
            132,472China/Diesel
                Power
            
            $
            55,232
            
            $
            -$
            (39,880
            )
            $
            132,472




**Years
                ended June 30,****Depreciation
                expense**
            
            **2007**
            
            **2006**North
                America/Auto Parts
            
            $
            -
            
            $
            -China/Diesel
                Power
            
            $
            78
            
            $
            -$
            78
            
            $
            -




**Years
                ended June 30,****Segment
                identifiable assets**
            
            **2007**
            
            **2006**North
                America/Auto Parts
            
            $
            406,329
            
            $
            603,327China/Diesel
                Power
            
            $
            11,515,248
            
            $
            -$
            11,921,577
            
            $
            603,327


F-11
 *Table
          of Contents*


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**






**NOTE
      8 - 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 represent approximately 30% of our 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
      will be 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.





In
      the
      event the Company does not satisfy the registration obligations of the
      registration rights agreement, (“Registration Default”), the Company shall 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 may incur under this registration payment arrangement is 10% of the
      aggregate investment amount, or $1,200,000. Any payments made are to be prorated
      for any portion of a 30-day period of a Registration Default.





Although
      the Company has the obligation to register shares of common stock for other
      persons under the above described registration rights agreement, the Company
      is
      not obligated to pay liquidated damages in the event that their shares are
      not
      registered or the registration statement is not available for their
      sale.





**NOTE
      9 - STOCK-BASED COMPENSATION**





As
      of
      June 30, 2007, there are outstanding 366,550 options to employees (“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 year ended June 30, 2007, the Company
      recorded approximately $45,184 of stock-based compensation based on the fair
      value method of SFAS. N0. 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.





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.





**NOTE
      10 - CONVERSION OF CONVERTIBLE NOTE OF EQUICAP**





Equicap
      and Fountainhead Capital Partners Limited entered into a convertible note on
      September 30, 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 on the basis that Fountainhead is an accredited investor,
      under Section 4(2) of the Securities Act. As such the shares being received
      on
      conversion are restricted stock. Equicap has agreed to register the shares
      issued in the conversion. Equicap will also take such action to make Rule 144
      available for the sale of the shares issued on conversion, the extent permitted
      by the securities laws. Upon conversion, a charge of approximately $897,131
      was
      made to general and administrative expenses with a respective increase to
      additional paid-in capital for the conversion into common shares at a 90%
      discount from the $1.42 per share received for the sale of common stock in
      the
      Share Exchange. The convertible note was relieved from the balance sheet while
      increasing common stock by approximately $700 and additional paid-in capital
      by
      approximately $99,200.


F-12
 *Table
          of Contents*




**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2007 AND 2006**






**NOTE
      11 - MAKE GOOD ESCROW AGREEMENT**





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, have agreed to place into escrow an aggregate of 10,140,846 shares
      of
      common stock issued in the Share Exchange. 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. If the consolidated financial
      statements of Equicap for the fiscal year ending June 30, 2007, prepared in
      accordance with United States generally accepted accounting principles,
      consistently applied, reflect either (i) less than $2,320,000 of after-tax
      net
      income or (ii) earnings before income tax provision and before minority interest
      of less than $3,200,000, then 3,042,254 shares of common stock in escrow will
      be
      distributed to the investors on a pro rata basis for no additional
      consideration.





If
      either
      (i) the earnings per share reported in the Annual Report on Form 10-KSB of
      Equicap for the fiscal year ending June 30, 2008 is less than $0.343 on a fully
      diluted basis (as equitably adjusted for any stock splits, stock combinations,
      stock dividends or similar transactions), (ii) the earnings per share before
      income tax provision and before minority interest of the company for the fiscal
      year ending June 30, 2008, is less than $0.446 on a fully diluted basis (as
      equitably adjusted for any stock splits, stock combinations, stock dividends
      or
      similar transactions), (iii) the after tax net income reported in the Annual
      Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008,
      is less than $10,000,000, or (iv) the earnings before income tax provision
      and
      before minority interest reported in the Annual Report on Form 10-KSB of the
      company for the fiscal year ending June 30, 2008, is less than $13,020,000,
      then
      7,098,592 shares of common stock in escrow will be distributed to the investors
      on a pro rata basis for no additional consideration. Any shares not distributed
      to the investors will be released to the persons who placed them in escrow.
      Any
      make good shares issued to the investors will be subject to the registration
      rights under the Registration Rights Agreement.





According
      to SAB 79, *Accounting
      for Expenses or Liabilities by Principal Stockholder(s),* if the
      performance criteria are not met these shares will be released to the investors
      and treated as an expense for the amount of the market value of the shares
      as of
      the date of release. Per SFAS No. 123R, *Accounting
      for Stock-Based Compensation* ,
      if the
      performance criteria are met, the shares will be released back to the former
      shareholders of Usunco and treated as an expense for the amount of the market
      value of the shares as of the date of release. Based upon the current market
      value of $1.30, the total expense recognized for the fiscal year of 2007 is
      $3,954,930, and the potential impact of the release of shares upon the financial
      statements is estimated to be approximately $9.2 million for fiscal year of
      2008, respectively. Such expense is treated as an unusual item since it is
      deemed to be unusual in nature but may not be infrequent in occurrence. This
      recognition of expense will not occur if the shares are forfeited or cancelled
      and are not released to either the investors or the former shareholders of
      Usunco.




**NOTE
      12 - SUBSEQUENT EVENTS**





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





As
      described in Note 7 above, the Company was obligated to have a registration
      statement declared effective by August 5, 2007, for the sale of the common
      stock
      issued in the March 2007 private placement offering.  The registration
      statement was declared effective on August 13, 2007, later than the stated
      time
      period, and there was a Registration Default. The Company is obligated to pay
      the liquidated damages provided in the registration rights agreement for a
      total
      amount of $32,000.




F-13
 *Table
          of Contents*




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this Report to be signed on its behalf by the undersigned, thereunto duly
      authorized on September 26, 2007.




EQUICAP,
      INC.




By: /s/
      Peter
      Wang


Peter
      Wang


Chairman
      and President




In
      accordance with the Exchange Act, this Report has been signed below by the
      following persons on behalf of the Registrant and in the capacities
      indicated.




**Signature**
            
            **Capacities**
            
            **Date**/s/
                Peter Wang
            
            Chairman
                and President (Principal Executive Officer)
            
            September
                26, 2007**Peter
              Wang**/s/
                Jason Lu
            
            Chief
                Executive Officer and Director
            
            September
                26, 2007**Jason
              Lu**/s/
                David Ming He
            
            Chief
                Financial Officer
            
            September
                26, 2007**David
              Ming He**
            
            (Principal
              Financial and Accounting Officer)/s/
                Haining Liu
            
            Director
            
            September
                26, 2007**Haining
              Liu**