UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM 10-K





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




For
the fiscal year ended: June 30, 2009




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


For the transition period from
______________to ______________





Commission
File Number 000-31091




EQUICAP,
INC.


(Name of
Small Business Issuer in Its Charter)





NEVADA
              (State
      of Incorporation)
            33-0652593
              (Small
      Business Issuer
              I.R.S.
      Employer I.D. Number)224 Tianmushan 
      Road,
              Zhongrong
      Chengshi  Huayuan 5-1-602,
              Zhangzhou, P.R.
      China
              (Address
      of principal executive offices)
            310007
              (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





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  ̈ No x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  ̈ No x





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





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





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. x





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





Large
accelerated filer  ̈ Accelerated filer
 ̈Non-accelerated
filer  ̈Smaller
reporting company x





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity as of the last
business day or registrant’s most recently completed second fiscal quarter. As
of December 31, 2008, the value was approximately $135,219.





State the
number of shares outstanding of each of the issuer’s classes of common equity:
27,613,019 as of September 21, 2009.








Equicap,
Inc.




Annual
Report on Form 10-K


Fiscal
Year Ended June 30, 2009


Table
of Contents




Page No.PART
      IItem
      1
                              Description
      of Business
                              1Item
      1A.
                              Risk
      Factors
                              8Item
      1B.
                              Unresolved
      Staff Comments
                              19Item
      2
                              Description
      of Properties
                              19Item
      3
                              Legal
      Proceedings
                              20Item
      4
                              Submission
      of Matters to a Vote by Security Holders
                              20PART
      IIItem
      5
                              Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      EquitySecurities
                              20Item
      6
                              Selected
      Financial Data.
                              22Item
      7
                              Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                              24Item
      8
                              Financial
      Statements and Supplementary Data
                              33Item
      9
                              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
                              33Item
      9A
                              Controls
      and Procedures
                              34Item
      9B
                              Other
      Information
                              34PART
      IIIItem
      10
                              Directors,
      Executive Officers and Corporate Governance
                              35Item
      11
                              Executive
      Compensation
                              38Item
      12
                              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              41Item
      13
                              Certain
      Relationships and Related Transactions and Director
      Independence
                              42Item
      14
                              Principal
      Accountant Fees and Services
                              43Item
      15.
                              Exhibits,
      Financial Statement Schedules
                              43










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 1A -
Risk Factors.”







PART
I




Item
1.   Description of Business




Background of
Equicap




Reincorporation
of Equicap




Equicap,
Inc. (“Equicap” or the “Company”) was incorporated in the State of Nevada 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 until March 2007, prior to its 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.  On December 29, 1995, BBU Systems Inc. ("BBU") was merged with
and into Equicap, with Equicap as the surviving entity, pursuant to an Agreement
and Plan of Merger. Equicap became a dormant corporation in July 1996 when the
Company's board of directors determined that the business of BBU could not be
developed, due to the lack of operating capital and the lack of prospects for
raising adequate funding.  From July 1996 until the acquisition of
Usunco, Equicap was a shell corporation.




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.  Then, 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, 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. Each share of common stock
of Equicap issued in the exchange to the former shareholders of Usunco was
issued as restricted stock, and the holders thereof may not sell, transfer or
otherwise dispose of the shares without registration under the Act or an
available exemption therefrom. These shares do not carry any registration rights
and have not been registered for resale.


1




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 that also was executed
with the investors in the offering, described below.




In
connection with the Exchange Agreement, Equicap engaged Fountainhead Capital
Partners Limited (“Fountainhead”), 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. (“vFinance”)
provided advice in connection with the Share Exchange and was issued 161,633
shares of common stock as compensation.  These shares have the
registration rights described below.




Since the
former shareholders of Usunco owned approximately 65% of the shares of common
stock of Equicap at the time of its acquisition of Usunco, the former
shareholders of Usunco had control of Equicap immediately after the
acquisition.  As a result, Usunco was deemed to have been the
acquiring company in the Share Exchange, and for accounting purposes, the Share
Exchange transaction was 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, 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.




Private
Placement Offering in Connection with Share Exchange




As a
condition to the Share Exchange, Equicap and Usunco conducted a private
placement offering of its common stock to accredited and institutional investors
in which it 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
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.


2




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, the registration
rights covered the make good shares (described below) that were distributable to
the investors.  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. Equicap filed a registration statement in
satisfaction of the registration rights agreement, but it was not declared
effective by the required date of within 150 days of the closing date of the
Offering.  As a result, the liquidated damages provision of the
registration rights agreement required Equicap to pay $32,000 to the
investors.  The provision required the Company to pay 1% of the share
purchase price paid only by the investors for each month 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
then Rule 144k, promulgated under the Act (“Rule 144k”).




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.




Because
of the availability of the resale opportunities under the current Rule 144 and
the sale of the securities sold in the Offering by many of the investors, the
Company believes that its obligations under the registration rights agreement
are largely satisfied.




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 were the officers and directors of
Equicap, agreed to place into escrow an aggregate of 10,140,846 shares of common
stock issued in the Share Exchange.  These shares are referred to as
the “make good shares.”  The purpose of the make good shares was to
adjust the per share investment of the investors in the Offering by increasing
their holdings if certain defined financial targets were not achieved by the
Company.  The Company did not meet these financial targets in each of
the two fiscal years ending June 30, 2007 and 2008; as a result, all the make
good shares were distributed to the investors, pro rata based on their initial
investment amounts in 2007 and 2008.


3




Usunco Automotive
Limited




Usunco
was organized in the British Virgin Islands as a limited liability company on
April 24, 2006. Usunco owns 75% of the equity interest of Zhejiang ZhongChai
Machinery Co., Ltd. (“ZhongChai JV”), which in turn owns all of Zhejiang Shengte
Transmission Co., Ltd., that makes gears and gearboxes (transmissions) in
China.  Until June 15, 2009, Usunco also owned 100% of the equity
interest of IBC Automotive Products, Inc. (“IBC”), which distributed automotive
parts in North America.  Until June 2009 Usunco operated with two
business segments of the Company, represented by the China/Gear Segment of
ZhongChai JV and its subsidiary, which focuses on manufacturing and distribution
of gears and gearboxes in China and by the North America/Auto Parts Segment of
IBC, which focused on sourcing automotive parts and products from China and
distributing them in North America and other regions.




ZhongChai
JV is a Sino-foreign equity joint venture established in the Peoples Republic of
China (the “PRC”) by Usunco, and a local party in China, Xinchang Keyi Machinery
Co., Ltd., the successor in interest to Xinchai Holding Group Co., Ltd. with
respect to the 25% joint venture interest  (“Xinchang Keyi”). The
ZhongChai JV manufacturers and sells gears and gearboxes in China. The gears are
sold to engine and gearbox manufacturers for their engine and gearbox products.
ZhongChai JV’s gearboxes are sold primarily to forklift and truck manufacturers.
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 Xinchang Keyi 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.




Pursuant
to the Articles of Association, the board of directors of ZhongChai JV consists
of four directors, of which Usunco has the right to designate three directors
and Xinchang Keyi has the right to designate one director.  All
material issues and actions of ZhongChai JV require approval by a majority of
the board of directors.




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 $3,700,000 in cash. Shengte manufactures and
distributes gears and gearboxes mainly used in or together with diesel engines
for industrial and agricultural machinery.  Shengte was founded in
2006.




Discontinued
Business




IBC was
incorporated on May 14, 2004 in the State of California, and while it was a
Usunco subsidiary it specialized in sourcing automotive parts and products from
the China for distribution in North America and other regions.  Most
of the products were alternators and starters which were sold to retailers,
wholesalers and other U.S. master distributors in the automotive replacement
parts sector. Its principal customers included, among others, BBB/OCA, JNS
Tsusho Corp., LTD/Visteon, Sankaku and IAP.  End-users of parts and
products sourced from IBC included, among others, O’Rilleys, Pep Boys,
Worldpac/Carquest, and Dura International.


4




On June
8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an
agreement to sell IBC to the management of IBC. The transaction was closed on
June 15, 2009. IBC was sold because it no longer fitted the overall business
strategy of focusing on the development and manufacture of gears and gearboxes
for use primarily in diesel engines for the industrial and agricultural
industries in China and the expansion opportunities that exist in the Chinese
and Asian markets for those and similar products. Additionally, IBC no longer
represented a significant amount of the assets or gross revenues of the
Company.




Products




The
Company, through its majority owned subsidiaries, is focused on the production
and sale of gears and gearboxes. These products are primarily used in or
together with diesel engines for industrial and agricultural machinery, fork
lifts, excavators, construction equipment, tractors, pumps and other
machinery.




During
the fiscal year ended June 30, 2008, the Company and Xinchai Holding Group Co.,
Ltd. (“Xinchai Holding”), the original joint venture partner of the ZhongChai
JV, determined to place the distribution agreement between the ZhongChai JV and
Xinchai Holding in suspension so that the joint venture could focus its
resources on development and marketing of the gear and gearbox products of
Xinchang Keyi.  The joint venture partners determined to put the
agreement in suspension because the economics of distributing the Xinchai
Holding products under the distribution agreement had been adversely affected by
several factors, notably the dramatic increase in the product costs because of
the cost of steel which cut into margins and the disinclination of the equipment
integrators who use those products to buy engines from a middleman with the
added costs, and the overall competition in the industry segment.  The
use of a suspension arrangement was so the parties could ultimately work to
continue to pursue the joint venture in some other profitable
endeavor.  As a result, Zhongchai JV agreed to work with Xinchai
Holding to produce gearboxes that will be sold stand-alone to Xinchai’s
customers or sold with the diesel engines made by Xinchai’s subsidiary as a
diesel power-train. It was believed that this rearrangement would change
Zhongchai JV’s market position from a middleman to an original manufacturer,
which is more acceptable in the OEM marketplace.




Market
Overview




The
Company is primarily focused on the domestic market in China. As a result of the
continued expansion of the Chinese economy and various government initiatives,
the Company believes its best opportunity at this time is to concentrate its
commercial efforts in that market.  The domestic market in China for
gear and gearbox products has grown in recent years because of the increase in
domestic demand driven by country wide economic growth and urban expansion. In
addition, beginning in 2005, because of the favorable government policies
towards farmers, the Chinese agricultural equipment market has experienced
growth for the kinds of products that the Company produces and sells. As a
result, the Company has seen growth of the gear and gearbox business in recent
years, and it expects it to continue.




The main
customers of the Company are manufacturers of engines, gearboxes and industrial
equipment.  The Company products are used as components in its
customers’ final products, such as diesel engines, gearboxes, forklifts and
other equipment or machinery. Typically the gears are used in diesel engines and
gearboxes that are incorporated into equipment and machinery for the industrial
and agricultural markets. The range of uses includes forklifts, excavators,
construction equipment, tractors, pumps and other machinery. The Company started
small production of gearboxes in the last quarter of fiscal year
2008.


5




Principal
Customers




The
Company’s major customers in its gear business are Chinese diesel engine
producers, and the major customers in its gearbox business are Chinese original
equipment manufactures.




For the
gear segment, two customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai)
Forklift Co., Ltd., accounted for 69% and 17%, respectively, of the net revenue
in China, for the fiscal year ended June 30, 2009. In the discontinued North
American auto parts business, BBB/OCA and World Pac, accounted for approximately
73% and 12%, respectively, of the Company's net revenue for the fiscal year
ended June 30, 2009. These four customers accounted for 16%, 3%, 54% and 13%,
respectively, of the Company’s consolidated revenue for the fiscal year ended
June 30, 2009.




The
Company performs appropriate credit checks before orders are accepted and
invoices are issued. Most accounts are collected within 120 days. Customers
generally do not provide long-term volume purchase commitments. Rather,
transactions are based on non-binding purchase plans that provide only purchase
forecasts and state basis terms.




Product
Returns and Warranties




In its
Chinese business, the Company provides only a limited right of return for
non-conforming products if returned in a timely fashion. The Company generally
provides a one-year limited warranty covering manufacturing defects and
functional failures of gearbox and auto part products.  After
evaluation and confirmation, the Company will either replace the defective
product or accept returns by crediting the customer account.  The
Company, thus, becomes responsible for the costs and expenses of the
returns.




Sales
and Marketing




Because
the principal market for the Company is other manufacturers, the Company
undertakes sales and marketing principally designed to acquaint those types of
enterprises with its products.  Therefore, the Company focuses on
direct sales on a business to business basis, by developing contacts with engine
and gearbox producers and original equipment manufacturers.  These
contacts are developed through direct relationships, referrals and trade
shows.  One of the principal aspects of the marketing is to focus
customers on the Company’s commitment to quality products, customer service and
after sales support.




Once a
sale is developed, the customer typically will provide the Company with a
forecast and a desired shipment schedule up to one year in advance, which are
reviewed quarterly, and in some cases monthly.  These forecasts and
schedules are dependant on the demand for and delivery schedules developed with
the ultimate finished goods buyer.  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.


6




Principal
Suppliers




For the
gear segment, the Company sources parts and components and semi-finished
products mainly from Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears
Co., Ltd., Xinchang Liyuan Foundry Co., Ltd., and Xinchang Zhisheng Machinery
Co., Ltd. for Zhongchai JV’s for further fine processing and
assembly.




For the
gear segment, four major suppliers, Zhejiang Yuyang Machinery Co., Ltd.,
Changzhou No. 2 Gears Co., Ltd., Xinchang Liyuan Foundry Co., Ltd., and Xinchang
Zhisheng Machinery Co., Ltd., accounted for 32%, 13%, 5% and 4%, respectively,
of the total purchases, for the fiscal year ended June 30, 2009. For the auto
parts segment, the Company had three major suppliers, Zhejiang Yongkang Boyu,
Wuxi Susun and Pico Industries Co., Ltd., which provided approximately 45%, 25%,
and 7%, respectively, of the Company's purchases of the auto parts for the
fiscal year ended June 30, 2009. These seven suppliers accounted for 11%, 6%,
2%, 24%, 10%, 4% and 3%, respectively, of the Company’s consolidated purchases
for the fiscal year ended June 30, 2009.




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. None of
our suppliers have any ownership in the Company or any relationship with the
insiders of the Company.




Distribution




For our
gear and gearbox business, currently the Company ships finished products
directly to its customers from the factory warehouse in Zhejiang,
China.




For our
discontinued automotive parts business, the Company did not maintain inventories
in China. Most of the orders received by IBC were container based with the
shipment pre-scheduled. In most of cases IBC arranged for shipments directly
from the suppliers in China to the customers’ warehouse in North America.
Occasionally, IBC leased warehouse space in California to receive returned
products which were still under warranty and to refurbish them
locally.




Competition




As the
demand for gear and gearbox products has grown in China, the competition within
that market has also grown and has become severe.  There are many
local manufacturers making gears and gearboxes, and most of them are willing to
compete for customers and market share through low pricing. There are also many
global manufacturers interested in the large Chinese market who are entering the
market and selling gear and gearbox products having better quality and design
than many Chinese suppliers.  ZhongChai JV faces the many challenges
of being a new entrant to compete for new customers.  Management
believes it will take ZhongChai JV a few years to establish a solid customer
base for itself.




Employees




As of
June 30, 2009, the Company employed directly and through its subsidiaries
approximately 110 individuals in the United States and China, consisting of 3
executives and managers, 9 technical personnel, 3 sales and marketing personnel,
and 22 administrative and support personnel, and 73 production personnel. The
employees are not currently represented by any labor union or similar collective
bargaining group.


7




Item
1A.   Risk Factors




An
investment in our common stock is speculative and involves a high degree of risk
and uncertainty. You should carefully consider the risks described below,
together with the other information contained in this Annual Report on Form
10-K, including the consolidated financial statements and notes thereto, when
evaluating our Company and our business before deciding to invest in our common
stock. The risks described below are not the only ones facing us. Additional
risks not presently known to us or that we presently consider immaterial may
also harm us. If any of the following risks occur, our business, financial
condition and results of operations and the value of our common stock could be
materially harmed.




Risks
Related to Our Business




We
anticipate that a significant portion of our revenue will be from the sale of
gears to one customer. We have considerable risk related to the reliance on that
one customer which could have a detrimental consequence to our long term
viability.




We
anticipate that a significant portion of our revenues will be from the sale of
gear and gearbox products to Zhejiang Xinchai Co., Ltd., which represents about
69% of our sales. We face the risks inherent in relying on a single customer. If
Zhejiang Xinchai Co., Ltd. experiences any events that affect its purchase of
our products, there could be considerable detrimental consequences to our
financial results and long term viability.




Our
revenues will decrease if there is less demand for the kinds of products in
which our products are component parts.




Our
principal customers are manufacturers of engines, gearboxes and industrial
equipment. Our products are 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 these kinds of end
products decrease, then the demand for our products and our revenues would
likewise decrease.  Therefore, we are dependent on a limited market
segment.




Because
of competition, we could experience downward pricing pressure on our products
from our customers, which may adversely affect our growth, profit margins and
net income.




We could
face downward pricing pressure from our customers as a result of the intense
competition in our industry.  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.




We
receive a significant portion of our revenues from a small number of customers
which may make it difficult to negotiate price increases for our
products.




A
significant portion of our revenues depends on a small number of customers.
Dependence on a few major customers could make it difficult to negotiate price
increases for our products.  Therefore, in addition to competitive
pressures, we may face limitations on our ability to increase our prices to
account for raw material price increases, increases in wages and production
costs and other expenses of production. In such event, our profit margins may be
reduced and our overall profitability reduced.


8




Our
contracts with our customers generally are 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
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.




Our
customers’ purchase agreements typically contain short lead-times for the
delivery of 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 growth in demand, we may not be able to respond
effectively if our capacity or sources of supply or capital are not adequate,
resulting in lost business opportunity.




If our
marketing plans result in market growth and demand for our products, we will be
required to deliver larger volumes of products to our
customers.  Meeting customer order demand will require us to increase
our capacity to produce, or ability to source quality products. Such demand
would require us to expand our current 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 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 grant relatively long payment
terms to most of our 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 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.


9




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.  To remain competitive, we believe that in the future we will
have to incur product development expense and invest in research for new
products.  These costs could 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.




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,
production and 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.




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, gearboxes or 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:




·
            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.




10




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.




The
cyclical nature of industrial and agricultural equipment and medium and light
duty commercial vehicle production and sales could result in a reduction in
gears and gearboxes sales, which could adversely affect our financial
condition.




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
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. All or any one of these factors may result in fluctuations in the
demand for our products with an impact on our financial condition.




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
gears and gearboxes.  The prices of these products are increasing as a
result of the growth of the Chinese economy.  Our suppliers may
further increase the price of raw materials and components we use in our
production.  Because it may be difficult for us to pass 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 are 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.   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 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.


11




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.




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.


12




International
expansion may subject us to risks inherent in doing business internationally,
such as protectionist limitations, higher sales costs and additional importation
taxes, all of which could affect our profitability.




Our
long-term business strategy includes plans to expand sales outside China by
targeting markets, such as Europe and the United States.  Risks
affecting 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, 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 restrain international
expansion, which in turn could limit our opportunities and the sought benefits
of international sales. Such expansion, may require us to incur additional
expenses which are not recovered though improved sales.




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 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.




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 may not be
able to identify independent directors qualified to be on our board to increase
the independence of the board or replace any independent directors. There is no
assurance that we will have an independent board at any time.




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.  We can
provide no assurance that we will meet all of the requirements imposed thereby
for each year and from time to time. 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.




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
operations, assets and sales are located in China. Therefore, 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
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 the Company.




13




Although
a large portion of the 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 regulate the growth of the economy. These measures include
restrictions on the availability of domestic credit, monitoring international
currency transactions, reducing the purchasing capability of certain of its
customers, and limited 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.




14




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 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 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.




15




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.




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.


16




The
source of funds for any dividend and other equity based 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 business operations 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.  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.  Distributions will also be
subject to taxation and withholding requirements, imposed by the PRC and under
United States tax law.  To date, our PRC Joint Venture has not
distributed any profits and does not anticipate doing so for the near
term.




Foreign
Exchange Control Risks




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




Our
revenues and expenses are China based, whose currency is 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.  The Chinese
government 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 current international value range of the Chinese Renminbi, we cannot
assure you that the government will not take steps to revalue it.  As
our operations are in China, any significant revaluation of the Chinese Renminbi
may materially and adversely affect our cash flows, revenues and financial
condition. 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.


17




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 very limited trading in our common stock.  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.




There
may be substantial sales of the common stock by stockholders 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, could cause the market
price for our common stock to decline and could prevent an active market
developing.  Such “overhang” could impair the value of an investment
in the common stock.  These factors may could also restrict the
Company’s ability to raise equity capital in the future.  A relatively
small proportion of the outstanding shares are free trading.  All the
shares that were issued as restricted stock and the shares held by our
affiliates, which represent the majority of our outstanding shares of common
stock, may be sold pursuant to Rule 144 as applicable to former shell companies,
subject to the limitations on the number of shares held by affiliates that can
be sold from time to time. The sales of common stock by the stockholders able to
sell under Rule 144 may depress any trading market that
develops.


18




The
common stock of Equicap 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.




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 the 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 holders of 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
      1B.
            Unresolved
      Staff Comments




None.




Item
2.            Description
of Properties




The
Company has an office in China and one operating facility in
China.




The
principal executive office of the Company is located in the city of
Hangzhou in China, where the Company leases an aggregate of approximately 1,400
square feet at an approximate, aggregate annual rental of $12,000.  The
lease has term of one year. This office mainly handles 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 leased space of
approximately 32,000 square feet, for annual rental of approximately
$32,000.


19




Item
3.            Legal
Proceedings




On
November 6, 2008, nine of the investors in the private placement conducted by
the Company in March – April 2007 filed a law suit in federal court in New York
against the Company, Usunco Automotive Ltd., Mr. Wang and vFinance Investment,
Inc.  The case name was The Pinnacle Fund, L.P., Pinnacle China Fund.
L.P., Atlas Capital Master Fund, L.P., Atlas Capital (Q.P.), L.P., Westpark
Capital, L.P., Sandor Capital Master Fund L.P., Vision Opportunity Master Fund,
Ltd., Heller Family Foundation, Jayhawk Private Equity Co-Invest Fund, L.P., and
Jayhawk Private Equity Fund, L.P., Plaintiffs v. Equicap Inc., Usunco Automotive
Ltd., vFinance Investment, Inc., and Peter Wang, Defendants, United States
District Court, Southern District of New York, 08CIV 9008.  The
allegations asserted were based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation arising out of the private placement
in March – April 2007.  The action sought a return of the investment
funds of the plaintiffs, payment of interest, restitution and disgorgement of
profits and other ill gotten gains, damages for lost opportunity and other
consequential damages.  The Company was obligated to provide
indemnification to vFinance Investments, Inc. for its expense in defending the
claims against it and any settlement costs.




In July
2009, the Company and Mr. Wang agreed upon the terms of
a settlement agreement to the action.  The settlement
agreement provided (i) for a third party, Ruihua International Limited
("Ruihua"), to purchase all the shares of common stock of the
Company owned and held of the plaintiffs, (ii) upon
the purchase of the shares, for the Company and Mr. Wang and each of
the plaintiffs to exchange general mutual releases as to all matters
arising concerning the plaintiffs' purchase and holding of the common shares of
the Company, and (iii) for a stipulation to dismiss the action.  The
settlement agreement was consummated on July 31, 2009. The action was
discontinued with prejudice by stipulation among all the parties which was
signed and filed on July 31, 2009, and the stipulation was "so ordered" by
the court on August 4, 2009.




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




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




During
the fourth quarter of fiscal year 2009, no matters were submitted to a vote by
security holders.




PART
II




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




Market
Information




Our
common stock price is quoted on the OTC Bulletin Board, or OTCBB, under the
symbol “EQPI.OB”. There is a very limited trading market for our stock. There
can be no assurance that a liquid market for our securities will ever develop.
The following table sets forth for the periods indicated the high and low prices
per share traded for our common stock as reported on the OTCBB.


20




Quarter Ended
                    
                    High
                    
                    
                    Low2007September
      30
                    
                    $
                    2.00
                    
                    
                    $
                    1.00December 31
                    
                    $
                    1.00
                    
                    
                    $
                    0.402008March
      31
                    
                    $
                    0.40
                    
                    
                    $
                    0.20June 30
                    
                    $
                    0.30
                    
                    
                    $
                    0.15September
      30
                    
                    $
                    0.20
                    
                    
                    $
                    0.05December
      31
                    
                    $
                    0.07
                    
                    
                    $
                    0.012009March
      31
                    
                    $
                    0.05
                    
                    
                    $
                    0.01June 30
                    
                    $
                    0.06
                    
                    
                    $
                    0.02





The
quotations shown above reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.




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


21




Holders




We have
approximately 415 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
ascertained 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




None.




Transfer
Agent




The transfer agent and registrar for
the common shares of Equicap is Olde Monmouth Stock Transfer Co., Inc., 200
Memorial Parkway, Atlantic Highlands, NJ  07716.




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,
2009.




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 availableEquity
      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. Selected Financial Data




The
following selected financial data for the three years ended June 30 are derived
from the audited consolidated financial statements of Equicap, Inc. after the
Share Exchange between Equicap and Usunco in March 2007. Prior to the Share
Exchange, Equicap was a shell company with nominal assets and operations and
with a different fiscal year end. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information.




22


SELECTED
FINANCIAL DATA




Year ended June 30,2009
                  
                  
                  2008
                  
                  
                  2007OPERATIONS
      DATARevenues
                  
                  $
                  4,923,918
                  
                  
                  $
                  3,333,325
                  
                  
                  $
                  1,817,264Net
      income (Loss)
                  
                  
                  (1,132,190
                  )
                  
                  
                  (1,964,725
                  )
                  
                  
                  (5,279,437
                  )Income/(loss)
      per common share (basic and diluted)
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.24
                  )BALANCE
      SHEET DATATotal
      assets
                  
                  $
                  17,102,682
                  
                  
                  $
                  14,790,817
                  
                  
                  $
                  13,893,621Shareholders'
      equity
                  
                  $
                  9,578,269
                  
                  
                  $
                  10,701,893
                  
                  
                  $
                  10,046,397





QUARTERLY
FINANCIAL DATA




Unaudited quarterly results of
operations for the fiscal years ended June 30, 2009 and 2008 should be read in
conjunction with the consolidated financial statements, related notes and other
financial information and the Company's quarterly reports on Forms 10-Q and
10-QSB, for the fiscal years 2009 and 2008.




First
                                
                                Second
                                
                                Third
                                
                                FourthQuarter
                                
                                Quarter
                                
                                Quarter
                                
                                Quarter
                                
                                YearYear
      Ended June 30, 2009Revenues
                                
                                $
                                1,186,570
                                
                                820,527
                                
                                976,967
                                
                                1,939,854
                                
                                $
                                4,923,918Gross
      profit
                                
                                $
                                334,483
                                
                                126,630
                                
                                206,421
                                
                                416,885
                                
                                $
                                1,084,419Net
      loss
                                
                                $
                                (130,538
                                )
                                (366,701
                                )
                                (319,817
                                )
                                (315,134
                                )
                                $
                                (1,132,190
                                )Loss
      per common share - basic and
                                  diluted
                                
                                $
                                (0.00
                                )
                                (0.01
                                )
                                (0.01
                                )
                                (0.02
                                )
                                $
                                (0.04
                                )Year
      Ended June 30, 2008Revenues
                                
                                $
                                732,607
                                
                                741,978
                                
                                968,914
                                
                                889,826
                                
                                $
                                3,333,325Gross
      profit
                                
                                $
                                144,169
                                
                                187,806
                                
                                182,543
                                
                                176,993
                                
                                $
                                691,511Net
      loss
                                
                                $
                                (137,741
                                )
                                (356,774
                                )
                                (140,428
                                )
                                (1,329,782
                                )
                                $
                                (1,964,725
                                )Loss
      per common share -basic and
                                  diluted
                                
                                $
                                (0.01
                                )
                                (0.01
                                )
                                (0.00
                                )
                                (0.05
                                )
                                $
                                (0.07
                                )




23




Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Result of
      Operations




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 1A – Risk Factors 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 operated through IBC Automotive Products, Inc. (“IBC”),
its wholly-owned subsidiary established under the laws of the State of
California until June 15, 2009 (the “North America/Auto Parts Segment”), and
through Zhejiang ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned
joint venture established under the laws of the People’s Republic of China (the
“PRC” or “China”) and Zhejiang Shengte Transmission Co., Ltd.(“Shengte”) a
company established under the laws of the PRC and wholly owned by ZhongChai JV
(the “China/Gear Segment”).  Through its operating subsidiaries, the
Company is currently engaged in manufacturing and sale of gears and gearboxes in
China and, prior to June 15, 2009, was engaged in the distribution of automotive
parts in North America. In June 2009, IBC, which represented all the North
America/Auto Parts Segment, was sold because it no longer fitted the overall
business strategy of the Company and because it no longer represented a
significant amount of the assets or gross revenues of the Company.




Equicap
was a public “shell” company with nominal assets until March 9, 2007, when it
conducted a share exchange with the equity owners of Usunco (“Share Exchange”)
and sold common stock in a private placement to eleven accredited and
institutional investors for gross proceeds of $12,000,000. Prior to the Share
Exchange, its sole business had been to identify, evaluate and investigate
various companies with the intent that, if such investigation warranted, a
reverse merger transaction be negotiated and completed pursuant to which Equicap
would acquire a target company with an operating business with the intent of
continuing the acquired company’s business as a publicly held
entity.




Share
Exchange




Equicap
and Usunco entered a Share Exchange Agreement on March 7, 2007 which was
consummated on March 9, 2007.  Under the terms of the Exchange
Agreement, Equicap acquired all the outstanding equity securities of Usunco in
exchange for 18,323,944 shares of common stock of Equicap, and thereby Equicap
acquired Usunco as a wholly-owned subsidiary.




In
connection with the Share Exchange, Equicap engaged Fountainhead Capital
Partners Limited (“Fountainhead”), to act as a financial advisor.  At
the closing of the Share Exchange, Fountainhead was paid an advisory fee of
$450,000 by Equicap.




24




In
connection with the Share Exchange, vFinance Investments, Inc. (“vFinance”), 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 owned approximately 65% of the shares of common
stock of Equicap at the time of its acquisition of Usunco, the former
shareholders of Usunco had control over Equicap immediately after the
acquisition.  As a result, Usunco was deemed to have been the
acquiring company in the Share Exchange for accounting purposes, and the Share
Exchange transaction was treated as a reverse acquisition with Usunco as the
acquirer and Equicap as the acquired party.  Equicap changed its
fiscal year to end June 30.




Conversion
of Convertible Note of Equicap




Equicap
and Fountainhead 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.




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”) 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.




vFinance
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 $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. In
addition, if certain make good shares were distributed to the investors, Equicap
was obligated to register these shares in addition. If any of the registrable
shares are not eligible for registration because of the rules and regulations of
the Securities and Exchange Commission, when they are eligible for registration,
Equicap will be obligated to take such action to have them registered for sale
by the holder by filing successive registration statements. The initial
registration statement for sale of the common shares was filed within the 45 day
time limit of the registration rights agreement, and Equicap had to have the
registration statement effective within 150 days of the closing date of the
Offering.  If these actions were not achieved by the specified dates,
then Equicap had to pay each of, and only, the investors an amount equal to 1%
of the share purchase price actually paid by such investor for each month
thereafter that the shares could not be sold under the registration
statement  Similar penalties for the failure to file or have declared
effective a registration statement within the stated time periods and maintain
its effectiveness 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 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 then Rule 144k promulgated under the Securities Act (“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.




25




The
former principal shareholders of Equicap who have piggy-back rights also have a
demand registration right after all the shares of the investors and vFinance
have either been sold or may be sold without limitation under the then Rule
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.  Currently, Equicap believes that the shares may be sold
under Rule 144, being the effective equivalent of Rule 144k or the obligation is
no longer applicable because the shares have been sold.




Equicap
completed the capitalization of its PRC joint venture shortly after the above
described private placement.  Pursuant to PRC law, foreign joint
ventures have to be capitalized pursuant to the terms of their approval.
Equicap, through Usunco contributed $8,000,000 and its joint venture partner
contributed $2,600,000, all of which will be used as working capital. 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.




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
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United Stated of America.
The consolidated financial statements include the accounts of Equicap, Inc. and
its wholly and majority owned subsidiaries. All inter-company transactions and
balances 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.




26




Accounts
Receivable and Bad Debt Reserves




Trade
accounts receivable are stated at the amount management expects to collect from
balances outstanding at the end of the period. Based on its assessment of the
credit history with customers having outstanding balances and current
relationships with them, management makes conclusions whether any realization of
losses on balances outstanding at the end of the period will be deemed
uncollectible based on the age of the receivables. 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. The balance of allowance for doubtful accounts amounted to
$7,732 and $29,747 as of June 30, 2009 and 2008, respectively.




Inventory




Inventories
are stated at the lower of cost or net realizable value. Cost is calculated on
the weighted-average basis and includes all costs to acquire and other costs
incurred in bringing the inventories to their present location and condition.
The Company evaluates the net realizable value of its inventories on a regular
basis and record a provision for loss to reduce the computed weighted-average
cost if it exceeds the net realizable value. The Company did not record any
provision for slow-moving and obsolete inventory as of June 30, 2009 and
2008.




Property
and Equipment




Property
and equipment is recorded at cost. Depreciation is provided on the straight-line
method over the estimated useful lives of the assets. Repairs and maintenance
expenditures, which do not extend the useful lives of the related assets, are
expensed as incurred.




Under
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets",
the Company's long-lived assets are evaluated for impairment when events or
changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. The Company also assesses these assets for
impairment based on their estimated future cash flows. The Company has not
incurred any losses in connection with the adoption of this
statement.




Goodwill
and Other Intangible Assets




Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and indefinite-lived intangible assets are
subject to annual impairment testing using the guidance and criteria described
in Statement of Financial Accounting Standard No. 142, “Goodwill and Other
Intangible Assets”. This testing compares carrying values to fair values and,
when appropriate, the carrying value of these assets is reduced to fair value.
As of June 30, 2009, the Company concluded that there were no impairments on
goodwill or indefinite-lived intangibles.




Revenue
Recognition




Revenue
consists of sales of automotive parts, gears and gearboxes. In accordance with
the provisions of Staff Accounting Bulletin No. 103, revenue is recognized when
merchandise is shipped, title and risk of loss pass to the customer and
collectibility is reasonably assured. Revenue is recorded as the sales price of
goods and services, net of rebates and discounts and is reported on a gross
basis. The gross basis is used mainly due to the fact that the Company acts as
principal in each transaction and is responsible for fulfillment and
acceptability of the products purchased, the Company takes title to its products
before the products are ordered by its customers, the Company has risk of
inventory loss as title of the products is transferred to the Company, the
Company is responsible for collection of sales and delivery of products, and the
Company does not act as an agent or broker and is not compensated on a
commission or fee basis.




27




Sales
Return and Warranties




Generally
the Company does not accept the return of products once sold to
customers.  The Company generally provides a one-year limited warranty
covering manufacturing defects and/or product functional failures. After
evaluation and confirmation of customer complaints, the Company either replaces
the defective products or accepts returns by crediting the customer's account,
and is responsible for the costs and expenses thus incurred. For auto parts
distribution business, replacements and returns, and handling costs are passed
through to supplying manufacturers.




Advertising
Costs




The
Company expenses the cost of advertising as incurred.  Advertising
costs for the years ended June 30, 2009 and 2008 were
insignificant.




Research
and Development Costs




Research
and development ("R&D) costs are classified as general and administrative
expenses and are expensed as incurred.




Comprehensive
Income (Loss)




The
Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes rules for the reporting and display of comprehensive income, its
components and accumulated balances. SFAS No. 130 defines comprehensive income
(loss) to include all changes in equity, including adjustments to minimum
pension liabilities, accumulated foreign currency translation, and unrealized
gains or losses on available-for-sale marketable securities, except those
resulting from investments by owners and distributions to owners.




Foreign
Currency Translation




A
significant portion of the Company's operations are conducted in China and the
financial statements are translated from Chinese RMB, the functional currency,
into U.S. Dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." Accordingly, all foreign currency assets and liabilities are
translated at the period-end exchange rate and all revenues and expenses are
translated at the average exchange rate for the period. The effects of
translating the financial statements of foreign subsidiaries into U.S. Dollars
are reported as a cumulative translation adjustment, a separate component of
comprehensive income in stockholder's equity.




Recent
Accounting Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) 168, The FASB Accounting Standards
CodificationTM
and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”),
which establishes the FASB Accounting Standards CodificationTMas the single source of authoritative US GAAP, organized by topic, and
creates a new referencing system to identify authoritative literature such that
references to SFAS, EITF, etc. will no longer be valid. The Codification does
not create any new GAAP standards. In addition, the Securities and Exchange
Commission (“SEC”) rules and releases will remain as sources of authoritative US
GAAP for SEC registrants. SFAS 168 will be effective for the Company’s
first quarter of fiscal 2010 and is not expected to have a material impact on
the Company’s consolidated financial statements.




28




In May
2009, the FASB issued SFAS 165, Subsequent Events (“SFAS 165”), which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued. SFAS 165 is effective for interim and fiscal years ending after
June 15, 2009, which is the Company’s fourth quarter of fiscal 2009. The
adoption of SFAS 165 did not have a material impact on the Company’s
consolidated financial statements.




In April
2009, FSP 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, was issued to provide additional guidance for
estimating fair value in accordance with SFAS No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or liability
have significantly decreased.




This FSP
also provides guidance on identifying circumstances which indicate that a
transaction is not orderly. FSP 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009, and shall be applied
prospectively. Adoption of this guidance is not expected to have a material
impact on our consolidated financial statements.




In April
2009, the FASB issued FSP FAS 107-1, APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, (“FSP 107-1, 28-1”). FSP 107-1, 28-1 requires
disclosure about fair value of financial instruments in interim financial
statements in order to provide more timely information about the effects of
current market conditions on financial instruments. FSP 107-1, 28-1 is effective
beginning the Company’s first interim period of fiscal 2010. The adoption of
this FSP is not expected to have a material impact on the Company’s consolidated
financial statements.




In
December 2007, the FASB issued SFAS No. 141 (revised
2007) Business Combinations (“SFAS 141R”). SFAS 141R establishes
the requirements for how an acquirer recognizes and measures the identifiable
assets acquired, the liabilities assumed, any non-controlling interest in the
acquiree and the goodwill acquired. SFAS 141R requires acquisition costs be
expensed instead of capitalized as is required currently under SFAS 141 and
also establishes disclosure requirements for business combinations.
SFAS 141R applies to business combinations for which the acquisition date
is on or after fiscal years beginning on or after December 15, 2008, and as
such, SFAS 141R is effective beginning in the Company’s fiscal year 2010.
The Company is evaluating the impact of SFAS No. 141 (R).




In
December 2007, the FASB issued SFAS No. 160 Non-controlling Interests
in Consolidated Financial Statements — an amendment to ARB No. 51
(“SFAS 160”). SFAS 160 will change the accounting and reporting for
minority interests, which will now be termed “non-controlling interests.”
SFAS 160 requires non-controlling interests to be presented as a separate
component of equity and requires the amount of net income attributable to the
parent and to the non-controlling interest to be separately identified on the
consolidated statement of operations. SFAS 160 is effective for fiscal
years beginning on or after December 15, 2008, and as such, will be
effective beginning in the Company’s fiscal year 2010. The Company does not
expect the adoption of SFAS No. 160 to have a material impact on its
consolidated financial statements




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This standard permits entities to
measure many financial instruments and certain other items at fair value. The
purpose is to improve financial reporting by providing entities with the
opportunity to mitigate volatility. SFAS No. 159 provides companies with an
option to report selected financial assets and liabilities at fair value. The
objective of SFAS No.159 is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities differently.  SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies and choose different measurement attributes for similar types
of assets and liabilities.  SFAS No. 159 is effective for the Company
on July 1, 2008. It is not expected that the adoption of SFAS No. 159 will have
a material impact on the Company’s financial condition or results of
operations.




29




Fair
Value of Financial Instruments




The
Company considers the carrying amounts reported in the consolidated balance
sheet for current assets and current liabilities qualifying as financial
instruments and approximating fair value.




Income
Taxes




Deferred
income taxes are computed using the asset and liability method, such that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and
the tax basis of existing assets and liabilities based on currently enacted tax
laws and tax rates in effect in the United States of America for the periods in
which the differences are expected to reverse. Income tax expense is the tax
payable for the period plus the change during the period in deferred income
taxes. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. No
differences were noted between the book and tax bases of the Company’s assets
and liabilities, respectively. Therefore, there are no deferred tax assets or
liabilities for the year ended June 30, 2009. For the China/Gear 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 standard
corporate income tax rate is 25% from January 1, 2008, when China’s new tax law
became effective, decreased from 33%.




Use
of Estimates




The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from those estimates.




Operating
Results




The
Fiscal Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30,
2008




Revenue




Revenue
increased by $1,590,593 or 48% to $4,923,918 for the year ended June 30, 2009
compared with $3,333,325 for the year ended June 30, 2008. Revenue for the year
ended June 30, 2009 consists of sales of automotive parts in North America and
sales of gears and gearboxes in China, for $1,094,028 and $3,829,890,
respectively. Revenue for the year ended June 30, 2008 consists of sales from
these two segments for $778,838 and $2,554,487, respectively. Increase in gears
and gearboxes sales in fiscal 2009 compared to last year was attributed to the
Company’s expansion in production capacity and continuous marketing efforts,
taking advantage of the recovery of domestic market in China for gear and
gearbox products as a result of Chinese government’s economic stimulus
plan.




30




Cost of
Sales and Gross Margin




Cost of
sales was $3,839,489 for the year ended June 30, 2009, increasing by $1,197,675
or 45%, from $2,641,814 for the year ended June 30, 2008. The gross margin was
approximately 22% for the year ended June 30, 2009 compared to approximately 21%
for the year ended June 30, 2008. For the North America/Auto Parts segment,
gross margin dropped by more than 1% to 14% on average for fiscal 2009, mainly
attributed to the appreciation of RMB against USD, and IBC’s relatively weak
market position. For the China/Gears segment, gross margin improved from 22% for
fiscal 2008 to 24% for fiscal 2009, mainly attributed to the Company’s
achievement of a larger economy of scale and the lowered material prices,
despite the introduction of new gearbox products which bear a relatively low
margin.




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 $700,053 to $2,048,155 in the year ended June 30, 2009
from $1,348,102 in year ended June 30, 2008. SG&A expenses for fiscal years
2009 and 2008 mainly consist of selling expenses, and costs related to being a
public company including professional services related to auditing, legal and
other services, costs associated with the operating expenses in China, and
non-cash expenses amounting to $108,789, respectively, recognized for stock
based compensation related to stock options and warrants granted in the period
pursuant to SFAS 123(R). The increase of SG&A in fiscal year 2009 is mainly
attributed to additional legal and other consulting expenses and
indemnifications for approximately $315,000 related to the lawsuit and the
settlement efforts thereof (as described in Item 3 Legal Proceedings); and
ZhongChai JV’s increase in R&D expenses for approximately $208,000 and in
rental expense for approximately $44,000 in the fiscal 2009.




Unusual
Charge




In
connection with the private placement in connection with the Share Exchange, for
the benefit of the investors, eight of the former shareholders of Usunco, some
of whom were the officers and directors of Equicap, agreed to place into escrow
an aggregate of 10,140,846 shares of common stock issued in the Share
Exchange.  These shares were subject to distribution to the investors
if certain defined financial targets were not achieved on a consolidated basis
by Equicap for the fiscal years ending June 30, 2007 and 2008.  These
financial targets were not reached, and consequently, in each of those years,
the required number of shares were transferred to the investors, which
represented all the 10,140,846 shares.




According
to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
because the performance criteria was not met in either of the two fiscal years
and all the shares were released to the investors, the shares were treated as an
expense for the aggregate market value of the shares as of the date of release.
For the year ended June 30, 2007, based upon the market value of $1.30 per share
as of June 30, 2007, the total expense recognized for the fiscal year of 2007
was $3,954,930. For the year ended June 30, 2008, based upon the market value of
$0.20 per share as of June 30, 2008, the total expense recognized for the fiscal
year of 2008 was $1,419,719. The 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 would not occur if the shares are forfeited or cancelled
and are not released to either the investors or the former shareholders of
Usunco.




Included
in Unusual Charge for fiscal 2009 is Loss on Disposal of IBC for amount of
$220,782. On June 8, 2009, the Company, with its wholly owned subsidiary Usunco,
entered into an agreement to sell IBC, the wholly owned subsidiary of Usunco, to
certain of the management of IBC. The transaction was closed on June 15,
2009.




31




Net
Loss




Net loss
reached $1,132,190 in the year ended June 30, 2009 compared with net loss of
$1,964,725 in the year ended June 30, 2008. The net loss for fiscal year of 2008
was mainly attributed to the recognition of $1,419,719 unusual loss arising from
the make good arrangement for fiscal year 2008. Loss for fiscal year of 2009 was
mainly attributed to the increase in SG&A related to the lawsuit, increase
in R&D expenses, and the loss on disposal of IBC.




Liquidity and Capital
Resources




As of
June 30, 2009, Equicap had assets equal to $17,102,682 which primarily were
comprised of cash and cash equivalents and restricted cash of $4,305,918, net
account receivables, note receivable and other receivables of $2,065,548,
inventory of $1,568,445, and advance payment of $2,988,235.  The
advance payment represented an advance payment made by the Zhongchai JV to
Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), for purchase of the
land use right and plant building for the purpose of Zhongchai JV’s future
production expansion. Equicap’s current liabilities as of June 30, 2009 were
$4,764,568, which primarily were comprised of trade accounts payable and accrued
expenses, notes payable, short term loan and other payable. At June 30, 2009,
Equicap had working capital of $6,202,353.  Equicap believes that it
has sufficient operating capital for its current operations.




Through
the fiscal year ended June 30, 2009, Equicap has funded its operations from
income generated by its IBC subsidiary and, to a greater extent, by the income
generated 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.




During
the first quarter of fiscal year 2008, Equicap used approximately $3,700,000 of
its cash assets to acquire Shengte as a wholly-owned subsidiary of ZhongChai
JV.  The cash assets used for this acquisition were those forming a
part of the working capital contributed to ZhongChai JV.  Shengte is a
manufacturer and distributor of gears mainly used in engines and gearboxes, and
gearboxes (transmissions) which are primarily used in industrial equipment such
as forklift trucks. We expect that future cash flows generated from the
operation of gear and gearbox business will be sufficient to cover the Company’s
working capital requirements for this business.




During
the first quarter of fiscal year 2008, Equicap paid a liquidated damages amount
of $32,000 because it did not have a registration statement for certain shares
declared effective by a date determined under a registration rights agreement
entered into in connection with the March 2007 offering.





On June
8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an
agreement to sell IBC, the wholly owned subsidiary of Usunco. The transaction
was closed on June 15, 2009. The sale agreement provided for the sale of all the
share equity of IBC owned by Usunco to certain of the management persons of IBC,
Mr. Philip Widmann and Ms. Ruth Kirshner, in exchange for the following: (i) the
cancellation of an aggregate of 555,994 shares of common stock of Company which
those individuals owned, and (ii) the payment of $60,000 in installments
pursuant to the terms of an unsecured promissory note, the final payment of
which will be November 15, 2010. As part of the transaction, the Company
cancelled $428,261.49 through the closing date, of inter-company debt which
funds had been used in the business of IBC prior to the
transaction.





32




On
November 6, 2008, a group of the investors, which acquired shares of common
stock in the March 2007 private placement, filed a law suit in federal court in
New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and
vFinance Investment, Inc. based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation, among other things. In July 2009,
the Company and Mr. Peter Wang concluded the terms of
a settlement agreement to the action.  The settlement
agreement provided (i) for a third party, Ruihua International Limited
("Ruihua"), to purchase all the shares of common stock of the
Company owned and held of the plaintiffs, (ii) upon
the purchase of the shares, for the Company and Mr. Wang and each of
the plaintiffs to exchange general mutual releases as to all matters
arising concerning the plaintiffs' purchase and holding of the common shares of
the Company, and (iii) for a stipulation to dismiss the action.  The
settlement agreement was consummated on July 31, 2009. The action was
discontinued with prejudice by stipulation among all the parties which was
signed and filed on July 31, 2009, and the stipulation was "so ordered" by
the court on August 4, 2009. The Company  incurred legal and
other consulting expenses and indemnification claims for approximately $315,000
related to the lawsuit and the settlement efforts thereof.




As
Equicap expands its operations and considers additional acquisitions of private
companies, divisions or product lines, it may require additional capital for its
business development and operations.  Equicap does not have any
specific sources of capital at this time, therefore, it would need 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
      8.
            Financial
      Statements




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




Item
      9.
              Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure




None.




33




Item
      9A.
            Controls
      and Procedures




Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer (“Certifying Officers”), has evaluated the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by
this Annual Report on Form 10-K. Based upon such evaluation, the Certifying
Officers have concluded that, as of the end of such period, June 30, 2009, the
Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is made known to management, including our Certifying
Officers, and that such information is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms.




In
designing and evaluating our disclosure controls and procedures, our management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and our management necessarily is required to apply its judgment in
evaluating the cost-benefit relationship of possible controls and
procedures.




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was designed to
provide reasonable assurance to the Company’s management and board of directors
regarding the preparation and fair presentation of published financial
statements. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




Our
management assessed the effectiveness of the Company’s internal control over
financial reporting as of June 30, 2009. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control—Integrated Framework. Based on our
assessment, we believe that, as of June 30, 2009, the Company’s internal control
over financial reporting is effective based on those criteria.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.




Item
      9B.
            Other
      Information




None.




34




PART
III




Item
      10.
            Directors,
      Executive Officers and Corporate
Governance




The
following table sets forth certain information about each of the members of the
Board of Directors and each executive officer as of June 30, 2009:




Name
                            
                            Age
                            
                            Position with company
                            
                            Serving as a
                              Director or an
                              Officer SincePeter
      Wang
                            
                            55
                            
                            Chairman
      and President
                            
                            2007Haining
      Liu
                            
                            56
                            
                            Director
                            
                            2007David
      Ming He
                            
                            39
                            
                            Chief
      Financial Officer
                            
                            2007




Mr. Peter Wang has been the
Chairman of the board of directors and President 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 the
Chairman and CEO of China Biopharma, Inc. (Pink Sheet: CHBO), a company involved
in pharmaceutical distribution.




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 bulletin
board 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.




35




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: 224 Tianmushan  Road, Zhongrong
Chengshi  Huayuan 5-1-602, Hangzhou 310007, P.R. China.




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, 2009.




NON-EMPLOYEE
DIRECTOR COMPENSATION TABLE




Name
                
                Fees Earned
                  or Paid in Cash
                
                
                Option Awards
                
                
                TotalHaining
      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 2009 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.




36




If
Equicap seeks listing of its shares on a United States securities exchange, then
it will take action prior to listing to comply with all corporate governance
requirements of the selected exchange, 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.




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
224 Tianmushan  Road, Zhongrong Chengshi  Huayuan 5-1-602,
Hangzhou 310007, P.R. China, Attention: Secretary.




37




Limitation
of Director Liability; Indemnification




Under
Nevada law and the 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
      11.
            Executive
      Compensation




The table
below sets forth for the fiscal year ended June 30, 2009, the compensation of
the President and the three other most highly compensated executive officers of
Equicap.




38




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
                                        
                                        2008
                                        
                                        $
                                        50,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        50,000and
      President
                                        
                                        2009
                                        
                                        $
                                        50,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        50,000Jason
      Lu, Chief Executive
                                        
                                        2008
                                        
                                        $
                                        75,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        75,000Officer(1)
                                        
                                        2009
                                        
                                        $
                                        68,750
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        68,750David
      Ming He, Chief
                                        
                                        2008
                                        
                                        $
                                        48,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        48,000Financial
      Officer
                                        
                                        2009
                                        
                                        $
                                        48,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        48,000Philip
      Widmann, SVP
                                        
                                        2008
                                        
                                        $
                                        45,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        45,000Global
      Marketing(2)
                                        
                                        2009
                                        
                                        $
                                        -0-
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        $
                                        -0-





(1)
            Mr.
      Jason Lu resigned from the positions of chief executive officer and
      director of the Company on May 18,
2009.




(2)
            Mr.
      Philip Widmann did not receive cash salary payment from the Company for
      fiscal 2009. Mr. Widmann discontinued service with the Company as result
      of the Company’s sale of IBC on June 15,
2009.




The
following table sets forth information concerning the other compensation granted
to the named executive officers for the fiscal year ended June 30,
2009.




Name
                        
                        Year
                        
                        Medical Premiums
                        
                        
                        401K Employer
                          MatchPeter
      Wang
                        
                        2009
                        
                        $
                        12,000
                        
                        
                        
                        -Jason
      Lu
                        
                        2009
                        
                        $
                        11,000
                        
                        
                        
                        -David
      Ming He
                        
                        2009
                        
                        $
                        12,000
                        
                        
                        
                        -Philip
      Widmann
                        
                        2009
                        
                        $
                        16,204
                        
                        
                        
                        -




The
following table sets forth information concerning the outstanding equity awards
granted to the named executive officers at June 30, 2009.




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




39




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.




The
employment agreement with Mr. He provides for a term of employment ending
January 2012, unless terminated in accordance with the agreement.  Mr.
He reports to the Chief Executive Officer.  He is 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, which 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 is 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 vest pro rata each month thereafter.  Mr. He is
provided insurance under the Company health plans or paid $1,000 in respect of
premiums if not so covered.  He is also 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, 2008. 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.




40




Executive
Compensation Determination




It is the
intention of Equicap to determine executive compensation by a decision of the
majority of the 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.




Item
      12.
            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 21, 2009, 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 is based on a total of 27,613,019
shares of common stock outstanding.




Name and Address of Beneficial Owner
                                            
                                            Number of Shares
                                              Beneficially Owned (1)
                                            
                                            
                                            % of common stock
                                              Beneficially OwnedSinoquest
      Management Ltd. (2)
                                              224 Tianmushan 
      Road, Zhongrong Chengshi  Huayuan 5-1-602, Hangzhou, 310007
      P.R.C.
                                            
                                            
                                            4,120,990
                                            
                                            
                                            
                                            14.92
                                            %Peter
      Wang (2)
                                              224 Tianmushan 
      Road, Zhongrong Chengshi  Huayuan 5-1-602,
                                              Hangzhou,
      310007 P.R.C.
                                            
                                            
                                            1,957,470
                                            
                                            
                                            
                                            7.09
                                            %Haining
      Liu
                                              Huanchen
      Beilu
                                              Hangzhou,
      310007 P.R.C.
                                            
                                            
                                            -
                                            
                                            
                                            
                                            *Jason
      Zhongyuan Lu
                                              10510
      Hillsboro Road
                                              Santa
      Ana, CA 92705 U.S.A.
                                            
                                            
                                            1,553,634
                                            
                                            
                                            
                                            5.63
                                            %David
      Ming He (3)
                                              224 Tianmushan 
      Road, Zhongrong Chengshi  Huayuan 5-1-602,
                                              Hangzhou,
      310007 P.R.C.
                                            
                                            
                                            173,093
                                            
                                            
                                            
                                            *Ruihua
      International Ltd. (4)
                                              11/F
      Front Block, Hang Lok Building, 130 Wing Lok Street, Sheung Wan, Hong
      Kong
                                            
                                            
                                            17,431,104
                                            
                                            
                                            
                                            63.13
                                            %All
      Directors and Executive Officers as a Group (3 persons)
(5)
                                            
                                            
                                            2,130,563
                                            
                                            
                                            
                                            7.72
                                            %





*
            Less
      than 1%




41




(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, 173,093of which will vest
      and become exercisable within 60
days.




(4)
            Ruihua
      International Limited ("Ruihua") has an address at 11/F Front Block,
      Hang Lok Building, 130 Wing Lok Street, Sheung Wan, Hong
      Kong.  The officer and director of Ruihua who has the right
      to vote and dispose of the shares is Mr. Yang Yong HU.  The
      foregoing information is derived from an amended 13D filed by Ruihua
      with the SEC on August 4, 2009.




(5)
            Consists
      of Peter Wang, Haining Liu and David Ming
He.




Item
      13.
            Certain
      Relationships and Related Transactions and Director
      Independence




During
the fiscal year ended June 30, 2009, other than as set forth in this section,
the Company did not enter into any related party transactions with any director,
officer, nominee for director, beneficial owner of 5% or more of the equity
securities of the Company, or their family members.




During
the fiscal year ended June 30, 2008, the Company and Xinchai Holding Group Co.,
Ltd. (“Xinchai Holding”), the original joint venture partner of the ZhongChai
JV, determined to place the distribution agreement between the ZhongChai JV and
Xinchai Holding in suspension so that the joint venture could focus its
resources on development of the gear and gearbox products of Xinchang Keyi and
their marketing.  The joint venture partners determined to put the
agreement in suspension because the economics of distributing the Xinchai
Holding products under the distribution agreement had been adversely affected by
several factors, notably the dramatic increase in the product costs because of
the cost of steel which cut into margins and the disinclination of the equipment
integrators who use those products to buy engines from a middleman with the
added costs, and the overall competition in the industry segment.  The
use of a suspension arrangement was so the parties could ultimately work to
continue to pursue the joint venture in some other profitable
endeavor.  As a result, Zhongchai JV agreed to work with Xinchai
Holding to produce gearboxes that will be sold stand-alone to Xinchai’s
customers or sold with the diesel engines made by Xinchai’s subsidiary as a
diesel power-train. It was believed that this rearrangement would change
Zhongchai JV’s market position from a middleman to an original manufacturer,
which is more acceptable in the OEM marketplace.




42




In
October 2007, Zhongchai JV and Xinchai Holding entered into a letter of intent
(“LOI”) regarding the “Hangchai Project,” a project to establish Hangzhou
Xinchai Company Limited (“Hangzhou Xinchai”) in Hangzhou, for the purpose of
manufacturing diesel engines, engine components and related products. At the
time of the LOI execution, Xinchai Holding had obtained approvals from the
relevant government authorities for the Hangchai Project, and had initiated the
processes of establishing the Company and bidding for land. The LOI, among other
things, also provided for ZhongChai JV to place a deposit of up to RMB 35
million with Xinchai Holding.  The deposit was only to satisfy the
payments or registered capital requirements related to the Hangchai
Project.  The LOI is terminable if within 12 months of its execution
the Hangchai Project is not completed or ZhongChai JV decides not to pursue the
transaction.  On termination, Xinchai Holding is obliged to refund to
Zhongchai JV the full amount of the deposit.  Due to changes in the
macro economic conditions and business operations for the proposed project,
ZhongChai JV has decided not to pursue the project, and Xinchai Holding has
agreed with that decision.  All of the deposit placed has been
refunded by end of fiscal year ended June 30, 2009 except that a RMB 4 million
will be returned until governmental approval for cancellation of Hangzhou
Xinchai is obtained in compliance with local regulations.




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, 2008 and
June 30, 2009:




June
      30, 2008
                        
                        
                        June
      30, 2009Audit
      Fees
                        
                        $
                        93,000
                        
                        
                        $
                        93,000Audit
      Related Fees
                        
                        
                        -
                        
                        
                        
                        -Tax
      Fees
                        
                        
                        -
                        
                        
                        
                        -All
      Other Fees
                        
                        
                        -
                        
                        
                        
                        -$
                        93,000
                        
                        
                        $
                        93,000




Audit
services of Patrizio & Zhao for the fiscal years 2008 and 2009 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.




Item
      15.
            Exhibits




Exhibit No.
              
              Description3.1
              
              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)


43





Exhibit No.
                    
                    Description10.2
                    
                    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)10.3
                    
                    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)10.4
                    
                    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)10.5
                    
                    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)10.6
                    
                    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)10.7
                    
                    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)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
on Form 8-K.




N/A


44


EQUICAP,
INC.





CONSOLIDATED
FINANCIAL STATEMENTS





JUNE
30, 2009 AND 2008





CONSOLIDATED
      FINANCIAL STATEMENTSReport
      of Independent Registered Public Accounting Firm
                                  
                                  F-2Consolidated
      Balance Sheets
                                  
                                  F-3Consolidated
      Statements of Operations and Comprehensive Income (Loss)
                                  
                                  F-4Consolidated
      Statements of Stockholders’ Equity
                                  
                                  F-5Consolidated
      Statements of Cash Flows
                                  
                                  F-6Notes
      to Consolidated Financial Statements
                                  
                                  F-7


F-1





Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders


Equicap,
Inc.





We have audited the accompanying
consolidated balance sheets of Equicap, Inc. and Subsidiaries (the “Company”) as
of June 30, 2009 and 2008, and the related consolidated statements of operations
and comprehensive income (loss), stockholders’ equity and cash flows for the
years then ended. These 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 consolidated 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. and Subsidiaries as of June 30, 2009 and
2008, and the consolidated results of their operations and their consolidated
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.





Parsippany,
New Jersey


September
15, 2009


F-2


EQUICAP,
INC.
 Consolidated
Balance Sheets
  June 30, 2009
                  
                  
                  June 30, 2008AssetsCurrent
      assets:Cash
      and cash equivalents
                  
                  $
                  3,990,767
                  
                  
                  $
                  956,973Restricted
      cash
                  
                  
                  315,151
                  
                  
                  
                  -Accounts
      receivable, net of allowance for doubtful accounts of $7,732 and $29,747
      at June 30, 2009 and 2008, respectively
                  
                  
                  1,540,402
                  
                  
                  
                  807,484Inventory
                  
                  
                  1,568,445
                  
                  
                  
                  1,186,900Notes
      receivable
                  
                  
                  57,500
                  
                  
                  
                  -Trade
      notes receivable
                  
                  
                  391,155
                  
                  
                  
                  294,686Other
      receivables, net
                  
                  
                  76,491
                  
                  
                  
                  141,496Advance
      payments
                  
                  
                  2,988,235
                  
                  
                  
                  5,059,154Prepaid
      expenses
                  
                  
                  38,775
                  
                  
                  
                  212,405Total
      current assets
                  
                  
                  10,966,921
                  
                  
                  
                  8,659,098Property
      and equipment, net
                  
                  
                  2,662,924
                  
                  
                  
                  2,511,602Goodwill
                  
                  
                  3,407,262
                  
                  
                  
                  3,393,307Other
      assets:Intangible
      assets, net
                  
                  
                  1,522
                  
                  
                  
                  2,586Deferred
      compensation
                  
                  
                  63,606
                  
                  
                  
                  172,395Deferred
      expenses
                  
                  
                  447
                  
                  
                  
                  51,829Total
      other assets
                  
                  
                  65,575
                  
                  
                  
                  226,810Total
      assets
                  
                  $
                  17,102,682
                  
                  
                  $
                  14,790,817LiabilitiesCurrent
      liabilities:Short
      term bank loans
                  
                  $
                  2,197,500
                  
                  
                  $
                  -Accounts
      payable and accrued expenses
                  
                  
                  1,562,217
                  
                  
                  
                  851,284Trade
      notes payable
                  
                  
                  315,151
                  
                  
                  
                  -Taxes
      payable
                  
                  
                  54,292
                  
                  
                  
                  946Other
      current liabilities
                  
                  
                  635,408
                  
                  
                  
                  530,381Total
      current liabilities
                  
                  
                  4,764,586
                  
                  
                  
                  1,382,611Total
      liabilities
                  
                  
                  4,764,568
                  
                  
                  
                  1,382,611Commitments
      and contingenciesEquityStockholders’
      equity:Common
      stock, $.001 par value, 500,000,000 shares authorized, 27,613,019 and
      28,169,013 shares issued and outstanding at June 30, 2009 and 2008,
      respectively
                  
                  
                  27,613
                  
                  
                  
                  28,169Stock
      subscription receivable
                  
                  
                  (33,120
                  )
                  
                  
                  (32,400
                  )Additional
      paid-in capital
                  
                  
                  16,484,097
                  
                  
                  
                  16,516,901Statutory
      reserves
                  
                  
                  124,460
                  
                  
                  
                  62,253Retained
      earnings (deficit)
                  
                  
                  (8,440,255
                  )
                  
                  
                  (7,245,858
                  )Accumulated
      other comprehensive income
                  
                  
                  1,415,474
                  
                  
                  
                  1,372,828Total
      stockholders’ equity
                  
                  
                  9,578,269
                  
                  
                  
                  10,701,893Noncontrolling
      interest
                  
                  
                  2,759,845
                  
                  
                  
                  2,706,313Total
      equity
                  
                  
                  12,338,114
                  
                  
                  
                  13,408,206Total
      liabilities and equity
                  
                  $
                  17,102,682
                  
                  
                  $
                  14,790,817
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-3
  EQUICAP,
INC.
 
 Consolidated
Statements of Operations and Comprehensive Income (Loss)
 
 For
      the Years Ended June 30,2009
                  
                  
                  2008Revenue
                  
                  $
                  4,923,918
                  
                  
                  $
                  3,333,325Cost
      of sales
                  
                  
                  3,839,489
                  
                  
                  
                  2,641,814Gross
      profit
                  
                  
                  1,084,429
                  
                  
                  
                  691,511Operating
      expensesSelling,
      general and administrative
                  
                  
                  2,048,155
                  
                  
                  
                  1,348,102Loss
      from operations
                  
                  
                  (963,726
                  )
                  
                  
                  (656,591
                  )Other
      income (expense):Interest
      income, net
                  
                  
                  16,145
                  
                  
                  
                  89,326Other
      income
                  
                  
                  138,697
                  
                  
                  
                  119,527Loss
      on disposal of subsidiary-IBC
                  
                  
                  (220,782
                  )
                  
                  
                  -Make
      good provision
                  
                  
                  -
                  
                  
                  
                  (1,419,719
                  )Total
      other income (expenses)
                  
                  
                  (65,940
                  )
                  
                  
                  (1,210,866
                  )Loss
      before provision for income taxes
                  
                  
                  (1,029,666
                  )
                  
                  
                  (1,867,457
                  )Provision
      for income taxes
                  
                  
                  57,246
                  
                  
                  
                  -Net
      loss before minority interest
                  
                  
                  (1,086,912
                  )
                  
                  
                  (1,867,457
                  )Minority
      interest
                  
                  
                  45,278
                  
                  
                  
                  97,268Net
      loss
                  
                  
                  (1,132,190
                  )
                  
                  
                  (1,964,725
                  )Other
      comprehensive incomeForeign
      currency translation adjustment
                  
                  
                  42,646
                  
                  
                  
                  1,190,651Comprehensive
      loss
                  
                  $
                  (1,089,544
                  )
                  
                  $
                  (774,074
                  )Loss
      pre common share:Basic
                  
                  $
                  (0.04
                  )
                  
                  $
                  ( 0.07
                  )Diluted
                  
                  $
                  (0.04
                  )
                  
                  $
                  ( 0.07
                  )Weighted
      average number of common stock outstanding:Basic
                  
                  
                  28,146,164
                  
                  
                  
                  28,169,013Diluted
                  
                  
                  28,146,164
                  
                  
                  
                  28,169,013
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-4
  EQUICAP,
INC.
  Consolidated
Statements of Stockholders’ Equity
 
 AccumulatedStock
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    Retained
                    
                    
                    Other
                    
                    
                    TotalCommon
      Stock
                    
                    
                    Subscriptions
                    
                    
                    Paid-in
                    
                    
                    Statutory
                    
                    
                    Earnings
                    
                    
                    Comprehensive
                    
                    
                    Stockholders’Shares
                    
                    
                    Amount
                    
                    
                    Receivable
                    
                    
                    Capital
                    
                    
                    Reserves
                    
                    
                    (Deficit)
                    
                    
                    Income
                    
                    
                    EquityBalance
      June 30, 2007
                    
                    
                    28,169,013
                    
                    
                    $
                    28,169
                    
                    
                    $
                    (37,400
                    )
                    
                    $
                    15,092,331
                    
                    
                    $
                    -
                    
                    
                    $
                    (5,218,880
                    )
                    
                    $
                    182,177
                    
                    
                    $
                    10,046,397Shareholder
      Contribution
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,000
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,000Make
      Good
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,419,719
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,419,719Net
      Loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,964,725
                    )
                    
                    
                    -
                    
                    
                    
                    (1,964,725
                    )Statutory
      reserves
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,253
                    
                    
                    
                    (62,253
                    )
                    
                    
                    -
                    
                    
                    
                    -Foreign
      Currency Translation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,851
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,190,651
                    
                    
                    
                    1,195,502Balance
      June 30, 2008
                    
                    
                    28,169,013
                    
                    
                    $
                    28,169
                    
                    
                    $
                    (32,400
                    )
                    
                    $
                    16,516,901
                    
                    
                    $
                    62,253
                    
                    
                    $
                    (7,245,858
                    )
                    
                    $
                    1,372,828
                    
                    
                    $
                    10,701,893Cancellation
      of common stock
                    
                    
                    (555,994
                    )
                    
                    
                    (556
                    )
                    
                    
                    -
                    
                    
                    
                    (32,804
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (33,360
                    )Shareholder
      Contribution
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (720
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (720
                    )Net
      Loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,132,190
                    )
                    
                    
                    -
                    
                    
                    
                    (1,132,190
                    )Statutory
      reserves
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,207
                    
                    
                    
                    (62,207
                    )
                    
                    
                    -
                    
                    
                    
                    -Foreign
      Currency Translation
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    42,646
                    
                    
                    
                    42,646Balance
      June 30, 2009
                    
                    
                    27,613,019
                    
                    
                    $
                    27,613
                    
                    
                    $
                    (33,120
                    )
                    
                    $
                    16,484,097
                    
                    
                    $
                    124,460
                    
                    
                    $
                    (8,440,255
                    )
                    
                    $
                    1,415,474
                    
                    
                    $
                    9,578,269
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5
  EQUICAP,
INC.
 Consolidated
Statements of Cash Flows
  For
      the Years Ended June 30,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (1,132,190
                    )
                    
                    $
                    (1,964,725
                    )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Minority
      interest
                    
                    
                    45,278
                    
                    
                    
                    97,268Depreciation
      and amortization
                    
                    
                    215,844
                    
                    
                    
                    129,684Make
      good provision
                    
                    
                    -
                    
                    
                    
                    1,419,719Provision
      for bad debts
                    
                    
                    92,017
                    
                    
                    
                    (26,763
                    )Stock
      based compensation
                    
                    
                    108,789
                    
                    
                    
                    108,789Non-cash
      payments of rent
                    
                    
                    3,750
                    
                    
                    
                    5,000Loss
      on disposal of a subsidiary-IBC
                    
                    
                    390,431
                    
                    
                    
                    -Changes
      in assets and liabilities:Accounts
      receivable
                    
                    
                    (1,154,135
                    )
                    
                    
                    103,307Inventory
                    
                    
                    (322,261
                    )
                    
                    
                    (726,573
                    )Trade
      notes receivable
                    
                    
                    (95,257
                    )
                    
                    
                    (278,104
                    )Other
      receivables
                    
                    
                    64,834
                    
                    
                    
                    4,255,394Advance
      payments
                    
                    
                    2,091,724
                    
                    
                    
                    (4,051,931
                    )Prepaid
      expenses
                    
                    
                    68,485
                    
                    
                    
                    (181,706
                    )Deferred
      expenses
                    
                    
                    51,593
                    
                    
                    
                    (48,912
                    )Accounts
      payable and accrued expenses
                    
                    
                    838,019
                    
                    
                    
                    (28,154
                    )Trade
      notes payable
                    
                    
                    315,151
                    
                    
                    
                    -Taxes
      payable
                    
                    
                    54,145
                    
                    
                    
                    (39,387
                    )Other
      current liabilities
                    
                    
                    118,561
                    
                    
                    
                    (312,175
                    )Total
      adjustments
                    
                    
                    2,886,968
                    
                    
                    
                    425,456Net
      cash provided by (used in) operating activities
                    
                    
                    1,754,778
                    
                    
                    
                    (1,539,269
                    )Cash
      flows from investing activities:Additions
      to property and equipment
                    
                    
                    (368,312
                    )
                    
                    
                    (409,605
                    )Additions
      to construction in progress
                    
                    
                    -
                    
                    
                    
                    (1,618,887
                    )Loss
      on disposal of  a subsidiary –IBC, net of cash
                    
                    
                    (178,965
                    )
                    
                    
                    -Notes
      receivable
                    
                    
                    (57,500
                    )
                    
                    
                    -Additions
      to intangible assets
                    
                    
                    -
                    
                    
                    
                    (3,029
                    )Acquisition
      of Shengte, net of cash from Shengte
                    
                    
                    -
                    
                    
                    
                    (3,642,655
                    )Net
      cash used in investing activities
                    
                    
                    (604,777
                    )
                    
                    
                    (5,674,176
                    )Cash
      flows from financing activities:Proceeds
      from short term bank loans
                    
                    
                    2,197,500
                    
                    
                    
                    -Proceeds
      from capital stock and subscriptions
                    
                    
                    -
                    
                    
                    
                    322Net
      cash provided by financing activities
                    
                    
                    2,197,500
                    
                    
                    
                    322Effect
      of foreign currency translation on cash
                    
                    
                    1,444
                    
                    
                    
                    321,284Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    3,348,945
                    
                    
                    
                    (6,891,839
                    )Cash
      and cash equivalents and restricted cash at beginning of
    year
                    
                    
                    956,973
                    
                    
                    
                    7,848,812Cash
      and cash equivalents and restricted cash at end of year
                    
                    $
                    4,305,918
                    
                    
                    $
                    956,973
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  F-6
  EQUICAP,
INC.
 Notes
to Consolidated Financial Statements
 June
30, 2009 and 2008
 
 Note
1 – Organization and Description of Business
 
 Equicap,
Inc. (the “Equicap” or the “Company”), a Nevada corporation, is a manufacturer
and distributor of gears and gearboxes, and a distributor of automotive parts
and components, such as, starters and alternators, which are marketed and sold
to customers primarily located in China and North America.
 
 On July
6, 2007, the Board of Directors of Zhejiang Zhongchai Machinery Co., Ltd.
(“Zhongchai”), the China based and 75% owned subsidiary of the Company, approved
and finalized a Share Purchase Agreement (“Share Purchase Agreement”) with
Xinchang Keyi Machinery Co., Ltd., (“Keyi”) a corporation incorporated in the
People’s Republic of China. Pursuant to the Share Purchase Agreement, Zhongchai
purchased all the outstanding equity of Zhejiang Shengte Transmission Co., Ltd.
(“Shengte”) from Keyi, the sole owner of Shengte for approximately $3.7
million.
 
 On March
7, 2007, the Company and Usunco Automotive, Ltd. (“Usunco”) entered into a Share
Exchange Agreement (“Exchange Agreement”) which was consummated on March 9,
2007. Under the terms of the Exchange Agreement, the Company acquired all of the
outstanding equity securities of Usunco in exchange for 18,323,944 shares of the
Company’s common stock.
 
 For
accounting purposes, because the Company had been a public shell company prior
to the share exchange, the share exchange was treated as a recapitalization of
the Company.  As such, the historical financial information prior to
the share exchange is that of Usunco and its subsidiaries. Historical share
amounts have been restated to reflect the effect of the share
exchange.
 
 On June
18, 2006, Usunco acquired 100% of IBC Automotive Products Inc (“IBC”), a
California Corporation as of May 14, 2004 (date of inception), through a Share
Exchange Agreement of 28% of Usunco’s shares. IBC 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.
 
 On June
15, 2009, IBC was sold to certain of the management persons of IBC in exchange
for the following: (i) the cancellation of an aggregate of 555,994 shares of
common stock of Company which those individuals owned, and (ii) the payment of
$60,000 in installments pursuant to the terms of an unsecured promissory note,
the final payment of which will be November 15, 2010. As part of the
transaction, the Company cancelled $428,261 through the closing date, of
inter-company debt which funds had been used in the business of IBC prior to the
transaction.
 
 Note
2 – Summary of Significant Accounting Policies
 
 Basis
Of Presentation
 
 The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United Stated of America.
The consolidated financial statements include the accounts of Equicap, Inc. and
its wholly and majority owned subsidiaries. All inter-company transactions and
balances have been eliminated in consolidation.
  F-7
 
 Cash
And Cash Equivalents
 
 In
accordance with Statement of Financial Accounting Standards No. 95, "Statement
of Cash Flows," the Company considers all highly liquid instruments with
original maturities of three months or less to be cash and cash
equivalents.
 
 Accounts
Receivable and Allowance for Doubtful Accounts
 
 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. The Company reserves 0.5% of
accounts receivable balances that have been outstanding less than three months,
5% of accounts receivable balances that have been outstanding between three
months and six months, 20% of accounts receivable balances that have been
outstanding within one year, 50% of accounts receivable balances that have been
outstanding for between one year and two years, and 100% of accounts receivable
balances that have been outstanding more than two years. The balance of
allowance for doubtful accounts amounted to $7,732 and $29,747 as of June 30,
2009 and 2008, respectively.
 
 Inventory
 
 Inventories
are stated at the lower of cost or net realizable value. Cost is calculated on
the weighted-average basis and includes all costs to acquire and other costs
incurred in bringing the inventories to their present location and condition.
The Company evaluates the net realizable value of its inventories on a regular
basis and records a provision for loss to reduce the computed weighted-average
cost if it exceeds the net realizable value. The Company did not record any
provision for slow-moving and obsolete inventory as of June 30, 2009 and
2008.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost. Depreciation is calculated based on the
straight-line method over the estimated useful lives of the assets. Repairs and
maintenance expenditures, which do not extend the useful lives of the related
assets, are expensed as incurred.
 
 Long-Lived
Assets
 
 In
accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets", the Company's long-lived assets are evaluated for impairment
when events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. The Company also assesses
these assets for impairment based on their estimated future cash flows. The
Company has not incurred any losses in connection with the adoption of this
statement.
 
 Goodwill
and Other Intangible Assets
 
 Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and intangible assets with indefinite lives are
subject to annual impairment test using the guidance and criteria described in
Statement of Financial Accounting Standard No. 142, “Goodwill and Other
Intangible Assets”. This testing compares carrying values to fair values and,
when appropriate, the carrying value of these assets is reduced to fair value.
As of June 30, 2009, the Company concluded that there were no impairments of
goodwill or intangible assets with indefinite lives.
  F-8
 
 Revenue
Recognition
 
 Revenue
consists of sales of automotive parts, gears and gearboxes. In accordance with
the provisions of Staff Accounting Bulletin No. 103, revenue is recognized when
merchandise is shipped, title and risk of loss are passed to the customers and
the 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
Returns and Warranties
 
 Generally
the Company does not accept the return of products once sold to
customers.  The Company generally provides a one-year limited warranty
covering manufacturing defects and/or product functional failures. After
evaluation and confirmation of customer complaints, the Company either replaces
the defective products or accepts returns by crediting the customer's account,
and is responsible for the costs and expenses thus incurred. For auto parts
distribution business, replacements and returns, and handling costs are passed
through to supplying manufacturers.
 
 Advertising
Costs
 
 The
Company expenses the cost of advertising as incurred. Advertising costs for the
years ended June 30, 2009 and 2008 were insignificant.
 
 Research
and Development Costs
 
 Research
and development ("R&D) costs are classified as general and administrative
expenses and are expensed as incurred. R&D costs amounted to $207,881 and
$-0-, respectively, for the years ended June 30, 2009 and 2008.
 
 Comprehensive
Income (Loss)
 
 The
Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes rules for the reporting and display of comprehensive income, its
components and accumulated balances. SFAS No. 130 defines comprehensive income
(loss) to include all changes in equity, including adjustments to minimum
pension liabilities, accumulated foreign currency translation, and unrealized
gains or losses on available-for-sale marketable securities, except those
resulting from investments by owners and distributions to owners.
 
 Foreign
Currency Translation and Transactions
 
 Substantially
all of the Company's operations are conducted in China and the financial
statements are translated from Chinese RMB, the functional currency, into U.S.
Dollars in accordance with SFAS No. 52, "Foreign Currency Translation."
Accordingly, all foreign currency assets and liabilities are translated at the
period-end exchange rate and all revenues and expenses are translated at the
average exchange rate for the period. The effects of translating the financial
statements of foreign subsidiaries into U.S. Dollars are reported as a
cumulative translation adjustment, a separate component of comprehensive income
in stockholder's equity.
  F-9
 
 Recent
Accounting Pronouncements
 
 In June
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) 168, The FASB Accounting Standards
CodificationTM and the
Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”), which
establishes the FASB Accounting Standards CodificationTM as the
single source of authoritative US GAAP, organized by topic, and creates a new
referencing system to identify authoritative literature such that references to
SFAS, EITF, etc. will no longer be valid. The Codification does not create any
new GAAP standards. In addition, the Securities and Exchange Commission (“SEC”)
rules and releases will remain as sources of authoritative US GAAP for SEC
registrants. SFAS 168 will be effective for the Company’s first quarter of
fiscal 2010 and is not expected to have a material impact on the Company’s
consolidated financial statements.
 
 In May
2009, the FASB issued SFAS 165, Subsequent Events (“SFAS 165”), which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued. SFAS 165 is effective for interim and fiscal years ending after
June 15, 2009, which is the Company’s fourth quarter of fiscal 2009. The
adoption of SFAS 165 did not have a material impact on the Company’s
consolidated financial statements.
 
 In April
2009, FSP 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, was issued to provide additional guidance for
estimating fair value in accordance with SFAS No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or liability
have significantly decreased. This FSP also provides guidance on identifying
circumstances which indicate that a transaction is not orderly. FSP 157-4 is
effective for interim and annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. Adoption of this guidance is not expected to
have a material impact on our consolidated financial statements.
 
 In April
2009, the FASB issued FSP FAS 107-1, APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments, (“FSP 107-1, 28-1”). FSP 107-1, 28-1 requires
disclosure about fair value of financial instruments in interim as well as
annual financial statements in order to provide more timely information about
the effects of current market conditions on financial instruments. FSP 107-1,
28-1 is effective beginning the Company’s first interim period of fiscal 2010.
The adoption of this FSP is not expected to have a material impact on the
Company’s consolidated financial statements.
 
 In
October 2008, the FASB issued FSP 157-3, Determining Fair Value of a Financial
Asset in a Market That Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the
application of Statement of Financial Accounting Standards No. 157, Fair Value
Measurements, in an inactive market. It demonstrates how the fair value of a
financial asset is determined when the market for that financial asset is
inactive. FSP 157-3 was effective upon issuance, including prior periods for
which financial statements had not been issued. The Company’s implementation of
this standard did not impact its consolidated results of operations or financial
condition.
 
 In
September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about
Credit Derivatives and Certain Guarantees, an Amendment of FASB Statement No.
133 and FASB Interpretation No. 45; and Clarification of the Effective Date of
FASB Statement No. 161 (“FSP FAS 133-1 and FIN 45-4”). FSP FAS133-1 and FIN 45-4
amends Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 133”), to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in hybrid instruments. FSP FAS 133-1 and FIN 45-4 also amend FASB
Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others (“FIN 45”),
to require additional disclosure about the current status of the
payment/performance risk of a guarantee. The provisions of the FSP that amend
SFAS 133 and FIN 45 are effective for reporting periods ending after November
15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in
Statement of Financial Accounting Standards No. 161, Disclosures about
Derivative Instruments and Hedging Activities (“SFAS 161”). Disclosures required
by SFAS 161 are effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The Company’s adoption of FSP
FAS 133-1 and FIN 45-4 on January 1, 2009, will not impact its consolidated
results of operations or financial condition.
  F-10
 
 Fair
Value Of Financial Instruments
 
 The
carrying amounts of the Company’s financial instruments, which include cash and
cash equivalents, investment securities, accounts receivable, accounts payable,
accrued expenses and other obligations, approximate their fair value due to the
short-term maturities of the related instruments.
 
 Use
of Estimates
 
 The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates include valuation reserves
for accounts receivable, inventory and income taxes. Actual results could differ
from those estimates
 
 Income
Taxes
 
 Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statements carrying amounts of
existing assets and liabilities and their respective tax bases, and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
 
 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, 2009. For the China/Gear 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 standard
corporate income tax rate is 25% from January 1, 2008, when China’s new tax law
became effective, decreased from 33%.
 
 Earnings
(Loss) per Share
 
 In
accordance with SFAS No. 128, “Computation of Earnings Per Share” (“SFAS No.
128”) and EITF No. 03-6, “Participating Securities and the Two-Class Method
under FASB Statement No. 128” (“EITF No. 03-6”),basic earnings per share is
computed by dividing net income attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year. The
Company’s Series A redeemable convertible preferred shares are participating
securities. Diluted earnings per share is calculated by dividing net income
attributable to ordinary shareholders as adjusted for the effect of dilutive
ordinary equivalent shares, if any, by the weighted average number of ordinary
and dilutive ordinary equivalent shares outstanding during the year. Ordinary
equivalent shares consist of the ordinary shares issuable upon the conversion of
the convertible preferred shares (using the if-converted method) and ordinary
shares issuable upon the exercise of outstanding share options (using the
treasury stock method).
  F-11
 
 Note
3 – Restricted Cash
 
 As of
June 30, 2009 and 2008, the Company had $315,151 and $-0- restricted cash,
respectively. These restricted cash balances are reserved for settlement of
trade notes payable in connection with inventory purchases.  The cash
held in custody by bank issuing the trade notes payable is restricted as to
withdrawal or use, and is currently earning interest.
 
 Note
4 – Inventory
 
 Inventory
at June 30, 2009 and 2008 consists of the following:
 
 June 30, 2009
                      
                      
                      June 30, 2008Gears
      products
                      
                      $
                      885,559
                      
                      
                      $
                      574,097Starters
      & alternators
                      
                      
                      -
                      
                      
                      
                      -Gearbox
      products
                      
                      
                      680,317
                      
                      
                      
                      612,597Other
                      
                      
                      2,569
                      
                      
                      
                      206Total
                      
                      $
                      1,568,445
                      
                      
                      $
                      1,186,900
 
 Note
5 – Advance Payments
 
 Advance
payments amounted to approximately $3 million as of June 30, 2009, out of which
approximately $2.3 million represents an advance payment made by the Zhongchai
JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a corporation in
China, for purchase of the land use right and plant building for purpose of
Zhongchai JV’s future production expansion. Zhongchai JV is currently leasing a
portion of the land and building to be purchased. Total area of the land to be
purchased is approximately 250,000 square feet, for a total price of
approximately $3.7 million. The balance of the payment is due when the
registration and transfer of title is completed.
 
 Note
6 – Property and Equipment
 
 Property
and equipment at June 30, 2009 and 2008 consists of the following:
 
 June 30, 2009
                      
                      
                      June 30, 2008Manufacturing
      equipment
                      
                      $
                      2,923,420
                      
                      
                      $
                      784,658Office
      equipment and furniture
                      
                      
                      56,597
                      
                      
                      
                      45,537Vehicles
                      
                      
                      62,039
                      
                      
                      
                      61,785Subtotal
                      
                      
                      3,042,056
                      
                      
                      
                      891,980Less:
      Accumulated depreciation
                      
                      
                      379,132
                      
                      
                      
                      164,2042,662,924
                      
                      
                      
                      727,776Construction
      in progress
                      
                      
                      -
                      
                      
                      
                      1,783,826Total
                      
                      $
                      2,662,924
                      
                      
                      $
                      2,511,602
 
 Depreciation
expenses for the years ended June 30, 2009 and 2008 were $214,770 and $129,095,
respectively.
 
 Note
7 – Accounts Payable and Accrued Expenses
 
 Accounts
payable and accrued expenses consist of the following:
 
 June 30, 2009
                      
                      
                      June 30, 2008Accounts
      payable
                      
                      $
                      1,400,162
                      
                      
                      $
                      828,336Accrued
      expenses
                      
                      
                      162,055
                      
                      
                      
                      22,948Total
                      
                      $
                      1,562,217
                      
                      
                      $
                      851,284
  F-12
 
 The
carrying value of accounts payable and accrued expenses approximates their fair
value due to the short-term nature of these obligations.
 
 Note
8 – Short Term Bank Loans
 
 Short-term
bank loans consist of the following:
 
 June 30, 2009
                                
                                
                                June 30, 2008On
      May 25th,
      2009, the Company obtained a loan from Agricultural Bank
ofChina,
      out of which the principal is to be paid in full by August 26th,
      2009.Theinterest  is
      to be calculated using an annual fixed interest rate of 4.374% and
      paidmonthly.
      The loan is secured by third party.
                                
                                $
                                776,450
                                
                                
                                $
                                -On
      June 15th,
      2009, the Company obtained a loan from Agricultural Bank
ofChina,
      out of which the principal is to be paid in full by June 16th,
      2010.Theinterest  is
      to be calculated using an annual fixed interest rate of 5.31% and
      paidmonthly.
      The loan is secured by third party.
                                
                                
                                1,421,050
                                
                                
                                
                                -Total
      short-term bank loans
                                
                                $
                                2,197,500
                                
                                
                                $
                                -
 
 Note
9 – Rental Expense
 
 The
Company's U.S. office site was located in the state of California. Rental
expense for the years ended June 30, 2009 and 2008 was $3,750 and $5,000,
respectively. The Company’s Chinese operation is located in Hangzhou, China, and
the rental expense for the years ended June 30, 2009 and 2008 was $61,007 and
$34,253 respectively.
 
 Note
10 – Supplemental Disclosure of Cash Flow Information
 
 For
      the Years Ended June 30,2009
                      
                      
                      2008Interest
      paid
                      
                      $
                      3,786
                      
                      
                      $
                      757Income
      taxes paid
                      
                      $
                      57,246
                      
                      
                      $
                      -
 
 
 Note
11 – Supplemental Schedule of Non Cash Activities
 
 For
      the Years Ended June 30,2009
                      
                      
                      2008Construction
      in progress reclassified to property and equipment
                      
                      $
                      1,791,161
                      
                      
                      $
                      -Return
      and cancellation of Equicap Common Stock
                      
                      $
                      33,360
                      
                      
                      $
                      -Cancellation
      of debt due from IBC
                      
                      $
                      ( 428,261
                      )
                      
                      $
                      -
 
 Note
12 – 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. The weighted average
number of shares calculated for Diluted EPS excludes the potential common stock
that would be exercised under the options granted to employees and warrants
granted to agents because the inclusion of the potential shares from these
options and warrants would cause an antidilutive effect by reducing the net loss
per share.
  F-13
 
 June
      30, 2009
                          
                          
                          June
      30, 2008Net
      loss
                          
                          $
                          (1,132,190
                          )
                          
                          $
                          (1,964,725
                          )Weighted average
      common shares (denominator
      for basic loss per share)
                          
                          
                          28,146,164
                          
                          
                          
                          28,169,013Effect
      of diluted securities:
                          
                          
                          -
                          
                          
                          
                          -Weighted
      average common shares(denominator for diluted loss per
      share)
                          
                          
                          28,146,164
                          
                          
                          
                          28,169,013Basic
      net loss per share
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.07
                          )Diluted
      net loss per share
                          
                          $
                          (0.04
                          )
                          
                          $
                          (0.07
                          )
 
 Note
13 – Major Customers and Suppliers
 
 The
Company had two major customers, BBB/OCA and World Pac, who accounted for
approximately 73% and 12%, respectively, of the Company's net revenue of the
auto parts segment for the year ended June 30, 2009. For the gear segment, two
customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd.
accounted for 69% and 17%, respectively, of the net revenue in China, for the
year ended June 30, 2009. These four customers accounted for 16%, 3%, 54% and
13%, respectively, of the Company’s consolidated revenue for the year ended June
30, 2009.
 
 The
Company had three major suppliers, Wuxi Susun Auto Parts Co., Ltd., Zhejiang
Boyu Industrial Co., Ltd, and Pico who provided approximately 45%, 25%, and 7%,
respectively of the Company's purchases of the auto parts segment for the year
ended June 30, 2009. For the gear segment, four major suppliers, Zhejiang Yuyang
Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Xinchang Liyuan Foundry
Co., Ltd., and Xinchang Zhisheng Machinery Co., Ltd., accounted for 32%, 13%, 5%
and 4%, respectively of the total purchases, for the year ended June 30, 2009.
These seven suppliers accounted for 11%, 6%, 2%, 24%, 10%, 4% and 3%,
respectively, of the Company’s consolidated purchases for the year ended June
30, 2009.
 
 Note
14 – Deferred Compensation
 
 As
described in Note 18 (“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
15 – Stock Authorization and Issuance
 
 On March
9, 2007, the Company completed the sale of an aggregate of 8,450,704 shares of
its common stock to a limited number of institutional investors in a private
placement transaction pursuant to offering exemptions under the Securities Act
of 1933.  The shares, which represented approximately 30% of the
outstanding common stock on an after-issued basis, were sold at a price of $1.42
per share, for net proceeds of approximately $10 million.
 
 The
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. This obligation ends if the shares can be sold pursuant to Rule
144.
  F-14


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 the 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
16 – Disposal of a Subsidiary - IBC
 
 On June
8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an
agreement to sell IBC, the wholly owned subsidiary of Usunco. The transaction
was closed on June 15, 2009.
 
 The
automotive parts distribution business of the Company in the United States was
carried out through IBC. IBC was sold because it no longer fitted the overall
business strategy of focusing on the development and manufacture of gears and
gearboxes for use primarily in diesel engines for industrial and agricultural
industries in China and the expansion opportunities that exist in the Chinese
and Asian markets for those and similar products. Additionally, IBC no longer
represented a significant amount of the assets or gross revenues of the
Company.
 
 The sale
agreement provided for the sale of all the shares of equity of IBC owned by
Usunco to the current top management persons of IBC, Mr. Philip Widmann and Ms.
Ruth Kirshner, in exchange for the following: (i) the cancellation of an
aggregate of 555,994 shares of common stock of Company which those individuals
currently own, and (ii) the payment of $60,000 in installments pursuant to the
terms of an unsecured promissory note, the final payment of which will be on
November 15, 2010. As part of the transaction, the Company cancelled $428,261
through the closing date, of inter-company debt which funds had been used in the
business of IBC prior to the transaction.
 
 The
agreement provides for various standard representations about the operations of
the respective companies as of the signing and closing dates.  There
are no substantive continuing covenants binding either party.
 
 The
Company recognized a loss of $220,782 on the disposal of IBC. Such charge was
treated as an unusual item since it is deemed to be unusual in nature or would
be infrequent in occurrence.
 
 Note
17 – Segment Reporting
 
 The
Company’s reporting segments have been determined based on the geographic
location of their 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/Gear Segment,
represented by the 75% owned subsidiary Zhejiang ZhongChai Machinery Co., Ltd.
in Hangzhou, China, currently focuses on manufacturing and distribution of gears
and gearboxes, for the industrial equipment markets in China. As described in
Note 16, the Company sold IBC in June 2009 as it no longer fits the overall
business strategy of the Company.
  F-15




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, 2009 and 2008





For the Years ended June 30,Segment
      revenues
                      
                      2009
                      
                      
                      2008North
      America/Auto Parts
                      
                      $
                      1,094,028
                      
                      
                      $
                      778,838China/Gear
                      
                      
                      3,829,890
                      
                      
                      
                      2,554,487$
                      4,923,918
                      
                      
                      $
                      3,333,325





For the Years ended June 30,Segment operating earnings (loss)
                  
                  2009
                  
                  
                  2008North
      America/Auto Parts
                  
                  $
                  ( 55,445
                  )
                  
                  $
                  ( 97,754
                  )China/Gear
                  
                  
                  87,243
                  
                  
                  
                  230,959Corporate
      and Elimination
                  
                  
                  (995,524
                  )
                  
                  
                  (789,796
                  )$
                  ( 963,726
                  )
                  
                  $
                  ( 656,591
                  )





For the Years ended June 30,Depreciation expense
                  
                  2009
                  
                  
                  2008North
      America/Auto Parts
                  
                  $
                  517
                  
                  
                  $
                  -China/Gear
                  
                  
                  214,158
                  
                  
                  
                  129,095Corporate
      and Elimination
                  
                  
                  95
                  
                  
                  
                  -$
                  214,770
                  
                  
                  $
                  129,095





For the Years ended June 30,Segment identifiable assets
                    
                    2009
                    
                    
                    2008North
      America/Auto Parts
                    
                    $
                    -
                    
                    
                    $
                    451,240China/Gear
                    
                    
                    17,080,740
                    
                    
                    
                    13,650,982Corporate
      and Elimination
                    
                    
                    21,942
                    
                    
                    
                    688,595$
                    17,102,682
                    
                    
                    $
                    14,790,817





Note
18 – Stock-Based Compensation





As of
June 30, 2009, 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, 2009, the
Company recorded approximately $108,789 of stock-based compensation based on the
fair value method of SFAS. No.123R using the assumptions noted in the following
tables.


F-16





For Employee
      Options:Dividend
      Yield
                      
                      
                      0
                      %Expected
      Volatility
                      
                      
                      34.94
                      %Risk-Free
      Interest Rate
                      
                      
                      4.63
                      %Contractual
      Term
                      
                      5
      yearsEvaluated
      Stock Price at Date of Grant
                      
                      
                      1.30Exercise
      Price
                      
                      
                      1.065





For Agent
      Warrants:Dividend
      Yield
                        
                        
                        0
                        %Expected
      Volatility
                        
                        
                        34.94
                        %Risk-Free
      Interest Rate
                        
                        
                        4.63
                        %Contractual
      Term
                        
                        5
      yearsEvaluated
      Stock Price at Date of Grant
                        
                        
                        1.30Exercise
      Price
                        
                        
                        1.065Exercised
                        
                        
                        0
                        %





A summary
of the employee stock option activity for the fiscal years ended June 30, 2009
and 2008 is set forth below:





WeightedNumber of
                    
                    
                    AverageOptions
                    
                    
                    Exercise PriceOutstanding
      at June 30, 2007
                    
                    
                    366,550
                    
                    
                    $
                    1.065Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Canceled
      / Expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at June 30, 2008
                    
                    
                    366,550
                    
                    
                    $
                    1.065Granted
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    -
                    
                    
                    
                    -Canceled
      / Expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at June 30, 2009
                    
                    
                    366,550
                    
                    
                    $
                    1.065Exercisable
      at June 30, 2009
                    
                    
                    295,276
                    
                    
                    $
                    1.065





The per
share weighted average remaining life of the options outstanding at June 30,
2009 and 2008 is 3.6 and 2.6 years, respectively.





Note
19 – Employee Welfare Plan





The
Company has established an employee welfare plan in accordance with Chinese laws
and regulations. Full-time employees of the Company in the PRC participate in a
government-mandated multi-employer defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance, employee housing
fund and other welfare benefits are provided to employees. PRC labor regulations
require the Company to accrue for these benefits based on a certain percentage
of the employees’ salaries.


F-17





Note
20 – Statutory Reserve





Under PRC
law, our subsidiaries in PRC are 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. The Company provided the statutory surplus reserve of $124,460 and
$62,253 for the years ended June 30, 2009 and 2008, respectively.





Note
21 – Commitments and Contingencies





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





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





Note
22 – Legal Proceedings





On
November 6, 2008, a group of the investors filed a law suit in federal court in
New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and
vFinance Investment, Inc. based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation arising out of the private placement
closed on March 7, 2007. The action sought a return of the investment funds of
the plaintiffs, payment of interest, restitution and disgorgement of profits and
other ill-gotten gains, damages for lost opportunity and other consequential
damages, without specification of dollar amounts. The Company and Mr. Wang
denied any wrongdoing and have defended the action.





Note
23 – Reclassification of Prior Year Retained Earnings (Deficit)





As per
the laws of the People’s Republic of China, the Company is required to allocate
10% of its net income each year to fund a designated statutory reserve fund. The
Company has reclassified an amount of $62,253 to the statutory reserve from the
retained earnings of June 30, 2008.  This reclassification has no
effect on the net income and the earnings per share.  A reconciliation
of the retained earnings of June 30, 2008 after reclassification is presented as
follows:


F-18





Retained Earnings(Deficit)
                    
                    
                    Statutory ReservesBalance
      at June 30, 2008
                    
                    $
                    (7,183,605
                    )
                    
                    $
                    -Reclassification
      to statutory reserve for the year ended June 30, 2008
                    
                    
                    (62,253
                    )
                    
                    
                    62,253Adjusted
      balance at June 30, 2008
                    
                    $
                    (7,245,858
                    )
                    
                    $
                    62,253





Note
24 – Subsequent Events





In July
2009, the Company and Mr. Peter Wang agreed upon the terms of a settlement
agreement to the investor law suit filed November 6, 2008.  The
settlement agreement provided (i) for a third party, Ruihua International
Limited ("Ruihua"), to purchase all the shares of common stock of the Company
owned and held by the plaintiffs, (ii) upon the purchase of the shares, for the
Company and Mr. Wang and each of the plaintiffs to exchange general mutual
releases as to all matters arising concerning the plaintiffs' purchase and
holding of the common shares of the Company, and (iii) for a stipulation to
dismiss the action.  The settlement agreement was consummated on July
31, 2009.  The action was discontinued with prejudice by stipulation
among all the parties which was signed and filed on July 31, 2009, and the
stipulation was "so ordered" by the court on August 4, 2009.





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


F-19


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 21, 2009.





EQUICAP,
      INC.By:
              /s/ Peter WangPeter
      WangPresident





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
              
              September 21, 2009Peter
      Wang
              
              Executive
      Officer)/s/ David Ming He
              
              Chief
      Financial Officer (Principal
              
              September 21, 2009David
      Ming He
              
              Financial
      and Accounting Officer)/s/ Haining Liu
              
              Director
              
              September 21, 2009Haining
      Liu




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