UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


**Washington,
      D.C. 20549**


**FORM
      10-KSB** ****





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




**For
      the fiscal year ended: June 30, 2008**




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


**For
      the transition period from ______________to ______________**





**Commission
      File Number 000-** **31091**




**EQUICAP,
      INC.**


(Name
      of
      Small Business Issuer in Its Charter)





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





**(904)
      507-4937**


(Issuer’s
      Telephone Number, Including Area Code)




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




None




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




Common
      Stock, par value $.001 per share




Check
      whether the Issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




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




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




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




Issuer’s
      revenues for the fiscal year ended June 30, 2008 were $3,333,325.




As
      of
      September 25, 2008, the aggregate market value of the common stock held by
      non-affiliates of the Registrant (10,678,595 shares) was approximately
      $533,930.




As
      of
      September 25, 2008, there were 28,169,013 shares of Common Stock, $.001 par
      value per share, outstanding.




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









**Equicap,
      Inc.**





**Annual
      Report on Form 10-KSB**


**Fiscal
      Year Ended June 30, 2008**


**Table
      of Contents**




Page No.PART
                IItem
                1
            Description
                of Business
            1Item
                2
            Description
                of Properties
            21Item
                3
            Legal
                Proceedings
            22Item
                4
            Submission
                of Matters to a Vote by Security Holders
            22PART
                IIItem
                5
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            22Item
                6
            Management’s
                Discussion and Analysis or Plan of Operation
            24Item
                7
            Financial
                Statements
            32Item
                8
            Changes
                In and Disagreements With Accountants on Accounting and Financial
                Disclosure
            32Item
                8A
            Controls
                and Procedures
            33Item
                8B
            Other
                Information
            34PART
                IIIItem
                9
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance With
                Section
                16(a) of the Exchange Act
            34Item
                10
            Executive
                Compensation
            38Item
                11
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            41Item
                12
            Certain
                Relationships and Related Transactions
            42Item
                13
            Exhibits
            43Item
                14
            Principal
                Accountant Fees and Services
            45








**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




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




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




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







**PART
      I**




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




**Background
      of Equicap**




**Reincorporation
      of Equicap**




Equicap,
      Inc. (Equicap or the company) was incorporated on March 13, 2002 for the purpose
      of entering into a merger with and redomiciling its predecessor, Equicap, Inc.,
      a California corporation ("Equicap California"). Effective January 25, 2005,
      Equicap California was merged with and into Equicap in a statutory merger based
      on management's belief that Nevada law is more advantageous to a corporation
      than California law. Equicap was considered a blank check company prior to
      the
      acquisition of Usunco Automotive Limited, a British Virgin Islands company
      (“Usunco”) in March 2007.




**Predecessor
      Corporation to Equicap**




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




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




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




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




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




On
      January 18, 2000, Equicap's common stock underwent a reverse and forward split
      of the common shares in which (i) each 50 of the issued and outstanding shares
      were changed into one share, with each fraction being rounded up to a whole
      share, and (ii) immediately following the reverse split, each resulting share
      was changed into 100 shares. Upon conclusion of the January 2000
      recapitalization, Equicap had 390,100 common shares issued and
      outstanding.









**2007
      Share Exchange**




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




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




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




In
      connection with the Exchange Agreement, Equicap engaged Fountainhead Capital
      Partners Limited (“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.




-2-




***Private
      Placement Offering***




As
      a
      condition to the Share Exchange, Equicap and Usunco conducted a private
      placement offering of the company’s common stock to accredited and institutional
      investors (“investors in the Offering”) in which Equicap raised gross proceeds
      of $12 million (“Offering”) from 11 investors. After commissions and expenses
      related to the Offering and the $450,000 advisory fee payable to Fountainhead,
      Equicap received net proceeds of approximately $10,000,000 in the Offering.
      The
      investors were issued an aggregate of 8,450,704 shares of common stock, then
      representing approximately 30% of the issued and outstanding common stock of
      Equicap. The price per share of common stock was $1.42. From time to time since
      the issuance, Equicap has had discussions with some of the investors about
      the
      redemption of some or all of their shareholdings, but to date, there have been
      no agreements on any repurchase terms or whether Equicap will be able to fund
      any repurchase.




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.




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




In
      connection with the Offering, Equicap granted registration rights to the
      investors in the Offering, the holders of the Agent Warrant and the shares
      issued to vFinance, and under the terms of the Share Exchange certain former
      principal shareholders of Equicap were granted piggy-back and demand
      registration rights for their respective shares of common stock. Equicap entered
      into one registration rights agreement with the aforementioned persons. Equicap
      agreed to register the sale of the 8,450,704 shares of common stock issued
      to
      the investors in the Offering, the 161,633 shares of common stock issued to
      vFinance, the 422,535 shares of common stock underlying the Agent Warrant and
      the 1,161,632 shares (including 702,132 shares issued on conversion of the
      Fountainhead note) held by the former principal shareholders of Equicap. In
      addition, if the make good shares (described below) are distributed to the
      investors, Equicap will be obligated to register these shares in addition.
      If
      any of the above shares are not eligible for registration because of the rules
      and regulations of the Securities and Exchange Commission, when they are
      eligible for registration, Equicap will be obligated to take such action to
      have
      them registered for sale by the holder by filing successive registration
      statements. The initial registration statement for sale of the common shares
      had
      to be filed by Equicap within 45 days of the closing date of the Offering,
      and
      it was to be declared effective within 150 days of the closing date of the
      Offering, and if these actions were not achieved by those dates then Equicap
      had
      to pay each of, and only, the investors 1% of the share purchase price paid
      by
      such investor for each month thereafter that the investors cannot publicly
      sell
      the shares of common stock covered by that registration statement. Equicap
      met
      the filing requirement but not the effectiveness requirement, and it paid
      $32,000 in penalties to the investors. The same penalties for the failure to
      file or have declared effective a registration statement within the stated
      time
      periods and maintain its effectiveness also apply to the subsequent required
      registration statements. The maximum penalties under the liquidated damages
      provision payable to the investors is 10% of the share purchase price paid
      by
      the investors in the Offering. The above timing and number of shares are subject
      to various conditions, and the registration statements are subject to the rules
      and regulations of the SEC and the staff interpretations thereof. The
      registration statements required for the investors and vFinance under the
      registration rights agreement must be kept effective until all the shares of
      these parties are sold or may be sold without limitation under then Rule 144k,
      promulgated under the Act (“Rule 144k”).




-3-




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




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




***Right
      of First Refusal***




For
      a
      period of one year after the earlier of: (i) effective date of the first
      registration statement filed for the sale of common stock by the investors
      in
      the Offering (August 13, 2007), or (ii) the first date on which any of the
      shares of the investors in the Offering otherwise becomes tradable according
      to
      Rule 144, those investors had a pro rata right of first refusal to acquire
      any
      equity securities offered by Equicap, other than in excluded offerings which
      are
      defined in the Securities Purchase Agreement. This right of first refusal has
      expired.




***Make
      Good Escrow Agreement***




In
      connection with the Offering, for the benefit of the investors, eight of the
      former shareholders of Usunco, some of whom are the officers and directors
      of
      Equicap, have agreed to place into escrow an aggregate of 10,140,846 shares
      of
      common stock issued in the Share Exchange. These are referred to as the “make
      good shares.” The make good shares will act to adjust the investment of the
      investors in the Offering by increasing their holdings if the financial targets
      are not achieved by management as described in this section.




If
      the
      consolidated financial statements of Equicap for the fiscal year ending June
      30,
      2007, prepared in accordance with United States generally accepted accounting
      principles, consistently applied, reflect either (i) less than $2,320,000 of
      after-tax net income or (ii) earnings before income tax provision and before
      minority interest of less than $3,200,000, then 3,042,254 shares of common
      stock
      in escrow will be distributed to the investors on a pro rata basis for no
      additional consideration. If either (i) the earnings per share reported in
      the
      Annual Report on Form 10-KSB of Equicap for the fiscal year ending June 30,
      2008
      is less than $0.343 on a fully diluted basis (as equitably adjusted for any
      stock splits, stock combinations, stock dividends or similar transactions),
      (ii)
      the earnings per share before income tax provision and before minority interest
      of the company for the fiscal year ending June 30, 2008, is less than $0.446
      on
      a fully diluted basis (as equitably adjusted for any stock splits, stock
      combinations, stock dividends or similar transactions), (iii) the after tax
      net
      income reported in the Annual Report on Form 10-KSB of the company for the
      fiscal year ending June 30, 2008, is less than $10,000,000, or (iv) the earnings
      before income tax provision and before minority interest reported in the Annual
      Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008,
      is less than $13,020,000, then 7,098,592 shares of common stock in escrow will
      be distributed to the investors on a pro rata basis for no additional
      consideration. For purposes of determining the above amounts, if the release
      of
      the make good shares causes a charge or expense reflected on the company
      financial statements, then these will be ignored for purposes of the
      determination of the earnings before income tax provision and before minority
      interest, after-tax net income and earnings per share amounts. Also, the effects
      after the closing of the Offering of changes in China’s tax law and regulation
      for the purpose of equalization of taxes between domestic and foreign entities,
      if any, will be excluded from calculation of the earnings before income tax
      provision and before minority interest, after-tax net income and earnings per
      share amounts and any registration penalties accrued or paid, other than for
      a
      filing failure, will be excluded as an expense of the company. Any make good
      shares not distributed to the investors will be returned to the persons who
      placed them in escrow. Any make good shares issued to the investors will be
      subject to the registration rights under the Registration Rights
      Agreement.




-4-




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




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




***Lock
      Up Restrictions***




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




As
      part
      of the share exchange transaction between Equicap and Usunco, the former
      principal stockholders of Equicap have entered into lock up agreements governing
      an aggregate of 1,161,632 shares which provide that they will not sell or
      otherwise transfer their shares for a period of 365 days from the closing of
      the
      Share Exchange (March 8, 2008) subject to a twelve month leak out provision.
      This lockup has expired.




**Usunco
      Automotive Limited**




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




IBC
      was
      incorporated on May 14, 2004 in the State of California and is headquartered
      in
      Santa Ana, California. IBC specializes in sourcing automotive parts and products
      from the China and distributing them in North America and other regions. IBC
      also introduces the designs of new product lines of automotive parts demanded
      by
      their customers in North America to manufacturers in China for their development
      and manufacturing. IBC primarily distributes parts, such as alternators and
      starters, to retailers, wholesalers and other U.S. master distributors in the
      automotive replacement parts sector. Its current customers include, among
      others, BBB/OCA, JNS Tsusho Corp., LTD/Visteon, Sankaku and IAP. End-users
      of
      parts and products sourced from IBC include, among others, O’Rilleys, Pep Boys,
      Worldpac/Carquest, and Dura International.




-5-




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 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.




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 verbally agreed with that decision. Both parties are
      in
      the process of preparing a definitive termination agreement to end the
      transaction and refund the deposit.




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.




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.




**Products**




As
      Usunco
      continues to implement its business plan, it will expand production and sale
      of
      gears and gearboxes primarily within China and distribution of auto part
      products primarily in North America.




-6-




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.




***Gears
      and Gearboxes***




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




***Auto
      Parts Products***




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




**Market
      Overview**




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




The
      main
      customers of ZhongChai JV are manufacturers of engine, gearbox and industrial
      equipment located in China. The main customers of IBC are the importers and
      wholesalers of aftermarket and replacement automobile parts. The products that
      ZhongChai JV distributes are those that are used as components in its customers’
final products, such as diesel engines, gearboxes, forklifts and other equipment
      or machinery. The products that IBC currently distributes are automobile
      starters and alternators.




Gears
      are
      used in diesel engines and gearboxes that are incorporated into industrial
      equipment, such as forklifts; gearboxes are used in industrial and agricultural
      equipment or in vehicles. 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
      in China, the PRC agricultural equipment market has been a growing market for
      the products like those of the company. As a result, the company has seen growth
      of gears business in recent years. The company started small production of
      gearboxes in the last quarter of fiscal year 2008.




China
      is
      becoming a major manufacturing base for worldwide automotive parts and
      components. Over the last several years, the company believes that a number
      of
      major original equipment manufacturers in the United States and Europe have
      announced sourcing programs which will represent a significant amount, in both
      dollars and pieces, of auto parts from China. Despite of the lately strong
      Renminbi and weak US dollars, China’s auto parts export market is expected to
      continue growing over the long term.




-7-




**Customers**




The
      company’s major customers in its gear business are diesel engine producers, such
      as Zhejiang Xinchai Co., Ltd. And the major customers in its gearbox business
      are original equipment manufactures in China, who typically integrate gearbox
      with engine and other components into their final products, such as forklifts
      trucks.




Internationally,
      through IBC, the company distributes automotive parts, most of which are made
      in
      China, to distributors and wholesalers. The company focuses particularly on
      starters and alternators, for sale primarily in the North American aftermarket
      and replacement sector. The current customers include LTD/Visteon and BBB/OCA,
      and the end-users of our products include Pep Boys, Worldpac/ Carquest, and
      Ford.




***Principal
      Customers***




The
      Company had three major customers, BBB/OCA, JNS Tsusho Corp. and Ltd/Visteon,
      Inc., who accounted for approximately 32%, 28% and 27%, respectively, of the
      Company's net revenue of the auto parts segment for the fiscal year ended June
      30, 2008. For the gear segment, two customers, Zhejiang Xinchai Co., Ltd. and
      Zhejiang Xinchai Power Co., Ltd. accounted for 90% and 7%, respectively, of
      the
      net revenue in China, for the fiscal year ended June 30, 2008. These five
      customers accounted for 8%, 7%, 6%, 69% and 6%, respectively, of the Company’s
      consolidated revenue for the fiscal year ended June 30, 2008. The company
      performs appropriate credit checks before orders are accepted and invoices
      are
      issued. Most accounts are collected within 90 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**




The
      company provides only a limited right of return for non-conforming products
      if
      returned in a timely fashion for reasons of their being non-conforming. 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. For auto parts
      distribution business, replacements and returns, and handling costs are passed
      through to supplying manufacturers.




**Sales
      and Marketing**




The
      company’s primary operations are the distribution of auto parts, and production
      and sale of gears and gearboxes. It currently conducts its sales and marketing
      through its two operating entities, ZhongChai JV and IBC.




In
      order
      to acquire and expand the customer base for its gear and gearbox products in
      China, the company’s sales representatives approaches engine, gearbox and
      original equipment manufacturers of forklift trucks, through direct contacts,
      referrals and trade shows. The company’s marketing efforts to develop new
      customers will emphasize its attention to customer awareness and after sales
      support.




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




-8-




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




**Suppliers**




IBC
      sources automotive parts and products from various manufacturers in China.
      The
      current auto parts distributed by IBC on the international market are mainly
      starters and alternators. These products are sourced mainly from Zhejiang
      Yongkang Boyu, Wuxi Susun in China  and
      Fittswell Industries Co., Ltd. IBC also distributes other auto parts such as
      brake pads sourced from other various suppliers. For the China/Gear Segment,
      ZhongChai JV sources parts and components and semi-finished products mainly
      from
      Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and
      Xinchang Zhaofeng Machinery Co., Ltd. for Zhongchai JV’s further fine processing
      and assembly.




***Principal
      Suppliers***




For
      the
      fiscal year ended June 30, 2008, the Company had three major vendors, Zhejiang
      Yongkang Boyu, Wuxi Susun and Fittswell Industries Co., Ltd who provided
      approximately 36%, 28%, and 26%, respectively, of the Company's purchases of
      the
      auto parts segment. For the gear segment, three major suppliers, Zhejiang Yuyang
      Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and Xinchang Zhaofeng
      Machinery Co., Ltd., accounted for 38%, 16%, and 6%, respectively, of the total
      purchases, for the fiscal year ended June 30, 2008. These six suppliers
      accounted for 8%, 6%, 5%, 30%, 13% and 5%, respectively, of the Company’s
      consolidated purchases for the fiscal year ended June 30, 2008. 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 we ship finished products directly to
      our
      customers from the factory warehouse in Zhejiang, China. For our automotive
      parts business, we do not maintain inventories in China. Occasionally, IBC
      leases warehouse space in California to receive returned products which are
      still under warranty and to refurbish them locally.




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




**Competition**




Even
      though the demand for gear and gearbox products has grown rapidly, the
      competition has also grown and is 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 which 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.




-9-




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




**Legal
      Proceedings**




The
      company is not a party in any bankruptcy, receivership or other legal
      proceeding.




**Employees**




As
      of
      June 30, 2008, the company employed directly and through its subsidiaries
      approximately 88 individuals in the United States and China, consisting of
      5
      executives and managers, 7 technical personnel, 3 sales and marketing personnel,
      and 17 administrative and support personnel, and 56 production personnel. The
      employees are not currently represented by any labor union or similar collective
      bargaining group.




**Risk
      Factors**




***Risks
      Related to Our Business***




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




We
      anticipate that a significant portion of our revenues in the nearer term will
      be
      from the sale of gear products to Zhejiang Xinchai
      Co., Ltd. We face risks inherent in relying on a single customer for our most
      important products. 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 industrial and agricultural
      equipment or medium and light duty commercial vehicles in which our products
      are
      installed.**




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 gearboxes,
      industrial and agricultural equipment or medium and light duty commercial
      vehicles decrease, then the demand for our major products and our revenues
      would
      likewise decrease.




**We
      could be under downward pricing pressures on our automobile parts and gear
      and
      gearbox products from our customers and competitors which may adversely affect
      our growth, profit margins and net income.**




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




-10-




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




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




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




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 China based customers (generally 45-90 days). 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.




-11-




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




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




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




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




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




We
      must
      attract, recruit and retain a sizeable workforce of technically competent
      management and employees, particularly in the areas of marketing and sales,
      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
      automotive parts. We may be unable to identify suitable investments or
      acquisition candidates or to make these investments, alliances or acquisitions
      on a commercially reasonable basis, if at all. If we complete an investment,
      alliance or acquisition, we may not realize the anticipated benefits from the
      transaction.




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




·
            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;




-12-




·
            coordinate
                research and development efforts;




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




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




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




**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
      liquidity.**




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




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




A
      broad
      range of manufactured components and raw materials are used in the production
      of
      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 raw
      materials and components prices. Because it may be difficult for us to pass
      the
      increased costs on to our customers, any significant increase in the prices
      of
      our purchased goods could materially increase our operating costs and adversely
      affect our profit margins and profitability.




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




We
      face
      an inherent business risk of exposure to product liability and warranty claims
      if our products actually or allegedly fail to perform as expected or the use
      of
      our products results, or 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 and other countries where we sell our products.
      To
      the extent that we expect to expand our operations into other geographic areas,
      we will become subject to such laws and regulations of those countries as well.
      We cannot provide assurance that at all times we have been or will be in full
      compliance with all of these requirements, or that we will not incur material
      costs or liabilities in 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.




-13-




**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.




-14-




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




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




***Risks
      Related to Management***




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




We
      have
      never paid cash dividends on our common stock. Our current board of directors
      does not anticipate that we will pay cash dividends in the foreseeable future.
      Instead, we intend to retain future 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 or 10-KSB. We can provide
      no assurance that we will meet all of the requirements imposed thereby. There
      can be no assurance that we will receive a positive attestation from our
      independent auditors. In the event there are significant deficiencies or
      material weaknesses identified in our internal controls, and we cannot remediate
      in a timely manner, we may not be able to receive a positive attestation from
      our independent auditors with respect to our internal controls, investors and
      others may lose confidence in the reliability of our financial statements.




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




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




The
      majority of our operations and assets are located in China, and we anticipate
      that China will be our primary sales base. 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 environments and
      foreign currency exchange environment of China which is a partially controlled
      economy. Our results may be adversely affected by changes in the political
      and
      social conditions in China and by changes in governmental policies with respect
      to social and commercial laws and regulations, anti-inflationary measures,
      currency controls, conversion restrictions and remittances abroad. The recent
      changes in the tax laws will also have an impact on the operations of our
      company.




-15-




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




·
            We
                will be able to capitalize on economic reforms;




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




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




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




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




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




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




Over
      the
      last few years, China’s economy has registered a particularly high growth rate.
      Recently, there have been indications that rates of inflation have increased.
      For example, employee costs are increasing as are the costs of raw materials.
      In
      response, the Chinese government has taken some measures to curb this
      excessively expansive economy. These measures include restrictions on the
      availability of domestic credit, reducing the purchasing capability of certain
      of its customers, and limited re-centralization of the approval process for
      purchases of some foreign products. There has been some revaluation of the
      currency which has increased the costs of imported products. The Chinese
      government may adopt additional measures to further combat inflation, including
      the establishment of freezes or restraints on certain projects or markets.
      These
      measures may adversely affect our manufacturing operations and margins.




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




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




-16-




**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.




**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.




-17-




**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.




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




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




-18-




***Foreign
      Exchange Control Risks***




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




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




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




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




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




-19-




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 modest 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.




-20-




**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 of its common stock to decline and could impair the value of an investment
      in the common stock and its ability to raise equity capital in the future.
      All
      the outstanding shares may be sold pursuant to Rule 144 as applicable to former
      shell companies, subject to the limitations on shares held by affiliates, and
      certain of those shares have registration rights granted to certain investors
      in
      March 2007. The sales of common stock by the stockholders able
      to
      sell under Rule 144 or having
      registration rights may depress any trading market that develops.




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




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




The
      principal executive office of the company is located in Santa Anna,
      California, which space is rented on a month to month basis for a
      total annual rental of $5,000.  The other executive office is located in
      the city of Hangzhou in China, where the company leases an aggregate of
      approximately 4,000 square feet at an approximate, aggregate annual rental
      of
      $34,252.  The lease has term of one year. These two offices mainly handle
      general corporate affairs, administrative matters, accounting activities and
      other supporting functions.




-21-




The
      ZhongChai JV and Shengte conduct operations from a facility in Xinchang
      County, Zhejiang Province in China, with an aggregate leased space of
      approximately 16,000 square feet, for annual rental of approximately
      $21,000.




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




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




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




During
      the fourth quarter of fiscal year 2008, no matters were submitted to a vote
      by
      security holders.




**PART
      II**




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




**Market
      Information**




The
      company became subject to Securities Exchange Act reporting requirements in
      July
      2000. The symbol “EQPI.OB” was assigned for the common stock at that time. There
      is a very limited trading market for our stock. During fiscal year 2007, only
      200 shares of our stock traded on the OTCBB. During fiscal year 2008, our stock
      traded on the OTCBB with a high price of $2.00 and a low price of $0.15. 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.





**Quarter
                Ended**
            
            **High**
            
            **Low****2006**September
                30
            
            $
            0.60
            
            $
            0.60December 31
            
            $
            1.25
            
            $
            0.60**2007**March
                31
            
            $
            1.25
            
            $
            1.25June 30
            
            $
            1.30
            
            $
            1.25September
                30
            
            $
            2.00
            
            $
            1.00December
                31
            
            $
            1.00
            
            $
            0.40**2008**March
                31
            
            $
            0.40
            
            $
            0.20June 30
            
            $
            0.30
            
            $
            0.15





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




-22-




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.




**Holders**




We
      have
      approximately 429 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 Executive
      Registrar & Transfer, Inc., 3615 S. Huron Street, Englewood, Colorado,
      80110.




**Equity
      Compensation Plan Information**




The
      following table gives information about our common stock that may be issued
      upon
      the exercise of options, warrants or rights under our existing equity
      compensation plans. The information in this table is as of June 30, 2008.




-23-




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




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




The
      following is management’s discussion and analysis of certain significant factors
      that have affected our financial position and operating results during the
      periods included in the accompanying consolidated financial statements, as
      well
      as information relating to the plans of our current management. This report
      includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
      terminology are intended to identify forward-looking statements. Such statements
      are subject to certain risks and uncertainties, including, but not limited to,
      those described in the “Risk Factors” set forth in Item 1 – Description of
      Business – 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 operates through IBC Automotive Products, Inc. (“IBC”),
      its wholly-owned subsidiary established under the laws of the State of
      California (the “North America/Auto Parts Segment”), and through Zhejiang
      ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture
      established under the laws of the People’s Republic of China (the “PRC” or
“China”) and Zhejiang Shengte Transmission Co., Ltd.(“Shengte”) a company
      established under the laws of the PRC and wholly owned by ZhongChai JV (the
      “China/Gear Segment”). Through its operating subsidiaries, the company is
      engaged in the distribution of automotive parts primarily in North America,
      and
      manufacturing and sale of gears and gearboxes in China.




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.




-24-




*Share
      Exchange*




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




Upon
      execution of the Exchange Agreement, Mr. Peter Wang was appointed a director
      and
      the president of Equicap. Mr. Thomas W. Colligan, the sole officer and director
      of Equicap before the Share Exchange, submitted his resignation letter resigning
      from all executive offices, effective on March 9, 2007, and with respect to
      his
      position as a director, effective on March 29, 2007. On March 29, 2007,
      additional persons were appointed to the board of directors and as management
      persons.




In
      connection with the Share Exchange, Equicap engaged Fountainhead Capital
      Partners Limited (“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.




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. The shares were issued as
      restricted stock. Equicap agreed to register the shares issued in the
      conversion.




*Private
      Placement Offering*




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




vFinance
      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.




-25-




In
      connection with the Offering, Equicap granted registration rights to the
      investors and the holders of the Agent Warrant, and provided for registration
      rights for certain former principal shareholders of Equicap through piggy-back
      rights for their respective shares of common stock. Equicap entered into one
      registration rights agreement with the aforementioned persons. Equicap agreed
      to
      register the sale of the 8,450,704 shares of common stock issued to investors
      in
      the Offering, the 161,633 shares of common stock issued to vFinance, the 422,535
      shares of common stock underlying the Agent Warrant and the 1,161,632 shares
      held by the former principal shareholders of Equicap. In addition, if certain
      make good shares are distributed to the investors, Equicap will be obligated
      to
      register these shares in addition. If any of the above shares are not eligible
      for registration because of the rules and regulations of the Securities and
      Exchange Commission, when they are eligible for registration, Equicap will
      be
      obligated to take such action to have them registered for sale by the holder
      by
      filing successive registration statements. The initial registration statement
      for sale of the common shares was filed within the time limit of the
      registration rights agreement, and Equicap had to have the registration
      statement effective within 150 days of the closing date of the Offering, and
      if
      these actions are not achieved by those dates then Equicap must pay each of,
      and
      only, the investors 1% of the share purchase price paid by such investor for
      each month thereafter that the investors cannot publicly sell the shares of
      common stock covered by that registration statement The same penalties for
      the
      failure to file or have declared effective a registration statement within
      the
      stated time periods and maintain its effectiveness also apply to the subsequent
      required registration statements. The maximum penalties under the liquidated
      damages provision payable to the investors is 10% of the share purchase price
      paid by the investors in the Offering. The above timing and number of shares
      are
      subject to various conditions, and the registration statements are subject
      to
      the rules and regulations of the SEC and the staff interpretations thereof.
      The
      registration statements required for the investors and vFinance under the
      registration rights agreement must be kept effective until all the shares of
      these parties are sold or may be sold without limitation under then Rule 144k
      promulgated under the Securities A ct
      (“Rule
      144k”). Equicap did not meet the effectiveness deadline for the initial
      registration statement and paid $32,000 to the investors under the liquidated
      damages provision.




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




Equicap
      completed the capitalization of its PRC joint venture shortly after the above
      described private placement. Pursuant to PRC law, foreign joint ventures have
      to
      be capitalized pursuant to the terms of their approval. Equicap, through Usunco
      contributed $8,000,000 and its joint venture partner contributed $2,600,000,
      all
      of which will be used as working capital. Future capital contributions between
      the parties are to be on a 75% - 25% basis, with Usunco being the majority
      party.




*Critical
      Accounting Policies And Estimates*




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




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.




-26-




*Principles
      of Consolidation*




The
      consolidated financial statements include the accounts of the parent company
      and
      the subsidiaries. Inter-company accounts and transactions have been eliminated
      in consolidation.




*Cash
      and Cash Equivalents*




In
      accordance with Statement of Financial Accounting Standards No. 95, “Statement
      of Cash Flows,” the Company considers all highly liquid instruments with
      original maturities of three months or less to be cash and cash
      equivalents.




*Accounts
      Receivable and Bad Debt Reserves*




Trade
      accounts receivable are stated at the amount management expects to collect
      from
      balances outstanding at the end of the period. Based on its assessment of the
      credit history with customers having outstanding balances and current
      relationships with them, management makes conclusions whether any realization
      of
      losses on balances outstanding at the end of the period will be deemed
      uncollectible based on the age of the receivables. For the North America/Auto
      Parts segment, the Company reserves 5% of accounts receivable balances that
      have
      been outstanding for greater than 90 days. For the China/Gear segment, the
      Company reserves 0.5% of accounts receivable balances that have been outstanding
      below three months, 5% of accounts receivable balances that have been
      outstanding between three months and six months, 20% of receivable balances
      that
      have been outstanding within one year, 50% of receivable balances that have
      been
      outstanding for between one year and two years, and 100% of receivable balances
      that have been outstanding more than two years.




*Inventory*




Inventories
      are stated at the lower of cost or net realizable value. Cost is calculated
      on
      the weighted-average basis and includes all costs to acquire and other costs
      incurred in bringing the inventories to their present location and condition.
      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.




*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, 2008, the Company concluded that there were no impairments on
      goodwill or indefinite-lived intangibles.




-27-




*Revenue
      Recognition*





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





*Sales
      Return and Warranties*





Generally
      the company does not accept the return of products once sold to customers.
      The
      company generally provides a one-year limited warranty covering manufacturing
      defects and/or product functional failures. After evaluation and confirmation
      of
      customer complaints, the company either replaces the defective products or
      accepts returns by crediting the customer's account. Such replacements or
      returns as well as handling costs therefrom are passed through to the suppliers.





*Advertising
      Costs*





The
      Company expenses the cost of advertising as incurred. Advertising costs for
      the
      years ended June 30, 2008 and 2007 were insignificant.





*Comprehensive
      Income (Loss)*





The
      Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes
      rules for the reporting of comprehensive income and its components. In addition
      to net loss, comprehensive income (loss) includes all changes in equity during
      a
      period, except those resulting from investments by and distributions to owners.
      Items of comprehensive income include foreign currency translation
      adjustment.





*Foreign
      Currency Translation*





A
      significant portion of the Company's operations are conducted in China and
      the
      financial statements are translated from Chinese RMB, the functional currency,
      into U.S. Dollars in accordance with SFAS No. 52, "Foreign Currency
      Translation." 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
      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 January 1, 2008.
      It is
      expected that the adoption of SFAS No. 159 will not have a material impact
      on
      the Company’s financial condition or results of operations.




-28-





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB Statement No. 51.” SFAS
      No. 160 amends Accounting Research Bulletin (ARB) No. 51, “Consolidated
      Financial Statements,” to establish accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a
      subsidiary, which is sometimes referred to as a minority interest, is an
      ownership interest in the consolidated entity that should be reported as a
      component of equity in the consolidated financial statements. Among other
      requirements, SFAS No. 160 requires consolidated net income to be reported
      at
      amounts that include the amounts attributable to both the parent and the
      noncontrolling interest. It also requires disclosure, on the face of the
      consolidated income statement, of the amounts of consolidated net income
      attributable to the parent and the noncontrolling interest. SFAS No. 160 is
      effective for the Company on January 1, 2009, and is not expected to have a
      significant impact on the Company’s financial condition or results of
      operations.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations
      (Revised))”, (SFAS No. 141(R)), to replace SFAS No. 141, “Business Combinations.
      SFAS No. 141(R) requires the use of the acquisition method of accounting,
      defines the acquirer, establishes the acquisition date and broadens the scope
      to
      all transactions and other events in which one entity obtains control over
      one
      or more other businesses. This statement is effective for business combinations
      or transactions entered into for fiscal years beginning on or after December
      15,
      2008. The Company is evaluating the impact of SFAS No. 141 (R).





*Fair
      Value of Financial Instruments*





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





*Income
      Taxes*





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





-29-




Operating
      Results





*The
      Fiscal
      Year Ended June 30, 2008 Compared to the Fiscal Year Ended June 30,
      2007*





Revenue





Revenue
      increased by $1,516,061 or 83% to $3,333,325 for the year ended June 30, 2008
      compared with $1,817,264 for the year ended June 30, 2007. Revenue for the
      year
      ended June 30, 2008 consists of sales of automotive parts in North America
      and
      sales of gears and gearboxes in China, for $778,838 and $2,554,487,
      respectively. Revenue for the year ended June 30, 2007 consists of sales of
      automotive parts in North America and sales of diesel engines and gear products
      in China, for $1,324,819 and $492,445, respectively. The
      decrease in revenue from sale of auto parts in North America compared to last
      fiscal year was primarily due to fierce competition and the Company’s strategy
      to drop some smaller, low margin orders and customers during the year. Increase
      in gears sales in fiscal 2008 compared to last year was attributed to the
      Company’s expansion in production capacity and continuous marketing efforts,
      taking advantage of the growth of domestic market in China for gear and gearbox
      products in recent years as a result of the increase in Chinese domestic demand
      driven by country wide economic growth and urban expansion .





Cost
      of
      Sales and Gross Margin





Cost
      of
      sales was $2,641,814 for the year ended June 30, 2008, increasing by $1,014,075
      or 62%, from $1,627,739 for the year ended June 30, 2007. The gross margin
      was
      approximately 21% for the year ended June 30, 2008 compared to approximately
      10%
      for the year ended June 30, 2007. For the North America/Auto Parts segment,
      improvement in gross margin was mainly attributed to the Company’s strategy to
      focus on larger, high margin customers, to add some new products with higher
      profitability, and to drop some low margin business. For the China/Gears
      segment, improvement in gross margin was mainly attributed to the Company’s
      achievement of a larger economy of scale, and the ability to pass the effects
      of
      rising material prices onto down stream customers.





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 decreased by $165,356 to $1,348,102 in the year ended June 30, 2008
      from $1,513,458 in year ended June 30, 2007. The high SG&A expenses for the
      year ended June 30, 2007 was mainly attributed to the recognition of expense
      of
      $897,131 as a result of the conversion of the outstanding convertible notes
      in
      aggregate principal amount and accrued interest of approximately $100,000 into
      702,132 shares of common stock, at a discount to the sale price of the shares
      in
      the private placement offering. SG&A expenses for fiscal year 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 recognized for stock based compensation related to stock
      options and warrants granted in the period pursuant to SFAS 123(R).


-30-





Unusual
      Charge





As
      elaborated in the section “Share Exchange and Private Placement”, in connection
      with the Offering, for the benefit of the investors, eight of the former
      shareholders of Usunco, some of whom are the officers and directors of Equicap,
      have agreed to place into escrow an aggregate of 10,140,846 shares of common
      stock issued in the Share Exchange. If the consolidated financial statements
      of
      Equicap for the fiscal year ending June 30, 2007, prepared in accordance with
      United States generally accepted accounting principles, consistently applied,
      reflect either (i) less than $2,320,000 of after-tax net income or (ii) earnings
      before income tax provision and before minority interest of less than
      $3,200,000, then 3,042,254 shares of common stock in escrow will be distributed
      to the investors on a pro rata basis for no additional consideration. If
      either
      (i) the earnings per share reported in the Annual Report on Form 10-KSB of
      Equicap for the fiscal year ending June 30, 2008 is less than $0.343 on a fully
      diluted basis (as equitably adjusted for any stock splits, stock combinations,
      stock dividends or similar transactions), (ii) the earnings per share
      before income tax provision and before minority interest of the company for
      the
      fiscal year ending June 30, 2008, is less than $0.446 on a fully diluted basis
      (as equitably adjusted for any stock splits, stock combinations, stock dividends
      or similar transactions), (iii) the after tax net income reported in the Annual
      Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008,
      is less than $10,000,000, or (iv) the earnings before income tax provision
      and
      before minority interest reported in the Annual Report on Form 10-KSB of the
      company for the fiscal year ending June 30, 2008, is less than $13,020,000,
      then
      7,098,592 shares of common stock in escrow will be distributed to the investors
      on a pro rata basis for no additional consideration. Any
      shares not distributed to the investors will be released to the persons who
      placed them in escrow.




According
      to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
      if the performance criteria are not met, these shares will be released to the
      investors and treated as an expense for the amount of the market value of the
      shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based
      Compensation, if the performance criteria are met, the shares will be released
      back to the former shareholders of Usunco and treated as an expense for the
      amount of the market value of the shares as of the date of release. Since the
      performance criteria for the year ended June 30, 2007 were not met, 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. Since the performance
      criteria for the year ended June 30, 2008 were not met, 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. Such expense is treated as an unusual
      item since it is deemed to be unusual in nature but may not be infrequent in
      occurrence. This recognition of expense would not occur if the shares are
      forfeited or cancelled and are not released to either the investors or the
      former shareholders of Usunco.





Net
      Loss





Net
      loss
      reached $1,964,725 in year ended June 30, 2008 compared with net loss of
      $5,279,437 year ended June 30, 2007. The net loss for fiscal year of 2008 was
      mainly attributed to the increase in general and administrative expenses,
      comprised of costs related to being a public company including professional
      services related to auditing, legal and other services, operating expenses
      in
      China, and non-cash expenses recognized for stock based compensation related
      to
      stock options and warrants granted in the period pursuant to SFAS 123(R); and
      to
      the recognition of $1,419,719 unusual loss arising from the make good
      arrangement for fiscal year 2008, partially offset by the net interest income
      amounting to $90,083, and net other income of $119,527 mainly resulting from
      local government’s subsidies and VAT refund to ZhongChai JV and its wholly owned
      subsidiary, Shengte, to incentize their equipment purchase and technology
      innovation that comply with government’s industry policies.





Liquidity
      and Capital Resources





As
      of
      June 30, 2008, Equicap had assets equal to $14,790,817 which primarily were
      comprised of cash and cash equivalents of $956,973, net receivables and other
      receivables of $948,980, and advance payments of $5,059,154. The advance
      payments represented a deposit that the ZhongChai JV placed to secure the
      exclusive right to acquire 100% interest of a project, and the ZhongChai JV
      is
      entitled to refund of the full deposit amount in case the project is not
      completed or Zhongchai JV decides not to pursue the transaction within the
      twelve-month period ending October 17, 2008. Equicap’s current liabilities as of
      June 30, 2008 were $1,382,611, which primarily were comprised of trade accounts
      payable and accrued expenses, taxes payable and other payable. At June 30,
      2008,
      Equicap had working capital of $7,276,487. Equicap believes that it has
      sufficient operating capital for its current operations.





-31-




Equicap
      has funded its operations from income generated by its IBC subsidiary and to
      a
      much lesser extent by Usunco and its PRC subsidiaries and from the sale of
      equity securities. The principal equity funding for the company was a private
      placement in March 2007, in which Equicap sold 8,450,704 shares at an aggregate
      offering price of $12,000,000. After related expenses, Equicap had net proceeds
      of approximately $10,000,000. The net proceeds of the private placement are
      being used by Equicap and its various subsidiaries principally for market
      expansion, product development, product acquisition and working capital and
      general corporate purposes.





Equicap
      used $8,000,000 of the proceeds from the March 2007 offering to fund the capital
      of ZhongChai JV. These funds are available as working capital of the joint
      venture. The joint venture partner contributed $2,600,000 of working capital
      simultaneously with the contribution by Equicap.





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
      China/Gear Segment’s working capital requirements.





Also
      during the first quarter of fiscal year 2008, Equicap did not have the
      registration statement declared effective within the time period specified
      in
      the registration rights agreement for the March 2007 offering. As a result
      Equicap was obligated to pay the liquidated damage amount provided in the
      agreement to the investors which was an aggregate of $32,000.





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
              7.**
            **Financial
                Statements**





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





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





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


-32-





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




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





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





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





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





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





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





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





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-KSB. Based upon such evaluation, the Certifying
      Officers have concluded that, as of the end of such period, June 30, 2008,
      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.





-33-




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, 2008. 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, 2008, 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
              8B.**
            **Other
                Information**





None.





**PART
      III**





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





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





Name
            
            Age
            
            Position
                with company
            
            Serving
                as a
              Director
                or an
              Officer
                SincePeter
                Wang
            
            54
            
            Chairman
                and President
            
            2007Jason
                Lu
            
            52
            
            Director,
                Chief Executive Officer
            
            2007Haining
                Liu
            
            55
            
            Director
            
            2007David
                Ming He
            
            38
            
            Chief
                Financial Officer
            
            2007




-34-


*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 a director of China Biopharma, Inc. (OTCBB:
      CBPC), a company involved in pharmaceutical distribution.





*Mr.
      Jason Lu* has been
      the Chief Executive Officer of Usunco since its inception in April 2006, and
      the
      Executive Vice President of IBC Automotive Products, Inc., its wholly-owned
      subsidiary. He spent more than 20 years in Sino-U.S. business development with
      strong experience in corporate operations and management. Between February
      1990
      and March 1993, Mr. Lu served as the Deputy General Manager for Hubei
      International Trading Corporation. He served as the Vice President of
      California-headquartered Andus Group from November 2001 until June, 2003, and
      served as the Vice President of Century Automotive Mfg., Inc from July 2003
      until November, 2006. Between 1999 and 2001, he acted as the Executive Vice
      President of Means Come Enterprises. He was elected the Deputy General Secretary
      of Association of International Laws, Hubei Branch, for the tenure between
      1985
      and 1988. Mr. Lu received BA of English Literature and Language from Wuhan
      University, China in 1982 and Master of Laws from Law School of Wuhan
      University, China in 1984.





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





*Mr.
      David Ming He* joined
      Usunco in January 2007 as the Chief Financial Officer. From October 2004 until
      January 2007 Mr. He served as the Senior Manager of SORL Auto Parts, Inc.
      (NASDAQ: SORL) in charge of capital market operations, investor relations,
      SEC
      filings and corporate internal controls. In his two years with SORL, Mr. He
      has
      been instrumental in SORL’s progress in US capital market from an OTC 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.





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.





-35-




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





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





**Description
      of Other Officers of the Corporation**





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





Mr.
      Philip Widmann, 64 year old, has served as the SVP, Global Marketing for Usunco
      since its inception, and the President of IBC Automotive Products, Inc., a
      wholly owned subsidiary of Usunco. He has over 27 years experience in senior
      management and business development, with a strong background in strategic
      and
      financial planning, strategic alliances, product and program development. Mr.
      Widmann has been credited with establishing the global strategic plans for
      Chinese factories and corporations entering the global marketplace. Before
      establishing and building IBC, he served as Executive Vice President and General
      Manager with Century Automotive MFG., Inc. from February 2002 to June 2003,
      and
      led the company in establishing its global business plan, creating internal
      infrastructure, and selecting American management teams. Mr. Widmann spent
      24
      years. years in the senior management of Japanese automotive systems suppliers
      including Hitachi and Nippondenso. From 1984 through 2002 he developed Hitachi’s
      global service parts marketing plan. He also created programs in product
      development etc. with all major automotive companies such as Ford, General
      Motors, Toyota, Nissan, and Honda. Between 1976 and 1983, he established
      Nippondenso as electronics leader in the North American automotive
      marketplace.





**Director
      Compensation**





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





The
      following Director Compensation Table summarizes the compensation of our
      non-employee directors for services rendered by Equicap during the fiscal year
      ended June 30, 2008.





**NON-EMPLOYEE
      DIRECTOR COMPENSATION TABLE**





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




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





Section
      16(a) of the Securities Exchange Act of 1934 requires Equicap’s officers and
      directors, and persons who own more than ten percent of a registered class
      of
      Equicap’s equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission (the “Commission”).
      Officers, directors and greater than ten percent beneficial owners are required
      by Commission regulations to furnish the Company with copies of all forms they
      file pursuant to Section 16(a). Based solely on the Company’s review of the
      copies of such forms it received and written representations from reporting
      persons required to file reports under Section 16(a), to Equicap’s knowledge all
      of the Section 16(a) filing requirements applicable to such persons with respect
      to fiscal 2008 were complied with.





-36-




**Board
      Committees**





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





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





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





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





**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.





-37-


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





**Limitation
      of Director Liability; Indemnification**





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





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





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





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





·
            willful
                misconduct.





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





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





The
      table
      below sets forth for the fiscal year ended June 30, 2008, the compensation
      of
      the President and the there 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,**
                
                
                2007
                
                $
                25,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                25,000**Chairman
                    and President(1)**
                
                
                2008
                
                $
                50,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                50,000**Jason
                    Lu,**
                
                
                2007
                
                $
                18,750
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                18,750**Chief
                    Executive Officer(2)**
                
                
                2008
                
                $
                75,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                75,000**David
                    Ming He,**
                
                
                2007
                
                $
                22,000
                
                
                -
                
                $
                16,355
                
                
                -
                
                
                -
                
                
                -
                
                $
                38,355**Chief
                    Financial Officer(3)**
                
                
                2008
                
                $
                48,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                48,000**Philip
                    Widmann,**
                
                
                2007
                
                $
                31,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                31,000**SVP
                    Global Marketing(4)**
                
                
                2008
                
                $
                45,000
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                $
                45,000





(1)  Covers
      the period commencing January 1, 2007.


(2)  Covers
      the period commencing April 1, 2007.


(3)  Covers
      the period commencing January 15, 2007.


(4)  Covers
      the period commencing July 1, 2006.





The
      following table sets forth information concerning the other compensation granted
      to the named executive officers for the fiscal year ended June 30,
      2008.




**Name**
              
              **Year**
              
              **Medical
                  Premiums**
              
              **401K
                  Employer**
                **Match**Peter
                  Wang
              
              
              2008
              
              $
              12,000
              
              
              -Jason
                  Lu
              
              
              2008
              
              $
              12,000
              
              
              -David
                  Ming He
              
              
              2008
              
              $
              12,000
              
              
              -Philip
                  Widmann
              
              
              2008
              
              $
              12,237
              
              
              -





The
      following table sets forth information concerning the outstanding equity awards
      granted to the named executive officers at June 30, 2008.




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





**Employment
      Agreements** ****





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





-39-




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





**2006
      Stock Option Plan**





Usunco
      adopted its 2006 Stock Option Plan on May 18, 2006 by the board of directors
      and
      approved by the shareholders on May 18, 2006. The plan provides for the issuance
      of up to 1,970,698 shares of common stock under incentive or non-statutory
      stock
      options. The plan is administered by the board of directors. The board of
      directors, at the time of a grant, will determine the type of option, the
      exercise price, vesting schedule, and expiration date, as well as any other
      terms of the grant. The minimum exercise price of incentive stock option cannot
      be less than 75% (or 100% if granted to an employee who, at the time of grant
      of
      such option, owns stock representing more than ten percent (10%) of the voting
      power of all classes of stock of the company or any parent or subsidiary) of
      the
      fair market value on the date of the grant, and the minimum exercise price
      of
      non-statutory stock option cannot be less than 100% of the fair market value
      on
      the date of the grant. Incentive stock options may be granted only to employees,
      otherwise options may be granted to officers, directors, employees and
      consultants, or collectively “Service Providers”. No stock options were awarded
      during the fiscal year ended June 30, 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.





**Executive
      Compensation Determination**





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





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




-40-




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





The
      following table sets forth certain information regarding common stock
      beneficially owned on September 25, 2008, for (i) each stockholder known to
      be
      the beneficial owner of 5% or more of the outstanding common stock, (ii) each
      current executive officer and director, and (iii) all executive officers and
      directors as a group. The table assumes a total of 28,169,013 shares of common
      stock outstanding and does not reflect any change for a distribution that may
      be
      made under the terms of the Make Good Agreement in respect of the 2008 fiscal
      year financial results.





**Name
                and Address of Beneficial Owner**
            
            **Number of Shares
                Beneficially Owned (1)**
            
            **% of common stock
                Beneficially Owned**Sinoquest
                Management Ltd. (2)
              75
                Shuguang Lu, Building B
              Hangzhou,
                310007 P.R.C.
            
            
            5,551,337
            
            
            19.71
            %SIJ
                Holding Ltd.
              75
                Shuguang Lu, Building B
              Hangzhou,
                310007 P.R.C.
            
            
            2,150,208
            
            
            7.63
            %Peter
                Wang (2)
              10510
                Hillsboro Road
              Santa
                Ana, CA 92705 U.S.A.
            
            
            2,636,885
            
            
            9.36
            %Haining
                Liu
              Huanchen
                Beilu
              Hangzhou,
                310007 P.R.C.
            
            
            -
            
            
            *Jason
                Zhongyuan Lu
              10510
                Hillsboro Road
              Santa
                Ana, CA 92705 U.S.A.
            
            
            4,065,452
            
            
            14.43
            %David
                Ming He (3)
              10510
                Hillsboro Road
              Santa
                Ana, CA 92705 U.S.A.
            
            
            112,001
            
            
            *Philip
                Widmann
              10510
                Hillsboro Road
              Santa
                Ana, CA 92705 U.S.A.
            
            
            2,127,148
            
            
            7.55
            %Pinnacle
                China Fund, L.P.(4)
              4965
                Preston Park Blvd.
              Suite
                240
              Plano,
                TX 75093
            
            
            3,830,988
            
            
            13.6
            %The
                Pinnacle Fund, LP(5)
              4965
                Preston Park Blvd.
              Suite
                240
              Plano,
                TX 75093
            
            
            1,915,493
            
            
            6.8
            %




-41-


**Name
                  and Address of Beneficial Owner**
              
              **Number of Shares
                  Beneficially Owned (1)**
              
              **% of common stock
                  Beneficially Owned**Jayhawk
                  Private Equity Fund, L.P.(6)
                c/o
                  Genesis Fund Service Limited
                5410
                  West 61stPlace
                Suite
                  100
                Mission,
                  KS 66205
              
              
              2,157,461
              
              
              7.66
              %All
                  Directors and Executive Officers as a Group (4 persons)
                  (7)
              
              
              6,814,338
              
              
              24.19
              %


_______________________





*
            Less
                than 1%





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





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





(3)
            David
                Ming He has been granted options to purchase 183,275 shares at an
                exercise
                price of $1.065 per share,112,001of
                which will vest and become exercisable within 60
                days.





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





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





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





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





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





During
      the fiscal year ended June 30, 2008, 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. Notwithstanding the
      foregoing, officers and certain of the 5% shareholders of the Common Stock
      have
      had discussions about the possible redemption of the stockholders’ common
      stock.





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 verbally agreed with that decision. Both parties are
      in
      the process of preparing a definitive termination agreement to end the
      transaction and refund the deposit.





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






**Exhibit
                No.**
            
            **Description**3.1
            
            Certificate
                of Incorporation – (Incorporated by reference from Form 10-KSB for
                  fiscal year ended December 31, 2004, Exhibit 3.1)3.2
            
            By-laws
                (Incorporated by reference from Form 10-KSB for fiscal year ended
                December
                31, 2004, Exhibit 3.2)4.1
            
            Form
                of Common Stock Purchase Warrant Agreement issued to vFinance Investments,
                Inc. dated March 7, 2007 (Incorporated by reference from Form 8-K,
                Current
                Report, Event dated March 9, 2007, Exhibit 4.1)10.1
            
            Form
                of Securities Purchase Agreement with investor in March 2007 private
                placement. (Incorporated by reference from Form 8-K, Current Report,
                Event
                dated March 9, 2007, Exhibit 10.1)10.2
            
            Form
                of Lock up Agreement for certain management persons, dated March
                7, 2007
                (Incorporated by reference from Form 8-K, Current Report, Event dated
                March 9, 2007, Exhibit 10.2)10.3
            
            Form
                of Registration Rights Agreement with investors and others dated
                March 7,
                2007 (Incorporated by reference from Form 8-K, Current Report, Event
                dated
                March 9, 2007, Exhibit 10.4)10.4
            
            Make
                Good Agreement with investors and certain management persons of Equicap,
                Inc., dated March 7, 2007 (Incorporated by reference from Form 8-K,
                Current Report, Event dated March 9, 2007, Exhibit 10.3)




-43-





**Exhibit
                No.**
            
            **Description**10.5
            
            Joint
                Venture Agreement dated July 4, 2007 2006 between Xinchai Holding
                Group
                Co., Ltd and Usunco Automotive Limited in respect of Zhejiang Zhongchai
                Machinery Co., Ltd. (Incorporated by reference from Form 8-K, Current
                Report, Event dated March 9, 2007, Exhibit 10.1)10.6
            
            Exclusive
                Distribution Agreement between Xinchai Holding Group C., Ltd and
                Zhejiang
                Zhongchai Machinery Co., Ltd., Dated as of January 28, 2007 (Incorporated
                by reference from Form 8-K, Current Report, Event dated March 9,
                2007,
                Exhibit 10.6)10.7
            
            Share
                Exchange Agreement dated March 7, 2007, among Usunco Automotive Limited
                and Equicap, Inc. (Incorporated by reference from Form 8-K, Current
                Report, Event dated March 9, 2007, Exhibit 10.7)10.8
            
            Convertible
                Note Conversion Agreement dated March 7, 2007 with Fountainhead Capital
                Partners Limited (Incorporated by reference from Form 8-K, Current
                Report,
                Event dated March 9, 2007, Exhibit 10.8)10.9
            
            Consulting
                Agreement with Fountainhead Capital Partners Limited dated March
                7, 2007
                (Incorporated by reference from Form 8-K, Current Report, Event dated
                March 9, 2007, Exhibit 10.9)10.10
            
            Lock
                Up agreement with former Equicap, Inc. stockholders (Incorporated
                by
                reference from Form 8-K, Current Report, Event dated March 9, 2007,
                Exhibit 10.12)14.1
            
            Code
                of Ethics (Incorporated by reference from Form 8-K, Current Report,
                Event
                dated March 9, 2007, Exhibit 14.1)21.1
            
            Subsidiaries
                of Equicap, Inc. *31.1
            
            Certificate
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 –
                Jason Lu *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 – Jason Lu
                *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-





**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, 2007 and
      June 30, 2008:





June 30, 2007
            
            June 30, 2008Audit
                Fees
            
            $
            91,500
            
            $
            93,000Audit
                Related Fees
            
            
            -
            
            
            -Tax
                Fees
            
            
            -
            
            
            -All
                Other Fees
            
            
            -
            
            
            -$
            91,500
            
            $
            93,000





Audit
      services of Patrizio & Zhao for the fiscal years 2007 and 2008 consisted of
      the audit of the year end financial statements and the review of the quarterly
      financial statements of Equicap and registration statements and other SEC
      filings.





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




-45-




**EQUICAP,
      INC.**





**CONSOLIDATED
      FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**




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




F-1





**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors


Equicap,
      Inc.





We
      have
      audited the accompanying consolidated balance sheets of Equicap, Inc. and
      Subsidiaries (the “Company”) as of June 30, 2008 and 2007, and the related
      consolidated statements of operations and comprehensive income, stockholders’
equity, and cash flows, for the years ended June 30, 2008 and 2007. 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 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, 2008 and 2007, and the consolidated results of its operations and
      its consolidated cash flows for the years then ended, in conformity with
      accounting principles generally accepted in the United States of
      America.







/s/
      Partizio & Zhao


Parsippany,
      New Jersey


August
      20, 2008





F-2


**EQUICAP,
      INC.**





**CONSOLIDATED
      BALANCE SHEETS**





**JUNE
      30,**




**2008**
            
            **2007****ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            956,973
            
            $
            7,848,812Accounts
                receivable, net of allowance of $29,747and $37,511respectively
            
            
            807,484
            
            
            695,179Inventory
            
            
            1,186,900
            
            
            378,075Other
                receivables
            
            
            141,496
            
            
            3,947,063Advance
                payments
            
            
            5,059,154
            
            
            675,195Prepaid
                expenses
            
            
            212,405
            
            
            28,045Notes
                receivable
            
            
            294,686
            
            
            -**Total
                Current Assets**
            
            
            **8,659,098**
            
            
            **13,572,369****PROPERTY
                AND EQUIPMENT, NET**
            
            
            **2,511,602**
            
            
            **40,068****GOODWILL**
            
            
            **3,393,307**
            
            
            **-****OTHER
                ASSET**Intangible
                assets, net
            
            
            2,586
            
            
            -Deferred
                compensation
            
            
            172,395
            
            
            281,184Deferred
                expenses
            
            
            51,829
            
            
            -**Total
                Other Assets**
            
            
            **226,810**
            
            
            **281,184****Total
                Assets**
            
            **$**
            **14,790,817**
            
            **$**
            **13,893,621****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            851,284
            
            $
            1,017,657Taxes
                payable
            
            
            946
            
            
            39,871Other
                payables
            
            
            530,381
            
            
            172,397**Total
                Current Liabilities**
            
            
            **1,382,611**
            
            
            **1,229,925****MINORITY
                INTEREST**
            
            
            **2,706,313**
            
            
            **2,617,299****COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS’
                EQUITY**Common
                stock, $.001 par value, 500,000,000 sharesauthorized,
                28,169,013 shares issued and outstanding
            
            
            28,169
            
            
            28,169Stock
                subscription receivable
            
            
            (32,400
            )
            
            (37,400
            )Additional
                paid-in capital
            
            
            16,516,901
            
            
            15,092,331Accumulated
                deficit
            
            
            (7,183,605
            )
            
            (5,218,880
            )Accumulated
                other comprehensive income
            
            
            1,372,828
            
            
            182,177**Total
                Stockholders’ Equity**
            
            
            **10,701,893**
            
            
            **10,046,397****Total
                Liabilities and Stockholders' Equity**
            
            **$**
            **14,790,817**
            
            **$**
            **13,893,621**




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,****2008**
            
            **2007****REVENUE**
            
            **$**
            **3,333,325**
            
            **$**
            **1,817,264****COST
                OF SALES**
            
            
            **2,641,814**
            
            
            **1,627,739****GROSS
                PROFIT**
            
            
            **691,511**
            
            
            **189,525****OPERATING
                EXPENSES**Selling,
                general and administrative
            
            
            1,348,102
            
            
            1,513,458**LOSS
                FROM OPERATIONS**
            
            
            **(656,591**
            **)**
            
            **(1,323,933**
            **)****OTHER
                INCOME (EXPENSE)**Interest
                income (expense)
            
            
            89,326
            
            
            8,263Other
                income (expense), net
            
            
            119,527
            
            
            8,462Unusual
                charge - make good provision
            
            
            (1,419,719
            )
            
            (3,954,930
            )**Total
                other income (expense)**
            
            
            **(1,210,866**
            **)**
            
            **(3,938,205**
            **)****LOSS
                BEFORE PROVISION FOR INCOME TAX**
            
            
            **(1,867,457**
            **)**
            
            **(5,262,138**
            **)****PROVISION
                FOR INCOME TAX**
            
            
            **-**
            
            
            **-****MINORITY
                INTEREST**
            
            
            **97,268**
            
            
            **17,299****NET
                LOSS**
            
            
            **(1,964,725**
            **)**
            
            **(5,279,437**
            **)****OTHER
                COMPREHENSIVE INCOME**Foreign
                currency translation adjustment
            
            
            **1,190,651**
            
            
            **182,177****COMPREHENSIVE
                LOSS**
            
            **$**
            **(774,074**
            **)**
            **$**
            **(5,097,260**
            **)****LOSS
                PER COMMON SHARE**Basic
            
            **$**
            **(0.07**
            **)**
            **$**
            **(0.24**
            **)**Diluted
            
            **$**
            **(0.07**
            **)**
            **$**
            **(0.24**
            **)****WEIGHTED
                AVERAGE SHARES OF****COMMON
                STOCK**Basic
            
            
            **28,169,013**
            
            
            **21,718,329**Diluted
            
            
            **28,169,013**
            
            
            **21,718,329**




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




F-4





**EQUICAP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**





**For the Years Ended****June
                30,****2008**
            
            **2007****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (1,964,725
            )
            $
            (5,279,437
            )Adjustments
                to reconcile net loss to net cashprovided
                (used) by operating activities:Minority
                interest
            
            
            97,268
            
            
            17,299Depreciation
                and amortization
            
            
            129,684
            
            
            78Unusual
                charge-make good provision
            
            
            1,419,719
            
            
            3,954,930Allowance
                for bad debts
            
            
            (26,763
            )
            
            26,714Stock
                based compensation
            
            
            108,789
            
            
            942,315Non-cash
                payments of rent
            
            
            5,000
            
            
            4,200Changes
                in assets and liabilities:Accounts
                receivable
            
            
            103,307
            
            
            (366,184
            )Inventory
            
            
            (726,573
            )
            
            (254,605
            )Other
                receivables
            
            
            4,255,394
            
            
            (3,914,046
            )Advanced
                payments
            
            
            (4,051,931
            )
            
            (669,547
            )Prepaid
                expenses
            
            
            (181,706
            )
            
            (27,841
            )Notes
                receivable
            
            
            (278,104
            )
            
            -Deferred
                expenses
            
            
            (48,912
            )
            
            -Accounts
                payable and accrued expenses
            
            
            (28,154
            )
            
            515,806Taxes
                payable
            
            
            (39,387
            )
            
            -Other
                payables
            
            
            (312,175
            )
            
            170,155**Total
                Adjustments**
            
            
            **425,456**
            
            
            **399,274****Net
                Cash Used By Operating Activities**
            
            
            **(1,539,269**
            **)**
            
            **(4,880,163**
            **)****CASH
                FLOWS FROM INVESTING ACTIVITIES**Additions
                to property, plant and equipment
            
            
            (409,605
            )
            
            (35,665
            )Additions
                to construction in progress
            
            
            (1,618,887
            )
            
            (4,145
            )Additions
                to intangible assets
            
            
            (3,029
            )
            
            -Acquisition
                of Shengte, net of cash from Shengte
            
            
            (3,642,655
            )
            
            -**Net
                Cash Used By Investing Activities**
            
            
            **(5,674,176**
            **)**
            
            **(39,810**
            **)****CASH
                FLOWS FROM FINANCING ACTIVITIES**Proceeds
                from capital stock and subscriptions
            
            
            322
            
            
            9,970,219Proceeds
                from minority interest
            
            
            -
            
            
            2,617,299**Net
                Cash Provided By Financing Activities**
            
            
            **322**
            
            
            **12,587,518****EFFECT
                OF FOREIGN CURRENCY CONVERSION ON CASH**
            
            
            **321,284**
            
            
            **51,469****NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            **(6,891,839**
            **)**
            
            **7,719,014****CASH
                AND CASH EQUIVALENTS AT BEGINNING OF YEAR**
            
            
            **7,848,812**
            
            
            **129,798****CASH
                AND CASH EQUIVALENTS AT END OF YEAR**
            
            **$**
            **956,973**
            
            **$**
            **7,848,812****SUPPLEMENTAL
                INFORMATION:****CASH
                PAID FOR INCOME TAXES**
            
            $
            -
            
            $
            -**CASH
                PAID FOR INTEREST**
            
            $
            757
            
            $
            38,034




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




F-5


**EQUICAP,
      INC.**





**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**





**FOR
      THE YEARS ENDED JUNE 30, 2008 AND 2007**





**Accumulated****Stock**
            
            **Additional**
            
            
            
            **Other**
            
            **Total****Common Stock**
            
            **Subscriptions**
            
            **Paid-in**
            
            **Accumulated**
            
            **Comprehensive**
            
            **Stockholders’****Shares**
            
            **Par Value**
            
            **Receivable**
            
            **Capital**
            
            **Deficit**
            
            **Income**
            
            **Equity****BALANCE
                – JUNE 30, 2006**
            
            
            **18,323,944**
            
            **$**
            **18,324**
            
            **$**
            **(41,600**
            **)**
            
            **27,676**
            
            
            **60,557**
            
            **$**
            **-**
            
            
            **64,957**Issuance
                of common stock
            
            
            9,845,069
            
            
            9,845
            
            
            -
            
            
            9,886,226
            
            
            -
            
            
            -
            
            
            9,896,071Shareholder
                Contribution
            
            
            -
            
            
            -
            
            
            4,200
            
            
            -
            
            
            -
            
            
            -
            
            
            4,200Stock-based
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            326,368
            
            
            -
            
            
            -
            
            
            326,368Conversion
                of notes
            
            
            -
            
            
            -
            
            
            -
            
            
            897,131
            
            
            -
            
            
            -
            
            
            897,131Make
                Good
            
            
            -
            
            
            -
            
            
            -
            
            
            3,954,930
            
            
            -
            
            
            -
            
            
            3,954,930Net
                Loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,279,437
            )
            
            -
            
            
            (5,279,437
            )Foreign
                Currency Translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            182,177
            
            
            182,177**BALANCE-JUNE
                30, 2007**
            
            
            **28,169,013**
            
            **$**
            **28,169**
            
            **$**
            **(37,400**
            **)**
            **$**
            **15,092,331**
            
            **$**
            **(5,218,880**
            **)**
            **$**
            **182,177**
            
            **$**
            **10,046,397**Shareholder
                Contribution
            
            
            -
            
            
            -
            
            
            5,000
            
            
            -
            
            
            -
            
            
            -
            
            
            5,000Make
                Good
            
            
            -
            
            
            -
            
            
            -
            
            
            1,419,719
            
            
            -
            
            
            -
            
            
            1,419,719Net
                Loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,964,725
            )
            
            -
            
            
            (1,964,725
            )Foreign
                Currency Translation
            
            
            -
            
            
            -
            
            
            -
            
            
            4,851
            
            
            -
            
            
            1,190,651
            
            
            1,195,502**BALANCE-JUNE
                30, 2008**
            
            
            **28,169,013**
            
            **$**
            **28,169**
            
            **$**
            **(32,400**
            **)**
            **$**
            **16,516,901**
            
            **$**
            **(7,183,605**
            **)**
            **$**
            **1,372,828**
            
            **$**
            **10,701,893**




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




F-6






**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





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





Equicap,
      Inc. (“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 Equicap, Inc.,
      approved and finalized a Share Purchase Agreement (“Share Purchase Agreement”)
      with Xinchang Keyi Machinery Co., Ltd., a corporation incorporated in the
      People’s Republic of China (“Keyi”). Pursuant to the Share Purchase Agreement,
      Zhongchai purchased all the outstanding equity of 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
      common stock of Equicap, Inc.





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





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





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





**PRINCIPLES
      OF CONSOLIDATION**





The
      consolidated financial statements include the accounts of the parent company
      and
      the subsidiaries. Intercompany accounts and transactions have been eliminated
      in
      consolidation.





**CASH
      AND CASH EQUIVALENTS**





In
      accordance with Statement of Financial Accounting Standards No. 95, "Statement
      of Cash Flows," the Company considers all highly liquid instruments with
      original maturities of three months or less to be cash and cash
      equivalents.





**ACCOUNTS
      RECEIVABLE AND BAD DEBT RESERVES**





Trade
      accounts receivable are stated at the amount management expects to collect
      from
      balances outstanding at the end of the period. Based on its assessment of the
      credit history with customers having outstanding balances and current
      relationships with them, management makes conclusions whether any realization
      of
      losses on balances outstanding at the end of the period will be deemed
      uncollectible based on the age of the receivables. For the North America/Auto
      Parts segment, the Company reserves 5% of accounts receivable balances that
      have
      been outstanding for greater than 90 days. For the China/Gear segment, 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.


F-7


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





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





**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.





**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, 2008, the Company concluded that there were no impairments on
      goodwill or indefinite-lived intangibles.





**REVENUE
      RECOGNITION**





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





**SALES
      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. Such replacements or
      returns as well as handling costs therefrom are passed through to the suppliers.





**ADVERTISING
      COSTS**





The
      Company expenses the cost of advertising as incurred. Advertising costs for
      the
      year ended June 30, 2008 and 2007 were insignificant.


F-8


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





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





**COMPREHENSIVE
      INCOME (LOSS)**





The
      Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes
      rules for the reporting of comprehensive income and its components. In addition
      to net loss, comprehensive income (loss) includes all changes in equity during
      a
      period, except those resulting from investments by and distributions to owners.
      Items of comprehensive income include foreign currency translation
      adjustment.





**FOREIGN
      CURRENCY TRANSLATION**





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.





**RECENT
      ACCOUNTING PRONOUNCEMENTS**





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 January 1, 2008.
      It is
      expected that the adoption of SFAS No. 159 will not have a material impact
      on
      the Company’s financial condition or results of operations.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB Statement No. 51.” SFAS
      No. 160 amends Accounting Research Bulletin (ARB) No. 51, “Consolidated
      Financial Statements,” to establish accounting and reporting standards for the
      noncontrolling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS No. 160 clarifies that a noncontrolling interest in a
      subsidiary, which is sometimes referred to as a minority interest, is an
      ownership interest in the consolidated entity that should be reported as a
      component of equity in the consolidated financial statements. Among other
      requirements, SFAS No. 160 requires consolidated net income to be reported
      at
      amounts that include the amounts attributable to both the parent and the
      noncontrolling interest. It also requires disclosure, on the face of the
      consolidated income statement, of the amounts of consolidated net income
      attributable to the parent and the noncontrolling interest. SFAS No. 160 is
      effective for the Company on January 1, 2009, and is not expected to have a
      significant impact on the Company’s financial condition or results of
      operations.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations
      (Revised))”, (SFAS No. 141(R)), to replace SFAS No. 141, “Business Combinations.
      SFAS No. 141(R) requires the use of the acquisition method of accounting,
      defines the acquirer, establishes the acquisition date and broadens the scope
      to
      all transactions and other events in which one entity obtains control over
      one
      or more other businesses. This statement is effective for business combinations
      or transactions entered into for fiscal years beginning on or after December
      15,
      2008. The Company is evaluating the impact of SFAS No. 141 (R).





**FAIR
      VALUE OF FINANCIAL INSTRUMENTS**





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


F-9


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





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





**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, 2008. 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 previously 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.





**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. (See Note 11).


**Year Ended June 30, 2008****Net Income (Loss)**
              
              **Shares**
              
              **Per Share**Loss
                  from operations
              
              $
              (
                  656,591
              )
              
              28,169,013
              
              $
              (0.02
              )Basic
                  EPS
              
              $
              (1,964,725
              )
              
              28,169,013
              
              $
              (0.07
              )Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -Diluted
                  EPS
              
              $
              (1,964,725
              )
              
              28,169,013
              
              $
              (0.07
              )
 
 **Year Ended June 30, 2007****Net Income (Loss)**
              
              **Shares**
              
              **Per Share**Loss
                  from operations
              
              $
              (1,323,933
              )
              
              21,718,329
              
              $
              (0.06
              )Basic
                  EPS
              
              $
              (5,279,437
              )
              
              21,718,329
              
              $
              (0.24
              )Effect
                  of dilutive securities
              
              
              -
              
              
              -
              
              
              -Diluted
                  EPS
              
              $
              (5,279,437
              )
              
              21,718,329
              
              $
              (0.24
              )




F-10




**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





**NOTE
      3 – INVENTORY**





Inventory
      at June 30, 2008 and 2007 consisted of the following:





2008
            
            2007Gears
                products
            
            $
            574,097
            
            $
            328,519Starters
                & Alternators
            
            
            -
            
            
            49,556Gearbox
                products
            
            
            612,597
            
            
            -Other
            
            
            206
            
            
            -Total
            
            $
            1,186,900
            
            $
            378,075





**NOTE
      4 – PROPERTY AND EQUIPMENT**





Property
      and equipment, at cost, consists of the following at June 30, 2008 and
      2007:





2008
            
            2007Manufacturing
                equipment
            
            $
            784,658
            
            $
            -Office
                equipment and furniture
            
            
            45,537
            
            
            5,573Vehicles
            
            
            61,785
            
            
            30,393Subtotal
            
            
            891,980
            
            
            35,966Less:
                Accumulated depreciation
            
            
            164,204
            
            
            78727,776
            
            
            35,888Construction
                in progress
            
            
            1,783,826
            
            
            4,180Total
            
            $
            2,511,602
            
            $
            40,068





Depreciation
      expense for the year ended June 30, 2008 and 2007 was $129,095 and $78,
      respectively.





**NOTE
      5 – ADVANCE PAYMENTS**





Advance
      payments amounted to approximately $5.06 million as of June 30, 2008, which
      represent a deposit that Zhongchai placed with Zhejiang Xinchai Holdings Co.,
      Ltd. ("Xinchai Holdings"), a corporation in China, to secure Zhongchai's
      exclusive right to acquire 100% interest of a project from Xinchai
      Holdings within twelve months starting Oct. 15, 2007. The project is located
      in
      Hangzhou, Zhejiang Province, China, for assembly of advanced diesel
      engines, engine components and related products. The project is currently in
      the
      process of obtaining land, approval, and final registration. Zhongchai will
      be
      entitled to a refund of the full deposit amount in case the project is not
      completed or Zhongchai decides not to pursue the transaction within the
      twelve-month period. The Company expects to enter into a definitive agreement
      after completion of due diligence and final establishment of the
      operations.





**NOTE
      6 – RENTAL EXPENSE**





The
      Company's U.S. office site is located in the state of California. Rental expense
      for the years ended June 30, 2008 and 2007 was $5,000 and $4,200,
      respectively. The Company’s Chinese operation is located in Hangzhou, China, and
      the rental expense for the years ended June 30, 2008 and 2007 was $34,253 and
      $21,628 respectively.





**NOTE
      7 –** **SIGNIFICANT
      CUSTOMERS AND SUPPLIERS**





The
      Company had three major customers, BBB/OCA, JNS Tsusho Corp. and Ltd/Visteon,
      Inc., who accounted for approximately 32%, 28% and 27%, respectively of the
      Company's net revenue of the auto parts segment for the year ended June 30,
      2008. For the gear segment, two customers, Zhejiang Xinchai Co., Ltd. and
      Zhejiang Xinchai Power Co., Ltd. accounted for 90% and 7%, respectively, of
      the
      net revenue in China, for the year ended June 30, 2008. These five customers
      accounted for 8%, 7%, 6%, 69% and 6%, respectively, of the Company’s
      consolidated revenue for the year ended June 30, 2008.


F-11


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





**NOTE
      7 –** **SIGNIFICANT
      CUSTOMERS AND SUPPLIERS** (continued)





The
      Company had three major vendors, Zhejiang Yongkang Boyu, Wuxi Susun and
      Fittswell Industries Co., Ltd who provided approximately 36%, 28%, and 26%,
      respectively of the Company's purchases of the auto parts segment for the year
      ended June 30, 2008. For the gear segment, three major suppliers, Zhejiang
      Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and Xinchang
      Zhaofeng Machinery Co., Ltd., accounted for 38%, 16%, and 6%, respectively of the total purchases, for the
      year ended June 30, 2008. These six suppliers accounted for 8%, 6%, 5%, 30%,
      13%
      and 5%, respectively, of the Company’s consolidated purchases for the year ended
      June 30, 2008.





**NOTE
      8 – DEFERRED COMPENSATION**





As
      described in Note 10 (“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
      9 – STOCK AUTHORIZATION AND ISSUANCE**





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





The
      Company has a registration payment arrangement with regard to the common stock
      issued in the private offering. The Company was required to file a registration
      statement within 45 days of closing and cause the registration statement to
      become effective on or prior to 150 days after the closing date. The
      registration statement was filed within the 45 day limit thus fulfilling part
      of
      this obligation. In addition, the Company is required to use reasonable
      commercial efforts to maintain the registration statement’s effectiveness and
      file additional registration statements in the future, to continue to provide
      to
      the stockholders the opportunity to sell the shares of restricted stock that
      they hold.





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





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





**NOTE
      10 – 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.


F-12


**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





**NOTE
      10 – SEGMENT REPORTING** (continued)





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, 2008 and 2007





**Years ended June 30,****Segment revenues**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            778,838
            
            $
            1,324,819China/Gear
            
            $
            2,554,487
            
            $
            492,445$
            3,333,325
            
            $
            1,817,264


**Segment operating earnings**
              
              **Years ended June 30,****(loss)**
              
              **2008**
              
              **2007**North
                  America/Auto Parts
              
              $
              (
                  97,754
              )
              $
              (
                  95,112
              )China/Gear
              
              $
              230,959
              
              $
              55,232Corporate
                  and Elimination
              
              $
              (
                  789,796
              )
              $
              (1,284,053
              )$
              (
                  656,591
              )
              $
              (1,323,933
              )





**Years ended June 30,****Depreciation expense**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            -
            
            $
            -China/Gear
            
            $
            129,095
            
            $
            78$
            129,095
            
            $
            78





**Years ended June 30,****Segment identifiable assets**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            451,240
            
            $
            406,329China/Gear
            
            $
            13,650,982
            
            $
            11,515,248Corporate
                and Elimination
            
            $
            688,595
            
            $
            1,972,044$
            14,790,817
            
            $
            13,893,621


F-13





**EQUICAP,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**JUNE
      30, 2008 AND 2007**





**NOTE
      11 – STOCK-BASED COMPENSATION**





As
      of
      June 30, 2008, 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, 2008, the Company
      recorded approximately $45,184 of stock-based compensation based on the fair
      value method of SFAS. N0. 123R using the following assumptions: Volatility
      of  34.94%,
      risk free interest rate of 4.63%, dividend yield of 0%, and expected life of
      5
      years. No estimate of forfeitures was made as the Company has a short history
      of
      granting options.





The
      fair
      value of the options and warrants was determined based on the number of shares
      granted and the quoted price of the Company’s common stock on the date of grant.
      The fair value of stock-based compensation was determined using the
      Black-Scholes model.





**NOTE
      12 – COMITTMENTS 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, have agreed to place into escrow an aggregate of 10,140,846 shares
      of
      common stock issued in the Share Exchange. The placing of shares by the former
      shareholders of Usunco into escrow was tantamount to a reverse stock split
      followed by the grant of a restricted stock award. If the consolidated financial
      statements of Equicap for the fiscal year ending June 30, 2007, prepared in
      accordance with United States generally accepted accounting principles,
      consistently applied, reflect either (i) less than $2,320,000 of after-tax
      net
      income or (ii) earnings before income tax provision and before minority interest
      of less than $3,200,000, then 3,042,254 shares of common stock in escrow will
      be
      distributed to the investors on a pro rata basis for no additional
      consideration. The Company did not satisfy the condition and these shares have
      been distributed. According to the Registration Rights Agreement, the Company
      filed a registration statement for such 3,042,254 shares distributed to the
      investors, and the registration statement was declared effective on December
      21,
      2007.





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





According
      to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
      if the performance criteria are not met these shares will be released to the
      investors and treated as an expense for the amount of the market value of the
      shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based
      Compensation, if the performance criteria are met, the shares will be released
      back to the former shareholders of Usunco and treated as an expense for the
      amount of the market value of the shares as of the date of release. Based upon
      the 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 is $1,419,719. Such expense
      is treated as an unusual item since it is deemed to be unusual in nature but
      may
      not be infrequent in occurrence. This recognition of expense will not occur
      if
      the shares are forfeited or cancelled and are not released to either the
      investors or the former shareholders of Usunco.





**NOTE
      13 – SUBSEQUENT EVENTS**


None.




F-14


**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this Report to be signed on its behalf by the undersigned, thereunto duly
      authorized on September 26, 2008.




EQUICAP,
                INC.By:
            /s/ Jason
                LuJason
                LuChief
                Executive Officer




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
            
            September 26, 2008**Peter
                Wang**/s/
                Jason Lu
            
            Chief Executive Officer (Principal
            
            September 26, 2008**Jason
                Lu**
            
            Executive Officer) and Director/s/
                David Ming He
            
            Chief Financial Officer (Principal
            
            September 26, 2008**David
                Ming He**
            
            Financial and Accounting Officer)/s/
                Haining Liu
            
            Director
            
            September 26, 2008**Haining
                Liu**




-46-