U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x
QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
quarterly period ended September 30, 2009





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from ____ to _____





Commission
file number: 000-31091





Equicap,
Inc.


(Exact
name of small business issuer as specified in its charter)








Nevada
                  
                  33-0652593(State or other jurisdiction of
                  
                  (I.R.S. employerincorporation or organization)
                  
                  identification number)224 Tianmushan  Road,Zhongrong Chengshi  Huayuan 5-1-602,Zhangzhou, P.R. China
                  
                  310007(Address of principal executive offices)
                  
                  (Zip Code)





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





Not Applicable


(Former
name, former address and former


fiscal
year, if changed since last report)





Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.     Yes  xNo
 ̈





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





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


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





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date: 27,613,019shares
of common stock, par value $.001 per share, outstanding as of November 11,
2009.





EQUICAP,
INC.





-
INDEX -





PagePART I – FINANCIAL INFORMATION:Item 1.
                                              Financial
      Statements
                                              2Consolidated
      Balance Sheet as of September 30, 2009 (unaudited)
                                              2Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Three
      Months Ended September 30, 2009 and 2008 (unaudited)
                                              3Consolidated
      Statements of Cash Flows for the Three Months Ended September 30, 2009 and
      2008 (unaudited)
                                              4Notes
      to Consolidated Financial Statements, September 30, 2009 and
      2008
                                              5Item 2.
                                              Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations
                                              11Item 3
                                              Quantitative
      and Qualitative Disclosures about Market Risk
                                              19Item 4T Controls and Procedures
                                              19PART II – OTHER INFORMATION:Item 1.
                                              Legal
      Proceedings
                                              19Item 1A. Risk Factors
                                              19Item 2.
                                              Unregistered
      Sales of Equity Securities and Use of Proceeds
                                              19Item 3.
                                              Defaults
      Upon Senior Securities
                                              19Item 4.
                                              Submission
      of Matters to a Vote of Security Holders
                                              19Item 5.
                                              Other
      Information
                                              19Item 6.
                                              Exhibits
                                              20Signatures
                                              21







FORWARD-LOOKING
STATEMENTS





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









PART I – FINANCIAL
INFORMATION





Item
1.  Financial Statements.


EQUICAP,
INC.





Consolidated
Balance Sheets





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





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


2


EQUICAP,
INC.





Consolidated
Statements of Operations and Comprehensive Income (Loss)


(Unaudited)





For the Three Months EndedSeptember 30,2009
                
                
                2008Revenue
                
                $
                1,948,406
                
                
                $
                1,186,570Cost
      of sales
                
                
                1,543,174
                
                
                
                852,087Gross
      profit
                
                
                405,232
                
                
                
                334,483Operating
      expensesSelling,
      general and administrative
                
                
                344,240
                
                
                
                468,688Income
      (loss) from operations
                
                
                60,992
                
                
                
                (134,205
                )Other
      income (expenses):Interest
      income, net
                
                
                (18,767
                )
                
                
                2,713Other
      income
                
                
                4,240
                
                
                
                31,439Total
      other income (expenses)
                
                
                (14,527
                )
                
                
                34,152Income
      (loss) before provision for income taxes
                
                
                46,465
                
                
                
                (100,053
                )Provision
      for income taxes
                
                
                35,505
                
                
                
                788Net
      income (loss) before noncontrolling interest
                
                
                10,960
                
                
                
                (100,841
                )Noncontrolling
      interest
                
                
                39,315
                
                
                
                29,697Net
      loss
                
                
                (28,355
                )
                
                
                (130,538
                )Other
      comprehensive incomeForeign
      currency translation adjustment
                
                
                16,862
                
                
                
                25,656Comprehensive
      loss
                
                $
                (11,493
                )
                
                $
                (104,882
                )Loss
      per common share:Basic
                
                $
                (0.00
                )
                
                $
                (0.00
                )Diluted
                
                $
                (0.00
                )
                
                $
                (0.00
                )Weighted
      average number of common shares outstanding:Basic
                
                
                27,613,019
                
                
                
                28,169,013Diluted
                
                
                27,613,019
                
                
                
                28,169,013





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


3


EQUICAP,
INC.





Consolidated
Statements of Cash Flows


(Unaudited)





For the Three Months EndedSeptember 30,2009
                    
                    
                    2008Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (28,355
                    )
                    
                    $
                    (130,538
                    )Adjustments
      to reconcile net loss to net cashprovided
      by (used in) operating activities:Noncontrolling
      interest
                    
                    
                    39,315
                    
                    
                    
                    29,697Depreciation
      and amortization
                    
                    
                    72,159
                    
                    
                    
                    42,184Provision
      for bad debts
                    
                    
                    2,776
                    
                    
                    
                    (15,262
                    )Share-based
      payments
                    
                    
                    27,198
                    
                    
                    
                    27,197Non-cash
      payments of rent
                    
                    
                    -
                    
                    
                    
                    1,240Changes
      in assets and liabilities:Accounts
      receivable
                    
                    
                    (153,312
                    )
                    
                    
                    (31,607
                    )Inventory
                    
                    
                    (8,217
                    )
                    
                    
                    (207,293
                    )Trade
      notes receivable
                    
                    
                    (129,301
                    )
                    
                    
                    116,041Other
      receivables
                    
                    
                    7,550
                    
                    
                    
                    97,125Advance
      payments
                    
                    
                    (2,369,187
                    )
                    
                    
                    4,257Prepaid
      expenses
                    
                    
                    3,457
                    
                    
                    
                    125,184Deferred
      expenses
                    
                    
                    200
                    
                    
                    
                    2,506Accounts
      payable and accrued expenses
                    
                    
                    308,956
                    
                    
                    
                    (97,928
                    )Trade
      notes payable
                    
                    
                    98,419
                    
                    
                    
                    -Taxes
      payable
                    
                    
                    3,507
                    
                    
                    
                    10,017Advances
      from customers
                    
                    
                    4,153
                    
                    
                    
                    -Other
      current liabilities
                    
                    
                    (10,926
                    )
                    
                    
                    23,841Total
      adjustments
                    
                    
                    (2,103,253
                    )
                    
                    
                    127,199Net
      cash used in operating activities
                    
                    
                    (2,131,608
                    )
                    
                    
                    (3,339
                    )Cash
      flows from investing activities:Additions
      to property and equipment
                    
                    
                    (127,626
                    )
                    
                    
                    (137,815
                    )Proceeds
      from notes receivable
                    
                    
                    7,500
                    
                    
                    
                    -Net
      cash used in investing activities
                    
                    
                    (120,126
                    )
                    
                    
                    (137,815
                    )Cash
      flows from financing activities:Repayment
      for short term bank loans
                    
                    
                    (777,033
                    )
                    
                    
                    -Contribution
      from minority shareholders
                    
                    
                    293,220
                    
                    
                    
                    -Net
      cash used in financing activities
                    
                    
                    (483,813
                    )
                    
                    
                    -Effect
      of foreign currency translation on cash
                    
                    
                    3,942
                    
                    
                    
                    974Net
      decrease in cash and cash equivalents and restricted cash
                    
                    
                    (2,731,605
                    )
                    
                    
                    (140,180
                    )Cash and cash
      equivalentsand
      restricted cash–beginning
                    
                    
                    4,305,918
                    
                    
                    
                    956,973Cash and cash
      equivalentsand
      restricted cash –ending
                    
                    $
                    1,574,313
                    
                    
                    $
                    816,793





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


4


EQUICAP,
INC.


Notes
to Consolidated Financial Statements


September
30, 2009 and 2008


(Unaudited)





Note
1 – Organization and Nature of Business





Equicap,
Inc. (“Equicap” or “the Company”), a Nevada corporation, is a manufacturer and
distributor of gears and gearboxes, which are marketed and sold to customers in
China.





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





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





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





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





On June
15, 2009, IBC was sold to certain of the management persons of IBC in exchange
for the following: (i) the cancellation of an aggregate of 555,994 shares of
common stock of the Company which those individuals owned, and (ii) the payment
of $60,000 in installments pursuant to the terms of an unsecured promissory
note, the final payment of which will be November 15, 2010. As part of the
transaction, the Company cancelled $428,261 through the closing date, of
inter-company debt which funds had been used in the business of IBC prior to the
transaction.





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


5




Note
2 – Summary of Significant Accounting Policies





Basis
of Presentation





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





Interim
Financial Statements





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





Recent
Accounting Pronouncements





On July
1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched
the FASB Accounting Standards Codification (“ASC”), which has become the single
official source of authoritative nongovernmental U.S. GAAP, in addition to
guidance issued by the Securities and Exchange Commission. The ASC is designed
to simplify U.S. GAAP into a single, topically ordered structure. All guidance
contained in the ASC carries an equal level of authority. The ASC is effective
for all interim and annual periods ending after September 15, 2009. The
Company’s implementation of this guidance effective July 1, 2009 did not have a
material effect on the Company’s condensed consolidated financial
statements.





Goodwill
and Other Intangible Assets





Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and intangible assets with indefinite lives are
subject to annual impairment test using the guidance and criteria described in
Statement of Financial Accounting Standard No. 142, (ASC 350) “Goodwill and
Other Intangible Assets”. This test compares carrying values to fair values and,
when appropriate, the carrying value of these assets is reduced to fair
value.





Note
3 – Restricted Cash





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


6




Note
4 – Inventory





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





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





Note
5 – Advance Payments





Advance
payments amounted to approximately $5.4 million as of September 30, 2009, of
which approximately $4.6 million represented an advance payment made by the
Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a
corporation in China, for the purchase of land use rights and building for
Zhongchai JV’s future expansion of its production capabilities. Zhongchai JV is
currently leasing a portion of the land and building to be purchased. The total
land area to be purchased is approximately 250,000 square feet. The total
contract price for the land use rights, building and fixtures is approximately
$4.6 million. The Company is currently in the process of registering and
transferring title.





Note
6 – Property and Equipment





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





September 30,
                  
                  
                  June 30,2009
                  
                  
                  2009Manufacturing
      equipment
                  
                  $
                  3,055,115
                  
                  
                  $
                  2,923,420Office
      equipment and furniture
                  
                  
                  56,673
                  
                  
                  
                  56,597Vehicles
                  
                  
                  62,124
                  
                  
                  
                  62,039Subtotal
                  
                  
                  3,173,912
                  
                  
                  
                  3,042,056Less:
      Accumulated depreciation
                  
                  
                  451,584
                  
                  
                  
                  379,132Total
                  
                  $
                  2,722,328
                  
                  
                  $
                  2,662,924





Depreciation
expense for the three months ended September 30, 2009 and 2008 was $71,890 and
$41,916, respectively.





Note
7 – Accounts Payable and Accrued Expenses





Accounts
payable and accrued expenses consist of the following:





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





The
carrying value of accounts payable and accrued expenses approximates their fair
value due to the short-term nature of these obligations.


7


Note
8 – Short Term Bank Loans





Short-term
bank loans consist of the following:





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





Note
9 – Rental Expense





The
Company’s Chinese operations are located in Zhejiang, China, and the rental
expense for the three months ended September 30, 2009 and 2008 was $10,870 and
$14,603, respectively.





Note
10 – Major Customers and Suppliers





Two
customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd.
accounted for 47% and 29%, respectively, of the Company’s net revenue for the
three months ended September 30, 2009. Five major suppliers, Zhejiang Yuyang
Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Xinchang Zhicheng
Machinery Fittings Factory, Changzhou Wujin Hengli Machinery Fittings Co., Ltd.,
and Chongqing Shenjian Auto Transmission Parts Co., Ltd. accounted for
approximately 28%, 7%, 6%, 6% and 6% respectively, of the Company’s total
purchases for the three months ended September 30, 2009.





Note
11 – Deferred Compensation





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





Note
12 – Supplemental Disclosure of Cash Flow Information





For the Three Months Ended September 30,2009
                    
                    
                    2008Cash
      paid for interest
                    
                    $
                    24,774
                    
                    
                    $
                    -Cash
      paid for income taxes
                    
                    $
                    42,642
                    
                    
                    $
                    788




8




Note
13 – 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.





September 30, 2009
                      
                      
                      September 30, 2008Net
      loss
                      
                      $
                      (28,355
                      )
                      
                      $
                      (130,538
                      )Weighted
      average common shares
                      
                      
                      27,613,019
                      
                      
                      
                      28,169,013(denominator
      for basic loss per share)Effect
      of dilutive securities:
                      
                      
                      -
                      
                      
                      
                      -Weighted
      average common shares(denominator
      for diluted loss per share)
                      
                      
                      27,613,019
                      
                      
                      
                      28,169,013Basic
      net loss per share
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.00
                      )Diluted
      net loss per share
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.00
                      )





Note
14 – Share-Based Payments





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





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





Note
15 – Stock Authorization and Issuance





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





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


9





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





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





Note
16 – Employee Welfare Plan





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





Note
17 – Legal Proceedings





On
November 6, 2008, a group of the investors filed a law suit in federal court in
New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and
vFinance Investment, Inc. based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation arising out of the private placement
closed on March 7, 2007. The action was settled by an agreement dated July 31,
2009, which provided (i) for a third party, Ruihua International Limited
("Ruihua"), to purchase all the shares of common stock of the Company owned and
held by the plaintiffs, (ii) upon the purchase of the shares, for the Company
and Mr. Wang and each of the plaintiffs to exchange general mutual releases as
to all matters arising concerning the plaintiffs' purchase and holding of the
common shares of the Company, and (iii) for a stipulation to dismiss the
action.  The action was discontinued with prejudice by stipulation
among all the parties which was  ordered by the court on August 4,
2009.





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





NOTE
18 – Subsequent
Events





None.


10


Item
2.        Management’s Discussion and
Analysis of Financial Condition and Results of Operations or Plan of
Operations.




Equicap,
Inc. (“Equicap”), a Nevada corporation, does business through its subsidiary,
Usunco Automotive Limited (“Usunco”), a British Virgin Islands company, which in
turn operates through 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.  Through its operating subsidiaries, Equicap is
currently engaged in the manufacturing and sale of gears and gearboxes in
China.




Company
Background




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




Share
Exchange




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




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




For
advice in connection with the Share Exchange, vFinance Investments, Inc., was
issued 161,633 shares of restricted common stock as compensation.




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




Conversion
of Convertible Note of Equicap




Equicap
and Fountainhead Capital Partners Limited entered into a convertible note on
December 31, 2006, the principal of which was for working capital and discharge
of accrued payables of Equicap.  As part of the Share Exchange,
Fountainhead agreed to convert the outstanding principal and accrued interest of
approximately $100,000 into 702,132 shares of common stock, contingent on the
closing of the Share Exchange.  Upon the conversion, the note was
cancelled.




2007
Private Placement Offering




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


11




vFinance
Investment, Inc. was the exclusive placement agent for the
Offering.  For their services as placement agent, Equicap paid
vFinance a fee of approximately $983,000.  Equicap also reimbursed
vFinance its expenses of approximately $120,000.  In addition, Equicap
issued to vFinance a five-year warrant to purchase an aggregate of 422,535
shares of common stock at an exercise price of $2.13 per share (“Agent
Warrant”).  The warrant vests over a three-year period and terminates
March 6, 2012.




In
connection with the Offering, Equicap granted registration rights to the
investors, vFinance and the holders of the Agent Warrant, and provided for
registration rights for certain former principal shareholders of Equicap through
piggy-back rights for their respective shares of common
stock.  Equicap entered into one registration rights agreement with
the aforementioned persons. In addition, if certain make good shares were
distributed to the investors, Equicap was obligated to register these shares in
addition. If any of the registrable shares are not eligible for registration
because of the rules and regulations of the Securities and Exchange Commission,
when they are eligible for registration, Equicap will be obligated to take such
action to have them registered for sale by the holder by filing successive
registration statements. The initial registration statement for sale of the
common shares was filed within the 45 day time limit of the registration rights
agreement. Equicap had to have the registration statement effective within 150
days of the closing date of the Offering. If these actions were not achieved by
the specified dates, then Equicap had to pay each of, and only, the investors an
amount equal to 1% of the share purchase price actually paid by such investor
for each month thereafter that the shares could not be sold under the
registration statement. Similar penalties for the failure to file or have
declared effective a registration statement within the stated time periods and
maintain its effectiveness apply to the subsequent required registration
statements.  The maximum penalties under the liquidated damages
provision payable to the investors is 10% of the share purchase price paid by
the investors in the Offering.  The registration statements required
for the investors and vFinance under the registration rights agreement had to be
kept effective until all the shares of these parties are sold or may be sold
without limitation under Rule 144.  Equicap did not meet the
effectiveness deadline for the initial registration statement and paid $32,000
to the investors under the liquidated damages provision.




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




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


12


Results
of Operations




Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008




Revenue




Revenue
increased by $761,836 or 64% to $1,948,406 for the three months ended September
30, 2009 compared with $1,186,570 for the three months ended September 30, 2008.
Sales revenue for the three months ended September 30, 2009 consisted solely of
sales of gears and gearboxes in China, as a result of the Company’s sale of IBC,
the North America / Auto Parts segment in June 2009. Revenue for the three
months ended September 30, 2008, consisted of sales of automotive parts in North
America and sales of gears and gearboxes in China, for $339,563 and $847,007,
respectively. The sales revenue of gears and gearboxes for the first fiscal
quarter of 2010 grewby
approximately 130% compared to the sales of the same products in China for same
period in the prior fiscal year. The increase in gears and gearboxes
sales was attributable to the Company’s expansion in production capacity and its
continued marketing efforts to develop its customer base.  Revenues
during the period were also beneficially affected by the recovery of domestic
market in China for gear and gearbox products as a result of Chinese
government’s economic stimulus plan.




Cost
of Sales and Gross Margin




Cost of
sales was $1,543,174 for the three months ended September 30, 2009, increasing
by $691,087 or 81%, from $852,087 for the three months ended September 30, 2008.
The gross margin was approximately 21% for the three months ended September 30,
2009, compared to approximately 29% (excluding auto parts business) for the
three months ended September 30, 2008. The decrease in gross margin in this
quarter as compared to the same period in prior fiscal year was attributable
mainly to a general decrease in gear prices and the launch of new gearbox
products, the margin of which is lower than for gears. The shift in product mix
and development of new products has been implemented by the Company as a
strategy to quickly penetrate the market for its products and build
sales.




Selling,
General and Administrative Expenses




Selling,
general and administrative (“SG&A”) expenses consisted primarily of labor
costs and overhead costs for sales, marketing, finance, legal, human resources
and general management. Such costs also include the expenses recognized for
stock-based compensation pursuant to SFAS 123R (ASC 718).




SG&A
expenses decreased by $124,448 to $344,240 in the three months ended September
30, 2009, from $468,688 in three months ended September 30, 2008. SG&A
decreased for the current period compared with the same period in the prior
fiscal year, and the decrease primarily was attributable to the exclusion of the
expenses associated with IBC, reduction in rental expense, and reduction in some
professional and consulting service expenses.




Net
Loss




Net loss
was $28,355 in three months ended September 30, 2009, compared with net loss of
$130,538 in the three months ended September 30, 2008. The net loss was mainly
attributable to R&D expenses for new products, the costs related to being a
public company including professional services related to auditing, legal and
other services, and non-cash expenses recognized for stock based compensation
related to stock options and warrants granted in the period pursuant to SFAS
123R (ASC 718).




Liquidity
and Capital Resources




As of
September 30, 2009, Equicap had current assets equal to $10,884,641, which
primarily were comprised of cash and cash equivalents of $1,160,252, restricted
cash of $414,061, inventory of $1,578,808 and net trade related receivables and
other receivables of $2,283,243, and advance payments of $5,362,956.
Approximately $4.6 million of the advance payments represented an advance
payment made by the Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd.
("Xinchai Holdings"), for the purchase of land use rights and building,
including fixtures thereto, for Zhongchai JV’s future expansion of production
capabilities. Equicap’s current liabilities as of September 30, 2009 were
$4,397,457, which primarily were comprised of short term bank loan, trade
accounts payable and accrued expenses, notes payable, and other payable. At
September 30, 2009, Equicap had working capital of
$6,487,184.  Equicap believes that it has sufficient operating capital
for its current operations.


13




Through
the fiscal year ended June 30, 2009, Equicap has funded its operations from
income generated by its IBC subsidiary (which was sold by the Company in June
2009) and, to a greater extent, by the income generated by its PRC subsidiaries
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 manufacturing, market expansion, product
development, product acquisition and working capital and general corporate
purposes.




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




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




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





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





On
November 6, 2008, a group of the investors filed a law suit in federal court in
New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and
vFinance Investment, Inc. based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation arising out of the private placement
closed on March 7, 2007. The action was settled by an agreement dated July 31,
2009, which provided (i) for a third party, Ruihua International Limited
("Ruihua"), to purchase all the shares of common stock of the Company owned and
held by the plaintiffs, (ii) upon the purchase of the shares, for the Company
and Mr. Wang and each of the plaintiffs to exchange general mutual releases as
to all matters arising concerning the plaintiffs' purchase and holding of the
common shares of the Company, and (iii) for a stipulation to dismiss the
action.  The action was discontinued with prejudice by stipulation
among all the parties which was ordered by the court on August 4, 2009. The
Company incurred legal and other consulting expenses and indemnification claims
for approximately $315,000 related to the lawsuit and the settlement efforts
thereof.


14


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).




Critical
Accounting Policies and Estimates




Principles
of Consolidation




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




Cash
and Cash Equivalents




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




Accounts
Receivable and Bad Debt Reserves




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




Inventory




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




Property
and Equipment




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


15




Under
SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
(ASC 360-10), the Company's long-lived assets are evaluated for impairment when
events or changes in business circumstances indicate that the carrying amount of
the assets may not be fully recoverable. The Company also assesses these assets
for impairment based on their estimated future cash flows. The Company has not
incurred any losses in connection with the adoption of this
statement.




Goodwill
and Other Intangible Assets




Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and indefinite-lived intangible assets are
subject to annual impairment testing using the guidance and criteria described
in Statement of Financial Accounting Standard No. 142 “Goodwill and Other
Intangible Assets” (ASC 350). This testing compares carrying values to fair
values and, when appropriate, the carrying value of these assets is reduced to
fair value.




Revenue
Recognition




Revenue
consists of sales of 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,
and is responsible for the costs and expenses thus incurred.




Advertising
Costs




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




Research
and Development Costs




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




Comprehensive
Income (Loss)




The
Company adopted SFAS No. 130, Reporting Comprehensive Income, which establishes
rules for the reporting and display of comprehensive income, its components and
accumulated balances. SFAS No. 130 (ASC220) defines comprehensive income (loss)
to include all changes in equity, including adjustments to minimum pension
liabilities, accumulated foreign currency translation, and unrealized gains or
losses on available-for-sale marketable securities, except those resulting from
investments by owners and distributions to owners.


16




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"
(ASC 830-20). Accordingly, all foreign currency assets and liabilities are
translated at the period-end exchange rate and all revenues and expenses are
translated at the average exchange rate for the period. The effects of
translating the financial statements of foreign subsidiaries into U.S. Dollars
are reported as a cumulative translation adjustment, a separate component of
comprehensive income in stockholder's equity.




Recent
Accounting Pronouncements




On July
1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched
the FASB Accounting Standards Codification (“ASC”), which has become the single
official source of authoritative nongovernmental U.S. GAAP, in addition to
guidance issued by the Securities and Exchange Commission. The ASC is designed
to simplify U.S. GAAP into a single, topically ordered structure. All guidance
contained in the ASC carries an equal level of authority. The ASC is effective
for all interim and annual periods ending after September 15, 2009. Accordingly,
the Company refers to Codification in respect to the appropriate accounting
standards throughout this document as “ASC”. Implementation of the Codification
did not have any impact on the Company’s consolidated financial
statements.




In May
2009, the FASB issued SFAS 165 “Subsequent Events” (ASC 855), which
establishes the general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
issued. ASC 855 is effective for interim and fiscal years ending after
June 15, 2009, which is the Company’s fourth quarter of fiscal 2009. The
adoption of ASC 855 did not have a material impact on the Company’s
consolidated financial statements.




In April
2009, FSP 157-4, Determining Fair Value When the Volume and Level of Activity
for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly, was issued to provide additional guidance for
estimating fair value in accordance with SFAS No. 157 (ASC 820), Fair Value
Measurements, when the volume and level of activity for the asset or liability
have significantly decreased.




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




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




In
December 2007, the FASB released SFAS 141(R) “Business Combinations” (ASC
805).  This standard applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008, and as such,
will be effective beginning in the Company’s fiscal year 2010.  This
standard establishes principles and requirements for how an acquirer recognizes
and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest and the goodwill acquired.
Additionally, transaction costs that are currently capitalized under current
accounting guidance will be required to be expensed as incurred under SFAS No.
141(R) (ASC 805). This standard also establishes disclosure requirements which
will enable users to evaluate the nature and financial effects of the business
combination.


17




In December 2007, the FASBissuedSFAS No. 160
“Noncontrolling Interests in Consolidated Financial Statements — an amendment of
ARB No. 51” (ASC 810-10).  This standard iswill change the
accounting and reporting for minority interests, which will now be termed
“non-controlling interests.” This
standardrequires non-controlling interests to be presented as a separate
component of equity and requires the amount of net income attributable to the
parent and to the non-controlling interest to be separately identified on the
consolidated statement of operations. SFAS 160(ASC 810-10) is effective for
fiscal years beginning on or after December 15, 2008, and as such, will be
effective beginning in the Company’s fiscal year 2010. The Company does not
expect the adoption of SFAS No. 160(ASC 810-10) to have a material
impact on its consolidated financial statements




In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities” (ASC 825-10). This standard permits entities
to measure many financial instruments and certain other items at fair value. The
purpose is to improve financial reporting by providing entities with the
opportunity to mitigate volatility. SFAS No. 159 (ASC 810-10)provides companies
with an option to report selected financial assets and liabilities at fair
value. The objective of this standard is to reduce both complexity in accounting
for financial instruments and the volatility in earnings caused by measuring
related assets and liabilities differently.  This standard also
establishes presentation and disclosure requirements designed to facilitate
comparisons between companies and choose different measurement attributes for
similar types of assets and liabilities.  This standard is effective
for the Company on July 1, 2008. It is not expected that the adoption of SFAS
No. 159 (ASC 810-10)will
have a material impact on the Company’s financial condition or results of
operations.




Fair
Value of Financial Instruments




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




Income
Taxes




Deferred
income taxes are computed using the asset and liability method, such that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and
the tax basis of existing assets and liabilities based on currently enacted tax
laws and tax rates in effect in the United States of America for the periods in
which the differences are expected to reverse. Income tax expense is the tax
payable for the period plus the change during the period in deferred income
taxes. A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. No
differences were noted between the book and tax bases of the Company’s assets
and liabilities, respectively. Therefore, there are no deferred tax assets or
liabilities for the three months ended September 30, 2009. For the operating
subsidiaries, the ZhongChai JV and its subsidiaries are located in the PRC, and
are 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.


18





Item
3. Quantitative and Qualitative Disclosures about Market Risk




The
information is not required for smaller reporting companies.




Item
4T.   Controls and Procedures.




As of the
end of the period covered by this report, the Company conducted an evaluation,
under the supervision and with the participation of the Chief Executive Officer
and Chief Financial Officer, of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on
this evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There was no change in the Company’s internal
control over financial reporting during the Company’s most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




PART II — OTHER
INFORMATION




Item 1.   Legal Proceedings.




None




Item
1A. Risk Factors.




Not
applicable to smaller reporting companies.




Item
2.   Unregistered Sales of Equity Securities and Use of
Proceeds.




None.




Item
3.   Defaults Upon Senior Securities.




None.




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




None.




Item
5.   Other Information.




None.


19


Item
6.    Exhibits.




Exhibit
            Description




31.1
            Certification
      of the Company’s Principal Executive Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly
      Report on Form 10-Q for the quarter ended September 30,
    2009.




31.2
            Certification
      of the Company’s Principal Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly
      Report on Form 10-Q for the quarter ended September 30,
    2009.




32.1
            Certification
      of the Company’s Principal Executive Officer and Principal Financial
      Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes Oxley Act of
2002.




20


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.





Date:
      November 11, 2009
            EQUICAP,
      INC.By:
            /s/ Peter WangName:
            Peter
      WangTitle:
            PresidentBy:
            /s/ David Ming HeName:
            David
      Ming HeTitle:
            Chief
      Financial Officer




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