U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-Q





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





For
      the
      quarterly period ended September 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.


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





Nevada
            
            33-0652593(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                employer
              identification
                number)10510
              Hillsboro RoadSanta
              Ana, California
            
            92705(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
x  No
o





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 o  
Accelerated Filer o  
      Non accelerated filer o   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 o  No x





APPLICABLE
      ONLY TO CORPORATE ISSUERS





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: 28,169,013 shares of common stock,
      par value $.001 per share, outstanding as of November 10, 2008.










**EQUICAP,
      INC.**




**-
      INDEX -**




Page**PART
                    I - FINANCIAL INFORMATION**:Item
                    1. Financial Statements
                1Consolidated
                    Balance Sheet as ofSeptember
                    30, 2008(unaudited)
                2Consolidated
                    Statements of Operations for the Three Months EndedSeptember
                    30, 2008and 2007 (unaudited)
                3Consolidated
                    Statements of Cash Flows for the Three Months EndedSeptember
                    30, 2008and 2007 (unaudited)
                4Notes
                    to Consolidated Financial Statements,September
                    30, 2008and 2007
                5Item
                    2. Management’s Discussion and Analysis of Financial Condition and Results
                    of Operations
                12Item
                    3 Quantitative and Qualitative Disclosures about Market
                    Risk
                19Item
                    4T Controls and Procedures
                19**PART
                    II - OTHER INFORMATION**:Item
                    1. Legal Proceedings
                19Item
                    1A. Risk Factors
                20Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds
                20Item
                    3. Defaults Upon Senior Securities
                20Item
                    4. Submission of Matters to a Vote of Security Holders
                20Item
                    5. Other Information
                20Item
                    6. Exhibits
                20Signatures
                21


**PART
      I - FINANCIAL INFORMATION**





**Item
              1.**
            **Financial
                Statements.**





Statements
      made in this Form 10-Q (the “Quarterly Report”) that are not historical or
      current facts are “forward-looking statements” made pursuant to the safe harbor
      provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”),
      and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). These statements often can be identified by the use of terms
      such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”,
“approximate”, or “continue”, or the negative thereof. Equicap, Inc. (the
“Company”) intends that such forward-looking statements be subject to the safe
      harbors for such statements. The Company wishes to caution readers not to place
      undue reliance on any such forward-looking statements, which speak only as
      of
      the date made. Any forward-looking statements represent management’s best
      judgment as to what may occur in the future. However, forward-looking statements
      are subject to risks, uncertainties and important factors beyond the control
      of
      the Company that could cause actual results and events to differ materially
      from
      historical results of operations and events and those presently anticipated
      or
      projected. These factors include our current dependence on a limited number
      of
      products and customers, the shift in focus of our business, the 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, operating a portion
      of our business 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.





1


**EQUICAP,
      INC.**




**Consolidated
      Balance Sheets**




**September
                30,**
            
            **June
                30,****2008**
            
            **2008****Assets**
            
            **(Unaudited)****Current
                assets:**Cash
                and cash equivalents
            
            $
            816,793
            
            $
            956,973Accounts
                receivable, net of allowance for doubtful accounts of $14,494and
                $29,747 at September 30, 2008 and June 30, 2008,
                respectively
            
            
            856,072
            
            
            807,484Inventory
            
            
            1,397,338
            
            
            1,186,900Other
                receivables, net
            
            
            44,819
            
            
            141,496Advance
                payments
            
            
            5,068,769
            
            
            5,059,154Prepaid
                expenses
            
            
            87,229
            
            
            212,405Notes
                receivable
            
            
            179,525
            
            
            294,686**Total
                current assets:**
            
            
            **8,450,545**
            
            
            **8,659,098****Property
                and equipment, net:**
            
            
            **2,614,330**
            
            
            **2,511,602****Goodwill:**
            
            
            **3,402,610**
            
            
            **3,393,307****Other
                asset:**Intangible
                assets, net
            
            
            2,325
            
            
            2,586Deferred
                compensation
            
            
            145,198
            
            
            172,395Deferred
                expenses
            
            
            49,467
            
            
            51,829**Total
                other assets:**
            
            
            **196,990**
            
            
            **226,810****Total
                assets:**
            
            **$**
            **14,664,475**
            
            **$**
            **14,790,817****Liabilities
                and stockholders’ equity:****Current
                liabilities:**Accounts
                payable and accrued expenses
            
            $
            755,549
            
            $
            851,284Taxes
                payable
            
            
            10,958
            
            
            946Other
                payables
            
            
            555,453
            
            
            530,381**Total
                current liabilities:**
            
            
            **1,321,960**
            
            
            **1,382,611****Minority
                interest:**
            
            
            **2,744,264**
            
            
            **2,706,313****Total
                liabilities:**
            
            
            **4,066,224**
            
            
            **4,088,924****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
            
            
            (31,160
            )
            
            (32,400
            )Additional
                paid-in capital
            
            
            16,516,901
            
            
            16,516,901Accumulated
                deficit
            
            
            (7,314,143
            )
            
            (7,183,605
            )Accumulated
                other comprehensive income
            
            
            1,398,484
            
            
            1,372,828**Total
                stockholders’ equity:**
            
            
            **10,598,251**
            
            
            **10,701,893****Total
                liabilities and stockholders' equity:**
            
            **$**
            **14,664,475**
            
            **$**
            **14,790,817**




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
                Three Months Ended****September
                30,****2008**
            
            **2007****Revenue:**
            
            **$**
            **1,186,570**
            
            **$**
            **732,607****Cost
                of sales:**
            
            
            **852,087**
            
            
            **588,438****Gross
                profit:**
            
            
            **334,483**
            
            
            **144,169****Operating
                expenses:**Selling,
                general and administrative
            
            
            468,688
            
            
            261,762**Loss
                from operations:**
            
            
            **(134,205**
            **)**
            
            **(117,593**
            **)****Other
                income (expense):**Interest
                income
            
            
            2,713
            
            
            32,136Other
                income (expense), net
            
            
            31,439
            
            
            (31,152
            )**Total
                other income (expense):**
            
            
            **34,152**
            
            
            **984****Loss
                before provision for income tax:**
            
            
            **(100,053**
            **)**
            
            **(116,609**
            **)****Provision
                for income tax:**
            
            
            **788**
            
            
            **-****Net
                loss before minority interest:**
            
            
            **(100,841**
            **)**
            
            **(116,609**
            **)****Minority
                interest:**
            
            
            **29,697**
            
            
            **21,132****Net
                loss:**
            
            
            **(130,538**
            **)**
            
            **(137,741**
            **)****Other
                comprehensive income:**Foreign
                currency translation adjustment
            
            
            25,656
            
            
            135,898**Comprehensive
                income (loss):**
            
            
            **($
                104,882**
            **)**
            
            **($
                1,843**
            **)****Loss
                per common share:**Basic
            
            
            **($
                0.00**
            **)**
            
            **($
                0.01**
            **)**Diluted
            
            
            **($
                0.00**
            **)**
            
            **($
                0.01**
            **)****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.





3


**EQUICAP,
      INC.**




**Consolidated
      Statements of Cash Flows**


**(Unaudited)**




**For
                Three Months Ended****September
                30,****2008**
            
            **2007****Cash
                flows from operating activities:**Net
                loss
            
            
            ($130,538
            )
            
            ($
                137,741
            )Adjustments
                to reconcile net loss to net cashProvided
                by (used in) operating activities:Share-based
                compensation
            
            
            27,197
            
            
            27,197Minority
                interest
            
            
            29,697
            
            
            21,132Depreciation
                and amortization
            
            
            42,184
            
            
            18,824Bad
                debt expense
            
            
            (15,262
            )
            
            (20,929
            )Non-cash
                payments of rent
            
            
            1,240
            
            
            1,250Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (31,607
            )
            
            338,994Inventory
            
            
            (207,293
            )
            
            (187,589
            )Other
                receivables
            
            
            97,125
            
            
            4,188,701Advance
                payments
            
            
            4,257
            
            
            661,497Prepaid
                expenses
            
            
            125,184
            
            
            (84,059
            )Notes
                receivable
            
            
            116,041
            
            
            (26,492
            )Deferred
                expenses
            
            
            2,506
            
            
            4,689Accounts
                payable and accrued expenses
            
            
            (97,928
            )
            
            (289,979
            )Taxes
                payable
            
            
            10,017
            
            
            (385
            )Other
                payables
            
            
            23,841
            
            
            414,248**Total
                adjustments:**
            
            
            **127,199**
            
            
            **5,067,099****Net
                cash provided by (used in) operating activities:**
            
            
            **(3,339**
            **)**
            
            **4,929,358****Cash
                flows from investing activities:**Additions
                to property, plant and equipment
            
            
            (19,897
            )
            
            (1,399,713
            )Additions
                to construction in progress
            
            
            (117,918
            )
            
            (213,928
            )Acquisition
                of Shengte, net of cash from Shengte
            
            
            -
            
            
            (3,495,463
            )**Net
                cash used in investing activities:**
            
            
            **(137,815**
            **)**
            
            **(5,109,104**
            **)****Effect
                of foreign currency conversion on cash:**
            
            
            **974**
            
            
            **91,719****Net
                decrease in cash and cash equivalents:**
            
            
            **(140,180**
            **)**
            
            **(88,027**
            **)****Cash
                and cash equivalents**-******beginning:**
            
            
            **956,973**
            
            
            **7,848,812****Cash
                and cash equivalents**-******ending:**
            
            **$**
            **816,793**
            
            **$**
            **7,760,785****Supplemental
                information:****Cash
                paid for income taxes:**
            
            $
            788
            
            $
            -**Cash
                paid for interest:**
            
            $
            -
            
            $
            -




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





4


**EQUICAP,
      INC.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





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





**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., (“Keyi”) a corporation incorporated in
      the People’s Republic of China. Pursuant to the Share Purchase Agreement,
      Zhongchai purchased all the outstanding equity of Zhejiang Shengte Transmission
      Co., Ltd. (“Shengte”) from Keyi, the sole owner of Shengte for approximately
      $3.7 million.





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





**BASIS
      OF PRESENTATION**





The
      Company’s Consolidated Financial Statements include the accounts of its direct
      wholly-owned subsidiaries and of its indirect proportionate share of
      subsidiaries owned by the wholly-owned subsidiaries. All intercompany balances
      and transactions are eliminated in consolidation. The accompanying unaudited
      financial statements have been prepared in accordance with GAAP for interim
      financial information and with the instructions to Form 10-Q and Regulation
      S-X
      applicable to small business issuers. 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.





**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 September 30, 2008, the Company concluded that there were no impairments
      on goodwill or indefinite-lived intangibles.





5


**EQUICAP,
      INC.**





**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





**NOTE
      2 - INTERIM FINANCIAL STATEMENTS**





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





**NOTE
      3 - EARNINGS (LOSS) PER SHARE**





The
      Company presents earnings (loss) per share on a basic and diluted basis. Basic
      earnings (loss) per share have been computed by dividing net earnings by the
      weighted average number of common shares outstanding. Diluted earnings (loss)
      per share has been computed by dividing net earnings by the weighted average
      number of shares outstanding including the dilutive effect of equity securities.
      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 common shares calculated for Diluted EPS excludes the
      potential common stock that would be exercised under the options granted to
      employees and warrants granted to agents 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 13).





**Three
                Months Ended September 30****2008**
            
            **2007**Net
                loss
            
            
            ($
                130,538
            )
            
            ($
                137,741
            )Weighted
                average common shares(denominator
                for basic income per share)
            
            
            28,169,013
            
            
            21,718,329Effect
                of dilutive securities:
            
            
            -
            
            
            -Weighted
                average common shares(denominator
                for diluted income per share)
            
            
            28,169,013
            
            
            21,718,329Basic
                net income (loss) per share
            
            
            ($
                0.00
            )
            
            ($
                0.01
            )Diluted
                net income (loss) per share
            
            
            ($
                0.00
            )
            
            ($
                0.01
            )





**NOTE
      4 - INVENTORY**





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





**September
                30, 2008**
            
            **June
                30, 2008**Gears
                products
            
            $
            992,977
            
            $
            574,097Starters
                & Alternators
            
            
            30,246
            
            
            -Gearbox
                products
            
            
            373,908
            
            
            612,597Others
            
            
            207
            
            
            206Total
            
            $
            1,397,338
            
            $
            1,186,900





6




**EQUICAP,
      INC.**





**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





**NOTE
      5 - ADVANCE PAYMENTS**





Advance
      payments amounted to approximately $5.07 million as of September 30, 2008,
      which
      represents 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 intended project
      was
      located in Hangzhou, Zhejiang Province, China, and was for assembly of
      advanced diesel engines, engine components and related products. Zhongchai
      is entitled to a 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. 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.





**NOTE
      6- PROPERTY AND EQUIPMENT**





Property
      and equipment at September 30, 2008 and June 30, 2008 consisted of the
      following:





**September
                30, 2008**
            
            **June
                30, 2008**Manufacturing
                equipment
            
            $
            8,04,541
            
            $
            784,658Office
                equipment and furniture
            
            
            47,817
            
            
            45,537Vehicles
            
            
            61,954
            
            
            61,785Subtotal
            
            
            914,312
            
            
            891,980Less:
                Accumulated depreciation
            
            
            206,544
            
            
            164,204707,768
            
            
            727,776Construction
                in progress
            
            
            1,906,562
            
            
            1,783,826Total
            
            $
            2,614,330
            
            $
            2,511,602





Depreciation
      expense for three months ending September 30, 2008 and 2007 was $41,916 and
      $18,824, respectively.





**NOTE
      7 - RENTAL EXPENSE**





The
      Company's U.S. office site is located in the state of California. Rental expense
      for the three months ended September 30, 2008 and 2007 was $1,240 and $1,250,
      respectively. The Company’s Chinese operation is located in Hangzhou, China, and
      the rental expense for the three months ended September 30, and 2007 was $14,603
      and $9,912, respectively.





**NOTE
      8 - MAJOR CUSTOMERS AND SUPPLIERS**





The
      Company had three major customers, BBB/OCA, World Pac-South Brunswick and World
      Pac, who accounted for approximately 61%, 16% and 16%, respectively of the
      Company's net revenue of the North America/Auto Parts segment for the three
      months ended September 30, 2008. For China/Gear segment, two customers, Zhejiang
      Xinchai Co., Ltd. and Ningbo Ruyi Co., Ltd. accounted for 87% and 8%,
      respectively, of the net revenue in China, for the three months ended September
      30, 2008. These five customers accounted for 17%, 5%, 5%, 62% and 6%,
      respectively, of the Company’s consolidated revenue for the three months ended
      September 30, 2008.




7


**EQUICAP,
      INC.**


**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





**NOTE
      8 - MAJOR CUSTOMERS AND SUPPLIERS (continued)**





The
      Company had three major vendors, Wuxi Susun, Zhejiang Yongkang Boyu and Ningbo
      Heyu International Trading Co. who provided approximately 65%, 14%, and 9%,
      respectively of the Company's purchases of the auto parts segment for the three
      months ended September 30, 2008. For China/Gear segment, three major suppliers,
      Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and
      Xinchang Zhisheng Machinery Co., Ltd., accounted for 41%, 18%, and 7%,
      respectively of the total purchases, for the three months ended September 30,
      2008. These six suppliers accounted for 15%, 3%, 2%, 32%, 14% and 5%,
      respectively, of the Company’s consolidated purchases for the three months ended
      September 30, 2008.





**NOTE
      9- DEFERRED COMPENSATION**





As
      described in Note 12 (“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
      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.





The
      accounting policies of the segments are the same as those described in Note
      1
      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 inter-geographic sales,
      if
      any, are accounted for on an arm’s length pricing basis. There were no
      Intersegment sales for the three months ended September 30, 2008 and
      2007.





**Three
                months ended September 30,****Segment
                revenues**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            339,563
            
            $
            226,843China/
                Gear
            
            $
            847,007
            
            $
            505,764Corporate
                and Elimination
            
            $
            -
            
            $
            -Consolidated
            
            $
            1,186,570
            
            $
            732,607




**Three
                months ended September 30,****Segment
                operating earnings (loss)**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            70,
                359
            
            
            ($21,816
            )China/
                Gear
            
            $
            86,898
            
            $
            69,569Corporate
                and Elimination
            
            
            ($291,462
            )
            
            ($165,346
            )Consolidated
            
            
            ($134,205
            )
            
            ($117,593
            )





8


**EQUICAP,
      INC.**





**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





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





**Three
                months ended September 30,****Depreciation
                expense**
            
            **2008**
            
            **2007**North
                America/Auto Parts
            
            $
            -
            
            $
            -China/
                Gear
            
            $
            41,899
            
            $
            18,824Corporate
                and Elimination
            
            $
            17
            
            $
            -Consolidated
            
            $
            41,916
            
            $
            18,824




**As
                of****Segment
                identifiable assets**
            
            **September
                30****,
                2008**
            
            **June
                30, 2008**North
                America/Auto Parts
            
            $
            537,959
            
            $
            451,240China/
                Gear
            
            $
            10,309,476
            
            $
            10,257,675Total
                Segment identifiable assets
            
            $
            10,847,435
            
            $
            10,708,915Goodwill
            
            $
            3,402,610
            
            $
            3,393,307Corporate
                and Elimination
            
            $
            414,430
            
            $
            688,595Consolidated
            
            $
            14,664,475
            
            $
            14,790,817





**NOTE
      11 - 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 until the registered securities can be sold pursuant to Rule 144.





In
      the
      event the Company does not satisfy the registration obligations of the
      registration rights agreement, (“Registration Default”), which are subject to
      Rule 144 limitations, 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.




9




**EQUICAP,
      INC.**





**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





**NOTE
      11 - STOCK AUTHORIZATION AND ISSUANCE (continued)**





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
      12 - STOCK-BASED COMPENSATION**





As
      of
      September 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 three months ended September 30,
      2008, the Company recorded approximately $27,197 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
      13 - 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 and the Rule 144 limitations on that
      obligation.





10


**EQUICAP,
      INC.**





**Notes
      to Consolidated Financial Statements**


**September
      30, 2008 and 2007**


**(Unaudited)**





**NOTE
      13 - COMMITMENTS AND CONTINGENCIES (continued)**





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
      14 - SUBSEQUENT EVENTS**





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 seeks a return of the investment funds
      of
      the plaintiffs, payment of interest, restitution and disgorgement of profits
      and
      other ill gotten gains, damages for lost opportunity and other consequential
      damages, without specification of dollar amounts. The plaintiffs have requested
      that the Company and the other named defendants waive service of the complaint.
      The Company has engaged counsel and is evaluating the allegations in the
      complaint. The Company and Mr. Wang deny any wrongdoing and plan to defend
      the
      action.




11




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




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.




**Company
      Background**




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




*Share
      Exchange*




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




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




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




In
      connection with the Share Exchange, vFinance Investments, Inc., for advice
      in
      connection with the transaction, was issued 161,633 shares of common stock
      as
      compensation. The shares were issued as restricted stock. These shares have
      registration rights subject to Rule 144 limitations.




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




*Conversion
      of Convertible Note of Equicap*




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




12




*Private
      Placement Offering*




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




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




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




13




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.




**Results
      of Operations**




**Three
      Months Ended****September
      30, 2008 Compared to Three Months Ended September 30,
      2007**




*Revenue*




Revenue
      increased by $453,963 or 62% to $1,186,570 for the three months ended September
      30, 2008 compared with $732,607 for the three months ended September 30, 2007.
      Revenue for the three months ended September 30, 2008, consists of sales of
      automotive parts in North America and sales of gears and gearboxes in China,
      for
      $339,563 and $847,007, respectively. Sales revenue for the three months ended
      September 30, 2007 were generated from distribution of starters and alternators
      in North America and sales of diesel engines and gears in China, for $226,843
      and $505,764, respectively.




*Cost
      of Sales and Gross Margin*




Cost
      of
      sales was $852,087 for the three months ended September 30, 2008, increasing
      by
      $263,649 or 45%, from $588,438 for the three months ended September 30, 2007.
      The gross margin was approximately 28% for the three months ended September
      30,
      2008, compared to approximately 20% for the three months ended September 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
      costs and overhead costs for sales, marketing, finance, legal, human resources
      and general management. Such costs also include the expenses recognized for
      stock-based compensation pursuant to FAS 123(R).




SG&A
      expenses increased by $206,926 to $468,688 in the three months ended September
      30, 2008 ,
      from
      $261,762 in three months ended September
      30, 2007 .
      SG&A increased comparatively for the current period over the same period in
      the prior fiscal year as a results of the increased costs related to being
      a
      public company, including professional services related to auditing, legal
      and
      other services, costs associated with additional recruitments and operating
      expenses for expanded business size in China,  and
      non-cash expenses amounting to $27,197 recognized for stock based compensation
      related to stock options and warrants granted in the period pursuant to SFAS
      123(R).




*Net
      Loss*




Net
      loss
      reached $130,538 in three months ended September 30, 2008, compared with net
      loss of $137,741 in the three months ended September 30, 2007. The net loss
      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),
      partially offset by the net interest income amounting to $2,713, and net other
      income of $31,439 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.




14




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2008, Equicap had current assets equal to $8,450,545 which
      primarily were comprised of cash and cash equivalents of $816,793, inventory
      of
      $1,397,338 and net trade receivables and other receivables of
      $900,891  and
      advance payments of $5,068,769. 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 September 30, 2008 were $1,321,960, which
      primarily were comprised of trade accounts payable, accrued expenses, taxes
      payable and other payables. At September 30, 2008, Equicap had working capital
      of $7,128,585. Equicap believes that it has sufficient operating capital for
      its
      current operations.




Equicap
      has funded its operations from income generated by its IBC subsidiary and by
      its
      PRC subsidiaries. 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
      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, however, it believes that it will be able to find
      additional funding for its capitalization needs. Such capital may be in the
      form
      of either debt or equity or a combination. To the extent that financing is
      in
      the form of debt, it is anticipated that the terms will include various
      restrictive covenants, affirmative covenants and credit enhancements such as
      guarantees or security interests. The terms of any proposed financing may not
      be
      acceptable to Equicap. There is no assurance that funding will be identified
      or
      accepted by Equicap or, that if offered, it will be concluded.





From
      time
      to time since the Share Exchange, some of the private placement investors have
      sought to end their investment in the company. There have been discussions
      with
      the investors about proposals in which the company might buy back the investors’
shares of common stock. The company and those investors have not concluded
      any
      definitive arrangements or any written agreements about any aspect of the
      foregoing discussions or considerations. Any transaction would have to be
      reviewed by the company and the investors’ legal counsels, would depend on the
      board’s decision on the use of the company assets for such a transaction, and
      would be subject to proper notice, documentation, shareholder approval in
      certain circumstances and compliance with securities and other law, depending
      on
      the nature of the transaction.




15




On
      November 6, 2008, nine of the investors in the private placement conducted
      by
      the company in March - April 2007 filed a law suit in federal court in New
      York
      against the company, Usunco Automotive Ltd., Mr. Wang and vFinance Investment,
      Inc. based on alleged violations of the Securities Exchange Act of 1934 and
      Rule
      10b-5, fraud, fraudulent inducement, professional malpractice and negligent
      misrepresentation arising out of the private placement in March - April 2007.
      The action seeks a return of the investment funds of the plaintiffs, payment
      of
      interest, restitution and disgorgement of profits and other ill gotten gains,
      damages for lost opportunity and other consequential damages, without
      specification of dollar amounts. The plaintiff investors are some of the
      entities with which the company had discussions about structuring a repurchase
      of shares. The plaintiffs have requested that the company and the other named
      defendants waive service of the complaint. The company has engaged counsel
      and
      is evaluating the allegations in the complaint. The company and Mr. Wang deny
      any wrongdoing and plan to defend the action.





**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
      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.




16




*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 September 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
      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
      quarters ended September 30, 2008 and 2007 were insignificant.




17




*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.




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.




18




*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 quarter ended September 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.




**Item
              3.**
            **Quantitative
                and Qualitative Disclosures about Market
                Risk**




The
      information is not required for smaller reporting companies.




**Item
              4T.**
            **Controls
                and Procedures.**




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




**PART
      II — OTHER INFORMATION**




**Item
              1.**
            **Legal
                Proceedings.**




On
      November 6, 2008, nine of the investors in the private placement conducted
      by
      the company in March - April 2007 filed a law suit in federal court in New
      York
      against the company, Usunco Automotive Ltd., Mr. Wang and vFinance Investment,
      Inc.. The case name is The Pinnacle Fund, L.P., Pinnacle China Fund. L.P.,
      Atlas
      Capital Master Fund, L.P., Atlas Capital (Q.P.), L.P., Westpark Capital, L.P.,
      Sandor Capital Master Fund L.P., Vision Opportunity Master Fund, Ltd., Heller
      Family Foundation, Jayhawk Private Equity Co-Invest Fund, L.P., and Jayhawk
      Private Equity Fund, L.P., Plaintiffs v. Equicap Inc., Usunco Automotive Ltd.,
      vFinance Investment, Inc., and Peter Wang, Defendants, United States District
      Court, Southern District of New York, 08CIV 9008. The allegations asserted
      are
      based on alleged violations of the Securities Exchange Act of 1934 and Rule
      10b-5, fraud, fraudulent inducement, professional malpractice and negligent
      misrepresentation arising out of the private placement in March - April 2007.
      The action seeks a return of the investment funds of the plaintiffs, payment
      of
      interest, restitution and disgorgement of profits and other ill gotten gains,
      damages for lost opportunity and other consequential damages. The plaintiffs
      have requested that the company and the other named defendants waive service
      of
      the complaint. The company has engaged counsel and is evaluating the allegations
      in the complaint. The company and Mr. Wang deny any wrongdoing and plan to
      defend the action.




19




**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.




**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,
                2008.




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,
                2008.




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 10, 2008
            EQUICAP,
                INC.By:/s/
                Jason Lu
              Name:
                Jason Lu
              Title:Chief
                Executive OfficerBy:/s/
                David Ming He
              Name:
                David Ming He
              Title:Chief
                Financial Officer




21