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 December 31, 2008





 ̈
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)





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  xNo
 ̈





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: 28,169,013 shares of common stock,
par value $.001 per share, outstanding as of February 11, 2009.










EQUICAP,
INC.





-
INDEX -





PagePART
      I – FINANCIAL INFORMATION:Item
      1.
                          Financial
      Statements
                          2Consolidated
      Balance Sheet as of December 31, 2008 (unaudited)
                          2Consolidated
      Statements of Operations for the Three and Six Months Ended December 31,
      2008 and 2007 (unaudited)
                          3Consolidated
      Statements of Cash Flows for the Six Months Ended December 31, 2008 and
      2007 (unaudited)
                          4Notes to
      Consolidated Financial Statements, December 31, 2008 and
      2007
                          5Item
      2.
                          Management’s
      Discussion and Analysis of Financial Condition and Results
      of Operations
                          12Item
      3
                          Quantitative
      and Qualitative Disclosures about Market Risk
                          20Item 4T
                          Controls
      and Procedures
                          20PART
      II – OTHER INFORMATION:Item
      1.
                          Legal
      Proceedings
                          20Item 1A.
                          Risk
      Factors
                          21Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds
                          21Item
      3.
                          Defaults
      Upon Senior Securities
                          21Item
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          21Item
      5.
                          Other
      Information
                          21Item
      6.
                          Exhibits
                          21Signatures
                          22










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 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.










PART I – FINANCIAL
INFORMATION





Item
1.  Financial Statements.


EQUICAP,
INC.


Consolidated
Balance Sheets





December 31,
                                    
                                    
                                    June 30,2008
                                    
                                    
                                    2008(Unaudited)AssetsCurrent
      assets:Cash and cash
      equivalents
                                    
                                    $
                                    3,899,250
                                    
                                    
                                    $
                                    956,973Accounts
      receivable, net of allowance for doubtful accounts of
      $114,952  and $29,747 at December 31, 2008 and June 30, 2008,
      respectively
                                    
                                    
                                    700,015
                                    
                                    
                                    
                                    807,484Inventory
                                    
                                    
                                    1,337,172
                                    
                                    
                                    
                                    1,186,900Other receivables,
      net
                                    
                                    
                                    54,640
                                    
                                    
                                    
                                    141,496Advance payments
                                    
                                    
                                    1,729,005
                                    
                                    
                                    
                                    5,059,154Prepaid expenses
                                    
                                    
                                    64,250
                                    
                                    
                                    
                                    212,405Notes receivable
                                    
                                    
                                    279,331
                                    
                                    
                                    
                                    294,686Total current
    assets:
                                    
                                    
                                    8,063,663
                                    
                                    
                                    
                                    8,659,098Property
      and equipment, net:
                                    
                                    
                                    2,707,288
                                    
                                    
                                    
                                    2,511,602Goodwill:
                                    
                                    
                                    3,411,913
                                    
                                    
                                    
                                    3,393,307Other
      assets:Intangible assets,
      net
                                    
                                    
                                    2,063
                                    
                                    
                                    
                                    2,586Deferred
    compensation
                                    
                                    
                                    118,001
                                    
                                    
                                    
                                    172,395Deferred expenses
                                    
                                    
                                    52,289
                                    
                                    
                                    
                                    51,829Total other
    assets:
                                    
                                    
                                    172,353
                                    
                                    
                                    
                                    226,810Total assets:
                                    
                                    $
                                    14,355,217
                                    
                                    
                                    $
                                    14,790,817Liabilities
      and stockholders’ equity:Current
      liabilities:Accounts payable and accrued
      expenses
                                    
                                    $
                                    762,212
                                    
                                    
                                    $
                                    851,284Taxes payable
                                    
                                    
                                    1,450
                                    
                                    
                                    
                                    946Other payables
                                    
                                    
                                    580,253
                                    
                                    
                                    
                                    530,381Total current
      liabilities:
                                    
                                    
                                    1,343,915
                                    
                                    
                                    
                                    1,382,611Minority
      interest:
                                    
                                    
                                    2,744,219
                                    
                                    
                                    
                                    2,706,313Total
liabilities:
                                    
                                    
                                    4,088,134
                                    
                                    
                                    
                                    4,088,924Commitments
      and contingencies:Stockholders’
      equity:Common
      stock, $.001 par value, 500,000,000 shares authorized, 28,169,013 shares
      issued and outstanding
                                    
                                    
                                    28,169
                                    
                                    
                                    
                                    28,169Stock subscription
      receivable
                                    
                                    
                                    (29,900
                                    )
                                    
                                    
                                    (32,400
                                    )Additional paid-in
      capital
                                    
                                    
                                    16,516,901
                                    
                                    
                                    
                                    16,516,901Accumulated
    deficit
                                    
                                    
                                    (7,680,844
                                    )
                                    
                                    
                                    (7,183,605
                                    )Accumulated other comprehensive
      income
                                    
                                    
                                    1,432,757
                                    
                                    
                                    
                                    1,372,828Total stockholders’
      equity:
                                    
                                    
                                    10,267,083
                                    
                                    
                                    
                                    10,701,893Total liabilities and
      stockholders' equity:
                                    
                                    $
                                    14,355,217
                                    
                                    
                                    $
                                    14,790,817




2




EQUICAP,
INC.


Consolidated
Statements of Operations and Comprehensive Income (Loss)




(Unaudited)




For Three Months Ended
                  
                  
                  For Six Months EndedDecember 31,
                  
                  
                  December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenue:
                  
                  $
                  820,527
                  
                  
                  $
                  741,978
                  
                  
                  $
                  2,007,097
                  
                  
                  $
                  1,474,586Cost
      of sales:
                  
                  
                  693,897
                  
                  
                  
                  554,172
                  
                  
                  
                  1,545,984
                  
                  
                  
                  1,142,610Gross
      profit:
                  
                  
                  126,630
                  
                  
                  
                  187,806
                  
                  
                  
                  461,113
                  
                  
                  
                  331,976Operating
      expenses:Selling,
      general and administrative
                  
                  
                  513,528
                  
                  
                  
                  574,205
                  
                  
                  
                  982,216
                  
                  
                  
                  835,967Loss
      from operations:
                  
                  
                  (386,898
                  )
                  
                  
                  (386,399
                  )
                  
                  
                  (521,103
                  )
                  
                  
                  (503,991
                  )Other
      income (expense):Interest income
                  
                  
                  3,006
                  
                  
                  
                  46,640
                  
                  
                  
                  5,719
                  
                  
                  
                  78,776Interest
      expense
                  
                  
                  (191
                  )
                  
                  
                  (741
                  )
                  
                  
                  (191
                  )
                  
                  
                  (741
                  )Other income (expense), net
                  
                  
                  17,720
                  
                  
                  
                  2,160
                  
                  
                  
                  49,159
                  
                  
                  
                  (28,992
                  )Total
      other income (expense):
                  
                  
                  20,535
                  
                  
                  
                  48,059
                  
                  
                  
                  54,687
                  
                  
                  
                  49,043Loss
      before provision for income tax:
                  
                  
                  (366,363
                  )
                  
                  
                  (338,340
                  )
                  
                  
                  (466,416
                  )
                  
                  
                  (454,948
                  )Provision
      for income tax:
                  
                  
                  383
                  
                  
                  
                  -
                  
                  
                  
                  1,171
                  
                  
                  
                  -Net
      loss before minority interest:
                  
                  
                  (366,746
                  )
                  
                  
                  (338,340
                  )
                  
                  
                  (467,587
                  )
                  
                  
                  (454,948
                  )Minority
      interest:
                  
                  
                  (45
                  )
                  
                  
                  18,434
                  
                  
                  
                  29,652
                  
                  
                  
                  39,567Net
      loss:
                  
                  
                  (366,701
                  )
                  
                  
                  (356,774
                  )
                  
                  
                  (497,239
                  )
                  
                  
                  (494,515
                  )Other
      comprehensive income:Foreign
      currency translation adjustment
                  
                  
                  34,273
                  
                  
                  
                  307,714
                  
                  
                  
                  59,929
                  
                  
                  
                  478,682Comprehensive
      income (loss):
                  
                  $
                  (332,428
                  )
                  
                  $
                  (49,060
                  )
                  
                  $
                  (437,310
                  )
                  
                  $
                  (15,833
                  )Loss
      per common share:Basic
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.02
                  )Diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.02
                  )Weighted
      average shares of common stock:Basic
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013Diluted
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013




3




EQUICAP,
INC.


Consolidated
Statements of Cash Flows




(Unaudited)




For
      Six Months EndedDecember
      31,2008
                      
                      
                      2007Cash
      flows from operating activities:Net
      loss
                      
                      $
                      ( 497,239
                      )
                      
                      $
                      ( 494,515
                      )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Share-based
      compensation
                      
                      
                      54,394
                      
                      
                      
                      54,394Minority
      interest
                      
                      
                      29,652
                      
                      
                      
                      39,567Depreciation
      and amortization
                      
                      
                      88,988
                      
                      
                      
                      32,987Bad
      debt expense
                      
                      
                      86,071
                      
                      
                      
                      215,863Non-cash
      payments of rent
                      
                      
                      2,500
                      
                      
                      
                      2,500Changes
      in assets and liabilities:Accounts
      receivable
                      
                      
                      25,095
                      
                      
                      
                      322,246Inventory
                      
                      
                      (143,498
                      )
                      
                      
                      (378,340
                      )Other
      receivables
                      
                      
                      86,591
                      
                      
                      
                      3,543,016Advance
      payments
                      
                      
                      3,351,709
                      
                      
                      
                      (3,757,688
                      )Prepaid
      expenses
                      
                      
                      148,175
                      
                      
                      
                      (68,257
                      )Notes
      receivable
                      
                      
                      16,939
                      
                      
                      
                      (107,323
                      )Deferred
      expenses
                      
                      
                      (176
                      )
                      
                      
                      3,288Accounts
      payable and accrued expenses
                      
                      
                      (93,054
                      )
                      
                      
                      244,100Taxes
      payable
                      
                      
                      502
                      
                      
                      
                      (2,701
                      )Other
      payables
                      
                      
                      47,289
                      
                      
                      
                      (389,414
                      )Total
      adjustments:
                      
                      
                      3,701,177
                      
                      
                      
                      (245,762
                      )Net
      cash provided by (used in) operating activities:
                      
                      
                      3,203,938
                      
                      
                      
                      (740,277
                      )Cash
      flows from investing activities:Additions
      to property, plant and equipment
                      
                      
                      (249,141
                      )
                      
                      
                      (1,532,663
                      )Additions
      to construction in progress
                      
                      
                      (20,891
                      )
                      
                      
                      (409,185
                      )Acquisition
      of Shengte, net of cash from Shengte
                      
                      
                      -
                      
                      
                      
                      (3,495,463
                      )Net
      cash used in investing activities:
                      
                      
                      (270,032
                      )
                      
                      
                      (5,437,311
                      )Effect
      of foreign currency conversion on cash:
                      
                      
                      8,371
                      
                      
                      
                      167,941Net
      increase (decrease) in cash and cash equivalents:
                      
                      
                      2,942,277
                      
                      
                      
                      (6,009,647
                      )Cash
      and cash equivalents–beginning:
                      
                      
                      956,973
                      
                      
                      
                      7,848,812Cash
      and cash equivalents–ending:
                      
                      $
                      3,899,250
                      
                      
                      $
                      1,839,165Supplemental
      information:Cash
      paid for income taxes:
                      
                      $
                      -
                      
                      
                      $
                      -Cash
      paid for interest:
                      
                      $
                      191
                      
                      
                      $
                      741




4




EQUICAP,
INC.





Notes
to Consolidated Financial Statements


December
31, 2008 and 2007


(Unaudited)





NOTE
1 – Organization
and Description of Business





Equicap,
Inc. (“the Company”), a Nevada corporation, is a manufacturer and distributor of
gears and gearboxes, and a distributor of automotive parts and components, such
as, starters and alternators, which are marketed and sold to customers primarily
located in China and North America.





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





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





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





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





NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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 generally accepted
accounting principles (GAAP) applicable to interim financial information and
with the requirements of Form 10-Q and Regulation S-X of the Securities and
Exchange Commission applicable to smaller reporting companies. 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.





5


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 December 31, 2008, the Company concluded that there were no impairments on
goodwill or indefinite-lived intangibles.





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 December 31
                  
                  
                  Six Months Ended December 312008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Net
      loss
                  
                  $
                  (366,701
                  )
                  
                  $
                  (356,774
                  )
                  
                  $
                  (497,239
                  )
                  
                  $
                  (494,515
                  )Weighted
      average common shares (denominator for basic income per
    share)
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013Effect
      of dilutive securities:
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Weighted
      average common shares (denominator for diluted income per
      share)
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013
                  
                  
                  
                  28,169,013Basic
      net income (loss) per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.02
                  )Diluted
      net income (loss) per share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.02
                  )





NOTE
4 – INVENTORY





Inventory
at December 31, 2008 and June 30, 2008 consisted of the following:





December 31,
                  
                  
                  June 30,2008
                  
                  
                  2008Gears
      products
                  
                  $
                  630,888
                  
                  
                  $
                  574,097Gearbox
      products
                  
                  
                  706,076
                  
                  
                  
                  612,597Other
                  
                  
                  208
                  
                  
                  
                  206Total
                  
                  $
                  1,337,172
                  
                  
                  $
                  1,186,900





6




NOTE
5 – ADVANCE PAYMENTS





Advance
payments amounted to approximately $1.7 million as of December 31, 2008, of
which approximately $1.5 million 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 has
decided not to pursue the project, and Xinchai Holding has agreed with that
decision.  Zhongchai has been refunded approximately $3.4 million out
of the total $5 million advance payment and the balance is under governmental
approval procedures to unwind the project.





NOTE
6– PROPERTY AND EQUIPMENT





Property
and equipment at December 31, 2008 and June 30, 2008 consisted of the
following:





December 31,
                  
                  
                  June 30,2008
                  
                  
                  2008Manufacturing
      equipment
                  
                  $
                  1,035,593
                  
                  
                  $
                  784,658Office
      equipment and furniture
                  
                  
                  48,753
                  
                  
                  
                  45,537Vehicles
                  
                  
                  62,124
                  
                  
                  
                  61,785Subtotal
                  
                  
                  1,146,470
                  
                  
                  
                  891,980Less:
      Accumulated depreciation
                  
                  
                  253,718
                  
                  
                  
                  164,204892,752
                  
                  
                  
                  727,776Construction
      in progress
                  
                  
                  1,814,536
                  
                  
                  
                  1,783,826Total
                  
                  $
                  2,707,288
                  
                  
                  $
                  2,511,602





Depreciation
expense for three months ended December 31, 2008 and 2007 was $46,535 and
$14,164, and for six months ended December 31, 2008 and 2007 was $88,451 and
$32,987, respectively.





The
Company is constructing a new facility scheduled to be placed in service during
2009, at which time depreciation will commence. As of December 31, 2008, the
Company incurred and capitalized in Construction in Progress
$1,814,536.





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 December 31, 2008 and 2007 was $1,260 and $1,250, and
for the six months ended December 31, 2008 and 2007 was $2,500 and $2,500,
respectively. The Company’s Chinese operation is located in Hangzhou, China, and
the rental expense for the three months ended December 31, 2008 and 2007 was
$27,753 and $11,323, and for the six months ended December 31, 2008 and 2007 was
$42,356 and $21,235, respectively.





NOTE
8 – MAJOR CUSTOMERS AND SUPPLIERS





For the
auto parts segment, two major customers, BBB-OCA, and World Pac, accounted for
88% and 8%, respectively, of the net revenue of auto parts in North America for
the three months ended December 31, 2008. For the gear segment, two customers,
Zhejiang Xinchai Co., Ltd. and Ningbo Ruyi Co., Ltd. accounted for 81% and 12%,
respectively, of the net revenue in China, for the three months ended December
31, 2008. These four customers accounted for 31%, 3%, 53% and 8%, respectively,
of the Company’s consolidated revenue for the three months ended December 31,
2008. For the six months ended December 31, 2008, two major customers, BBB-OCA,
and World Pac, accounted for approximately 73% and 12% of the net revenue of
auto parts in North America; and for the gear segment, two customers, Zhejiang
Xinchai Co., Ltd. and Ningbo Ruyi Co., Ltd., accounted for 85% and 9%,
respectively, of the net revenue in China. These four customers accounted for
23%, 4%, 58% and 7%, respectively, of the Company’s consolidated revenue for the
six months ended December 31, 2008.





7


For the
auto parts segment, three major suppliers, Wuxi Susun Autoparts Co., Ltd.,
Zhejiang Boyu Industrial Co., LTD, and Dimerco accounted for 48%, 37% and 6%,
respectively, of the Company's purchases of the auto parts in North America for
the three months ended December 31, 2008. For the gear segment, five major
suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd.,
Xinchang Zhisheng Machinery Co., Ltd., Hangzhou Gaorui Co., Ltd and Xinchang
Jingrui Machinery Co., Ltd., accounted for approximately 25%, 17%, 8%, 5%, and
4%, of the total purchases in China for the three months ended December 31,
2008. These eight suppliers accounted for 20%, 16%, 2%, 14%, 10%, 5%, 3% and 2%,
respectively, of the Company’s consolidated purchases for the three months ended
December 31, 2008. For the six months ended December 31, 2008, three major
suppliers, Wuxi Susun Autoparts Co., Ltd., Zhejiang Boyu Industrial Co., LTD,
and Dimerco accounted for approximately 55%, 27% and 6%, respectively of the
Company's purchases of the auto parts in North America; and five major
suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd.,
Xinchang Zhisheng Machinery Co., Ltd., Xingchang Liyuan Foundry Co., Ltd and
Hangzhou Gaorui Co., Ltd  accounted for approximately 36%, 18%, 7%, 6%
and 3%, of the total purchases in China. These eight suppliers accounted for
17%, 8%, 2%, 25%, 12%, 5%, 4% and 2%, respectively, of the Company’s
consolidated purchases for the six months ended December 31, 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 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 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., headquartered
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 2
(Summary of Significant Accounting Policies). Segment operating results include
earnings before corporate and unallocated shared expenses, amortization of
intangible assets, gain or loss on sale of assets, net interest income, income
tax benefits and minority interests. Intersegment and intergeographic sales, if
any, are accounted for on an arm’s length pricing basis. There were no
intersegment sales for the six months ended December 31, 2008 and
2007.




Three months ended December 31,
            
            
            Six months ended December 31,Segment
      revenues
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007North
      America/Auto Parts
            
            $
            288,470
            
            
            $
            192,584
            
            
            $
            628,033
            
            
            $
            419,427China/
      Gear
            
            $
            532,057
            
            
            $
            549,394
            
            
            $
            1,379,064
            
            
            $
            1,055,159Corporate
      and Elimination
            
            $
            -
            
            
            $
            -
            
            
            
            
            
            
            $
            -Consolidated
            
            $
            820,527
            
            
            $
            741,978
            
            
            $
            2,007,097
            
            
            $
            1,474,586





8


Segment operating
                    
                    Three months ended December 31,
                    
                    
                    Six months ended December 31,earnings (loss)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2007North
      America/Auto Parts
                    
                    $
                    (152,079
                    )
                    
                    $
                    (225,247
                    )
                    
                    $
                    (81,720
                    )
                    
                    $
                    (247,064
                    )China/
      Gear
                    
                    $
                    (19,582
                    )
                    
                    $
                    34,812
                    
                    
                    $
                    67,316
                    
                    
                    $
                    104,382Corporate
      and Elimination
                    
                    $
                    (215,237
                    )
                    
                    $
                    (195,964
                    )
                    
                    $
                    (506,699
                    )
                    
                    $
                    (361,309
                    )Consolidated
                    
                    $
                    (386,898
                    )
                    
                    $
                    (386,399
                    )
                    
                    $
                    (521,103
                    )
                    
                    $
                    (503,991
                    )
  Three months ended December 31,
                          
                          
                          Six months ended December 31,Depreciation expense
                          
                          2008
                          
                          
                          2007
                          
                          
                          2008
                          
                          
                          2007North
      America/Auto Parts
                          
                          $
                          59
                          
                          
                          $
                          -
                          
                          
                          $
                          76
                          
                          
                          $
                          -China/
      Gear
                          
                          $
                          46,476
                          
                          
                          $
                          14,164
                          
                          
                          $
                          88,375
                          
                          
                          $
                          32,987Corporate
      and Elimination
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Consolidated
                          
                          $
                          46,535
                          
                          
                          $
                          14,164
                          
                          
                          $
                          88,451
                          
                          
                          $
                          32,987
  As ofSegment identifiable assets
                    
                    December 31, 2008
                    
                    
                    June 30, 2008North
      America/Auto Parts
                    
                    $
                    379,702
                    
                    
                    $
                    451,240China/
      Gear
                    
                    $
                    10,349,771
                    
                    
                    $
                    10,257,675Total
      Segment identifiable assets
                    
                    $
                    10,729,473
                    
                    
                    $
                    10,708,915Goodwill
                    
                    $
                    3,411,913
                    
                    
                    $
                    3,393,307Corporate
      and Elimination
                    
                    $
                    213,831
                    
                    
                    $
                    688,595Consolidated
                    
                    $
                    14,355,217
                    
                    
                    $
                    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
have been 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.




9


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.





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
December 31, 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 and six months ended December 31, 2008,
the Company recorded approximately $27,197 and $54,394, respectively, 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





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 – LEGAL PROCEEDING





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 and Mr. Wang have filed a motion to dismiss
the action, which is now under consideration by the court. The Company and Mr.
Wang deny any wrongdoing and plan to defend the action.





NOTE
15 – SUBSEQUENT EVENTS





None.




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, Equicap 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.




For
advice in connection with the Share Exchange, vFinance Investments, Inc., 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.




12




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.




Private
Placement Offering




As a
condition to the Share Exchange, Equicap conducted a private placement 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 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. 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.




Effects
of Global Economic Crises




The
global economic issues that are limiting capital and otherwise affecting the
economies of North America and Europe may have an effect on the Company and its
business plan.  As long as there is this dislocation in the global
economy, the portion of the automotive industry in which the Company operates
will be subject to its stresses which may reduce the demand for the Company’s
products in North America. Such dislocation may also require the Company to
focus more marketing and business attention on its markets in
China.  Although the Chinese economy is still considered to be
growing, albeit at slower rates than before, there is no assurance that its
economy and the engine market in which the Company operates will not experience
slowdown or other dislocation.  Furthermore, new capital may be
limited or unobtainable, or if obtainable at prices and terms that will not be
acceptable to the Company or permit the Company to implement its business plan
and be profitable.  Therefore, investors must evaluate an investment
in the Company and its success in light of the larger global economy, the
Chinese and North American markets for its products and the impact it will have
on the Company’s ability to implement its business plan, and ultimately theCompany’s ability to
survive the economic dislocations that have occurred and are continuing to
occur.




Results
of Operations




Three
Months Ended December 31, 2008 Compared to Three Months Ended December 31,
2007




Revenue




Revenue
increased by $78,549 or 11% to $820,527 for the three months ended December 31,
2008 compared with $741,978 for the three months ended December 31, 2007.
Revenue for the three months ended December 31, 2008, consisted of sales of
automotive parts in North America (North America/Auto Parts segment) and sales
of gears and gearboxes in China (China/Gear segment), for $288,470 and $532,057,
respectively. Sales revenue for the three months ended December 31, 2007
consisted of $192,584 for North America/Auto Parts segment, and $549,394 for
China/Gear segment, respectively.




Cost
of Sales and Gross Margin




Cost of
sales was $693,897 for the three months ended December 31, 2008, increasing by
$139,725 or 25%, from $554,172 for the three months ended December 31, 2007. The
gross margin was approximately 15% for the three months ended December 31, 2008,
compared to approximately 25% for the three months ended December 31, 2007. For
the North America/Auto Parts segment, deterioration in gross margin was mainly
attributed to its small customer base and strong competition; for the
China/Gears segment, gross margin remained at same level in the two comparing
periods.




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 decreased by $60,677 or 11% to $513,528 in the three months ended
December 31, 2008, from $574,205 in three months ended December 31, 2007.
SG&A decreased for the current period compared with the same period in the
prior fiscal year primarily because in the three months ended December 31, 2007,
there was a one-time, special provision of bad debt allowance for $215,103 owing
to management’s expectation of non-collection of amounts due from one particular
customer of North America/Auto Parts segment.




14




Net
Loss




Net loss
reached $366,701 in three months ended December 31, 2008, compared with net loss
of $356,774 in the three months ended December 31, 2007. The net loss was mainly
attributed to the costs related to being a public company including professional
services related to auditing, legal and other services, and non-cash expenses
recognized for provision of bad debt allowance and 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 and net other income of
$20,535.




Six
Months Ended December 31, 2008 Compared to Six Months Ended December 31,
2007




Revenue




Revenue
increased by $532,511 or 36% to $2,007,097 for the six months ended December 31,
2008 compared with $1,474,586 for the six months ended December 31, 2007.
Revenue for the six months ended December 31, 2008, consisted of sales of
automotive parts in North America (North America/Auto Parts segment) and sales
of gears and gearboxes in China (China/Gear segment), for $628,033 and
$1,379,064, respectively. Sales revenue for the six months ended December 31,
2007 consisted of $419,427 for North America/Auto Parts segment, and $1,055,159
for China/Gear segment, respectively.




Cost
of Sales and Gross Margin




Cost of
sales was $1,545,984 for the six months ended December 31, 2008, increasing by
$403,374 or 35%, from $1,142,610 for the six months ended December 31, 2007. The
gross margin was approximately 23% for the six months ended December 31, 2008,
at approximately same level as that in the six months ended December 31, 2007.
For the North America/Auto Parts segment, deterioration in gross margin was
mainly attributed to its small customer base and strong competition particularly
in the second quarter; 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 $146,249 to $982,216 in the six months ended December 31,
2008, from $835,967 in six months ended December 31, 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 $54,394
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 $497,239 in six months ended December 31, 2008, compared with net loss
of $494,515 in the six months ended December 31, 2007. The net loss was mainly
attributed to the 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 and net other income of
$54,687.




15




Liquidity
and Capital Resources




As of
December 31, 2008, Equicap had current assets equal to $8,063,663 which
primarily were comprised of cash and cash equivalents of $3,899,250, inventory
of $1,337,172 and net trade receivables and other receivables of $754,655, and
advance payments of $1,729,005.  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.  As of December 31, 2008, ZhongChai JV has received refund of
approximately $3.4 million and the balance is under governmental approval
procedures. Equicap’s current liabilities as of December 31, 2008 were
$1,343,915, which primarily were comprised of trade accounts payable, accrued
expenses, and other payables. At December 31, 2008, Equicap had working capital
of $6,719,748.  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 Company’s principal equity funding 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 Equicap’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
thereof.  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.




16





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 these 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’s assets for such a transaction, and would be subject
to proper notice, documentation, shareholder approval in certain circumstances
and compliance with securities and other laws, depending on the nature of the
transaction.  On November 6, 2008, nine of the investors filed a law
suit against the Company, Mr. Wang and vFinance Investments, Inc. which in part
seeks a return of their investment funds and other sums.  For a
further discussion of this legal action, see “Part II- Other Information, Item
1. Legal Proceedings.”





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.




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.




17




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 December 31, 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 December 31, 2008 and 2007 were
insignificant.




Comprehensive
Income (Loss)




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




18




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.




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 and six months ended December 31, 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%.




19




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 and Mr. Wang have
filed a motion to dismiss the action, which is now under consideration by the
court. The Company and Mr. Wang deny any wrongdoing and plan to defend the
action.




20




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
                      
                      Description31.1
                      
                      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 December 31,
    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 December 31,
    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.




21




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: February 11, 2009
                          
                          EQUICAP,
      INC.By:
                          /s/   Jason
    LuName:
      Jason
      LuTitle: Chief
      Executive OfficerBy:
                          /s/   David Ming
      HeName:
      David
      Ming HeTitle:  
      Chief
      Financial
Officer
  22