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 March 31, 2009
 
  ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 
 For the
transition period from ____ to _____
 
 Commission
file number: 000-31091
 
 Equicap,
Inc.
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
                    
                    33-0652593(State
      or other jurisdiction of
                    
                    (I.R.S.
      employerincorporation
      or organization)
                    
                    identification
      number)
 
 224 Tianmushan 
      Road,Zhongrong
      Chengshi  Huayuan 5-1-602,Zhangzhou, P.R. China
                    
                    310007(Address
      of principal executive offices)
                    
                    (Zip
      Code)
 
 Issuer’s
telephone number: (904) 507-4937
 
 Not
      Applicable(Former
      name, former address and formerfiscal
      year, if changed since last
report)
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.     Yes  xNo
 ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files.    Yes  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 May 11, 2009.
  
  EQUICAP,
INC.
 
 -
INDEX -
 
 PagePART
      I – FINANCIAL INFORMATION:Item
      1.
                        Financial
      Statements
                        1Consolidated
      Balance Sheet as of March 31, 2009 (unaudited)
                        2Consolidated
      Statements of Operations for the Three and Nine Months Ended March 31,
      2009 and 2008 (unaudited)
                        3Consolidated
      Statements of Cash Flows for the Nine Months Ended March 31, 2009 and 2008
      (unaudited)
                        4Notes
      to Consolidated Financial Statements, March 31, 2009 and
    2008
                        5Item
      2.
                        Management’s
      Discussion and Analysis of Financial Condition andResults
      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
                        20Item
      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, the effect of the recession in the automobile industry on a portion of
our business, 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.
  1
  EQUICAP,
INC.
 Consolidated
Balance Sheets
 
 March
      31,
                  
                  
                  June
      30,2009
                  
                  
                  2008Assets
                  
                  (Unaudited)Current
      assets:Cash
      and cash equivalents
                  
                  $
                  3,749,327
                  
                  
                  $
                  956,973Restricted
      cash
                  
                  
                  190,992
                  
                  
                  
                  -Accounts
      receivable, net of allowance for doubtful accounts of $116,851 and $29,747
      at March 31, 2009 and June 30, 2008, respectively
                  
                  
                  981,233
                  
                  
                  
                  807,484Inventory
                  
                  
                  1,459,691
                  
                  
                  
                  1,186,900Other
      receivables, net
                  
                  
                  174,501
                  
                  
                  
                  141,496Advance
      payments
                  
                  
                  1,540,640
                  
                  
                  
                  5,059,154Prepaid
      expenses
                  
                  
                  59,585
                  
                  
                  
                  212,405Notes
      receivable
                  
                  
                  73,250
                  
                  
                  
                  294,686Total
      current assets:
                  
                  
                  8,229,219
                  
                  
                  
                  8,659,098Property
      and equipment, net:
                  
                  
                  2,729,642
                  
                  
                  
                  2,511,602Goodwill:
                  
                  
                  3,407,262
                  
                  
                  
                  3,393,307Other
      assets:Intangible
      assets, net
                  
                  
                  1,791
                  
                  
                  
                  2,586Deferred
      compensation
                  
                  
                  90,803
                  
                  
                  
                  172,395Deferred
      expenses
                  
                  
                  18,908
                  
                  
                  
                  51,829Total
      other assets:
                  
                  
                  111,502
                  
                  
                  
                  226,810Total
      assets:
                  
                  $
                  14,477,625
                  
                  
                  $
                  14,790,817Liabilities
      and stockholders’ equity:Current
      liabilities:Accounts
      payable and accrued expenses
                  
                  $
                  1,052,662
                  
                  
                  $
                  851,284Notes
      payable
                  
                  
                  190,992
                  
                  
                  
                  -Taxes
      payable
                  
                  
                  26,375
                  
                  
                  
                  946Other
      payables
                  
                  
                  577,785
                  
                  
                  
                  530,381Total
      current liabilities:
                  
                  
                  1,847,814
                  
                  
                  
                  1,382,611Minority
      interest:
                  
                  
                  2,698,526
                  
                  
                  
                  2,706,313Total
      liabilities:
                  
                  
                  4,546,340
                  
                  
                  
                  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
                  
                  
                  (28,650
                  )
                  
                  
                  (32,400
                  )Additional
      paid-in capital
                  
                  
                  16,516,901
                  
                  
                  
                  16,516,901Accumulated
      deficit
                  
                  
                  (8,000,661
                  )
                  
                  
                  (7,183,605
                  )Accumulated
      other comprehensive income
                  
                  
                  1,415,526
                  
                  
                  
                  1,372,828Total
      stockholders’ equity:
                  
                  
                  9,931,285
                  
                  
                  
                  10,701,893Total
      liabilities and stockholders' equity:
                  
                  $
                  14,477,625
                  
                  
                  $
                  14,790,817
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 2
  EQUICAP,
INC.
  Consolidated
Statements of Operations and Comprehensive Income (Loss)
  (Unaudited)
 
 For
      Three Months Ended
                      
                      
                      For
      Nine Months EndedMarch31,
                      
                      
                      March31,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Revenue:
                      
                      $
                      976,967
                      
                      
                      $
                      968,914
                      
                      
                      $
                      2,984,064
                      
                      
                      $
                      2,443,500Cost
      of sales:
                      
                      
                      770,546
                      
                      
                      
                      786,371
                      
                      
                      
                      2,316,530
                      
                      
                      
                      1,928,981Gross
      profit:
                      
                      
                      206,421
                      
                      
                      
                      182,543
                      
                      
                      
                      667,534
                      
                      
                      
                      514,519Operating
      expenses:Selling,
      general and administrative
                      
                      
                      623,392
                      
                      
                      
                      365,657
                      
                      
                      
                      1,605,608
                      
                      
                      
                      1,201,624Loss
      from operations:
                      
                      
                      (416,971
                      )
                      
                      
                      (183,114
                      )
                      
                      
                      (938,074
                      )
                      
                      
                      (687,105
                      )Other
      income:Interest
      income, net
                      
                      
                      4,003
                      
                      
                      
                      7,154
                      
                      
                      
                      9,722
                      
                      
                      
                      85,189Other
      income, net
                      
                      
                      47,459
                      
                      
                      
                      55,432
                      
                      
                      
                      96,427
                      
                      
                      
                      26,440Total
      other income:
                      
                      
                      51,462
                      
                      
                      
                      62,586
                      
                      
                      
                      106,149
                      
                      
                      
                      111,629Loss
      before provision for income tax:
                      
                      
                      (365,509
                      )
                      
                      
                      (120,528
                      )
                      
                      
                      (831,925
                      )
                      
                      
                      (575,476
                      )Provision
      for income tax:
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,172
                      
                      
                      
                      -Net
      loss before minority interest:
                      
                      
                      (365,509
                      )
                      
                      
                      (120,528
                      )
                      
                      
                      (833,097
                      )
                      
                      
                      (575,476
                      )Minority
      interest:
                      
                      
                      (45,692
                      )
                      
                      
                      19,900
                      
                      
                      
                      (16,041
                      )
                      
                      
                      59,467Net
      loss:
                      
                      
                      (319,817
                      )
                      
                      
                      (140,428
                      )
                      
                      
                      (817,056
                      )
                      
                      
                      (634,943
                      )Other
      comprehensive income (loss):Foreign
      currency translation adjustment
                      
                      
                      (17,231
                      )
                      
                      
                      471,505
                      
                      
                      
                      42,698
                      
                      
                      
                      950,187Comprehensive
      income (loss):
                      
                      $
                      ( 337,048
                      )
                      
                      $
                      331,077
                      
                      
                      $
                      (774,358
                      )
                      
                      $
                      315,244Loss
      per common share:Basic
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.02
                      )Diluted
                      
                      $
                      (0.01
                      )
                      
                      $
                      (0.00
                      )
                      
                      $
                      (0.03
                      )
                      
                      $
                      (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
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 3
  EQUICAP,
INC.
  Consolidated
Statements of Cash Flows
  (Unaudited)
 
 For
      Nine Months EndedMarch31,2009
                  
                  
                  2008Cash
      flows from operating activities:Net
      loss
                  
                  $
                  ( 817,056
                  )
                  
                  $
                  ( 634,943
                  )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Share-based
      compensation
                  
                  
                  81,592
                  
                  
                  
                  81,592Minority
      interest
                  
                  
                  (16,041
                  )
                  
                  
                  59,467Depreciation
      and amortization
                  
                  
                  137,136
                  
                  
                  
                  73,313Bad
      debt expense
                  
                  
                  87,971
                  
                  
                  
                  212,391Non-cash
      payments of rent
                  
                  
                  3,750
                  
                  
                  
                  3,750Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  (258,324
                  )
                  
                  
                  54,140Inventory
                  
                  
                  (267,824
                  )
                  
                  
                  (501,710
                  )Other
      receivables
                  
                  
                  (33,292
                  )
                  
                  
                  2,957,982Advance
      payments
                  
                  
                  3,538,111
                  
                  
                  
                  (2,657,134
                  )Prepaid
      expenses
                  
                  
                  152,835
                  
                  
                  
                  (27,625
                  )Notes
      receivable
                  
                  
                  222,572
                  
                  
                  
                  (256,563
                  )Deferred
      expenses
                  
                  
                  33,122
                  
                  
                  
                  (1,234
                  )Accounts
      payable and accrued expenses
                  
                  
                  198,159
                  
                  
                  
                  (201,770
                  )Trade
      notes payable
                  
                  
                  190,927
                  
                  
                  
                  -Taxes
      payable
                  
                  
                  25,425
                  
                  
                  
                  (293
                  )Other
      payables
                  
                  
                  45,541
                  
                  
                  
                  (406,868
                  )Total
      adjustments:
                  
                  
                  4,141,660
                  
                  
                  
                  (610,562
                  )Net
      cash provided by (used in) operating activities:
                  
                  
                  3,324,604
                  
                  
                  
                  (1,245,505
                  )Cash
      flows from investing activities:Additions
      to property, plant and equipment
                  
                  
                  (343,972
                  )
                  
                  
                  (367,657
                  )Additions
      to construction in progress
                  
                  
                  -
                  
                  
                  
                  (1,630,161
                  )Additions
      to intangible assets
                  
                  
                  -
                  
                  
                  
                  (2,984
                  )Acquisition
      of Shengte, net of cash from Shengte
                  
                  
                  -
                  
                  
                  
                  (3,584,960
                  )Net
      cash used in investing activities:
                  
                  
                  (343,972
                  )
                  
                  
                  (5,585,762
                  )Effect
      of foreign currency conversion on cash:
                  
                  
                  2,714
                  
                  
                  
                  231,723Net
      increase (decrease) in cash and cash equivalents:
                  
                  
                  2,983,346
                  
                  
                  
                  (6,599,544
                  )Cash and cash
      equivalentsand
      restricted cash–beginning:
                  
                  
                  956,973
                  
                  
                  
                  7,848,812Cash and cash equivalentsand
      restricted
      cash–ending:
                  
                  $
                  3,940,319
                  
                  
                  $
                  1,249,268Supplemental
      schedule of non cash activitiesConstruction
      in progress reclassed to property and equipment
                  
                  $
                  1,785,616
                  
                  
                  $
                  -
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 4
  EQUICAP,
INC.
 Notes
to Consolidated Financial Statements
 March
31, 2009 and 2008
 (Unaudited)
 
 NOTE
      1 –
              ORGANIZATION
      AND NATURE 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.
 
 Goodwill
and Other Intangible Assets
 
 Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and intangible assets with indefinite lives are
subject to annual impairment test using the guidance and criteria described in
Statement of Financial Accounting Standard No. 142, “Goodwill and Other
Intangible Assets”. This test compares carrying values to fair values and, when
appropriate, the carrying value of these assets is reduced to fair value. As of
March 31, 2009, the Company concluded that there were no impairments of goodwill
or intangible assets with indefinite lives.
  5
  NOTE
      2 –
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
 
 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. Share data has 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. The
inclusion of the potential shares from these options and warrants would cause an
antidilutive effect by reducing the net loss per share.
 
 Three Months Ended March 31,
                                
                                
                                Nine Months Ended March 31,2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Net
      loss
                                
                                $
                                (
      319,817
                                )
                                
                                $
                                (
      140,428
                                )
                                
                                $
                                (
      817,056
                                )
                                
                                $
                                (
      634,943
                                )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
                                )
                                
                                $
                                ( 0.00
                                )
                                
                                $
                                ( 0.03
                                )
                                
                                $
                                ( 0.02
                                )Diluted
      net income (loss) per share
                                
                                $
                                ( 0.01
                                )
                                
                                $
                                ( 0.00
                                )
                                
                                $
                                ( 0.03
                                )
                                
                                $
                                ( 0.02
                                )
 
 Note
      4 –
              RESTRICTED
      CASH
 
 As of
March 31, 2009 and June 30, 2008, the Company had $190,992 and $-0- restricted
cash, respectively. These restricted cash balances are reserved for settlement
of trade notes payable in connection with inventory purchases.  The
cash is held in custody by the bank issuing the trade notes payable, is
restricted as to withdrawal or use, and is currently earning
interest.
 
 NOTE
      5 –
              INVENTORY
 
 Inventory
at March 31, 2009 and June 30, 2008 consisted of the following:
 
 March 31,
                    
                    
                    June 30,2009
                    
                    
                    2008Gears
      products
                    
                    $
                    700,550
                    
                    
                    $
                    574,097Gearbox
      products
                    
                    
                    744,004
                    
                    
                    
                    612,597Automotive
      products
                    
                    
                    14,930Other
                    
                    
                    207
                    
                    
                    
                    206Total
                    
                    $
                    1,459,691
                    
                    
                    $
                    1,186,900
 
  6
  NOTE
      6 –
              ADVANCE
      PAYMENTS
 
 Advance
payments amounted to approximately $1.54 million as of March 31, 2009, 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 before the refund may be
made.
 
 NOTE
      7 –
              PROPERTY
      AND EQUIPMENT
 
 Property
and equipment at March 31, 2009 and June 30, 2008 consists of the
following:
 
 March 31,
                    
                    
                    June 30,2009
                    
                    
                    2008Manufacturing
      equipment
                    
                    $
                    2,912,944
                    
                    
                    $
                    784,658Office
      equipment and furniture
                    
                    
                    50,979
                    
                    
                    
                    45,537Vehicles
                    
                    
                    62,039
                    
                    
                    
                    61,785Subtotal
                    
                    
                    3,025,962
                    
                    
                    
                    891,980Less:
      Accumulated depreciation
                    
                    
                    301,256
                    
                    
                    
                    164,2042,724,706
                    
                    
                    
                    727,776Construction
      in progress
                    
                    
                    4,936
                    
                    
                    
                    1,783,826Total
                    
                    $
                    2,729,642
                    
                    
                    $
                    2,511,602
 
 Depreciation
expense for three months ended March 31, 2009 and 2008 was $47,880 and $39,994,
and for nine months ended March 31, 2009 and 2008 was $136,331 and $72,981,
respectively.
 
 NOTE
      8 –
              RENTAL
      EXPENSE
 
 The
Company's U.S. office site is located in the state of California. Rental expense
for the three months ended March 31, 2009 and 2008 was $1,250 and $1,250, and
for the nine months ended March 31, 2009 and 2008 was $3,750 and $3,750,
respectively. The Company’s Chinese operation is located in Hangzhou, China, and
the rental expense for the three months ended March 31, 2009 and 2008 was
$10,263 and $3,921, and for the nine months ended March 31, 2009 and 2008 was
$52,619 and $25,157, respectively.
 
 NOTE
      9 –
              MAJOR
      CUSTOMERS AND SUPPLIERS
 
 For the
auto parts segment, two major customers, BBB-OCA, and World Pac, accounted for
66% and 13%, respectively, of the net revenue of auto parts in North America for
the three months ended March 31, 2009. For the gear segment, two customers,
Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd. accounted
for 70% and 17%, respectively, of the net revenue in China, for the three months
ended March 31, 2009. These four customers accounted for 16%, 3%, 53% and 13%,
respectively, of the Company’s consolidated revenue for the three months ended
March 31, 2009. For the nine months ended March 31, 2009, two major customers,
BBB-OCA, and World Pac, accounted for approximately 71% and 13% of the net
revenue of auto parts in North America; and for the gear segment three
customers, Zhejiang Xinchai Co., Ltd., Ningbo Ruyi Co., Ltd., and Lonking
(Shanghai) Forklift Co., Ltd. accounted for 80%, 7% and 6%, respectively,
of the net revenue in China. These five customers accounted for 21%, 4%, 57%, 5%
and 4%, respectively, of the Company’s consolidated revenue for the nine months
ended March 31, 2009.
  7
  NOTE
      9 –
              MAJOR
      CUSTOMERS AND SUPPLIERS (continued)
 
 For the
auto parts segment, three major suppliers, Wuxi Susun Autoparts Co., Ltd., Pico
and Zhejiang Boyu Industrial Co., Ltd, accounted for 33%, 24% and 21%,
respectively, of the Company's purchases of the auto parts for the three months
ended March 31, 2009. For the gear segment, four major suppliers, Zhejiang
Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Wuxi Hydraulic
Machinery Co., Ltd. and Xinchang Liyuan Foundry Co., Ltd., accounted for
approximately 32%, 14%, 6% and 6% respectively, of the total purchases in China
for the three months ended March 31, 2009. These seven suppliers accounted for
9%, 7%, 6%, 23%, 10%, 5% and 4%, respectively, of the Company’s consolidated
purchases for the three months ended March 31, 2009. For the nine months ended
March 31, 2009, three major suppliers, Wuxi Susun Autoparts Co., Ltd., Zhejiang
Boyu Industrial Co., Ltd, and Pico accounted for approximately 49%, 25% and 7%
respectively, of the Company's purchases of the auto parts; and four major
suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd.,
Xinchang Liyuan Foundry Co., Ltd and Xinchang Zhisheng Machinery Co., Ltd.,
accounted for approximately 35%, 16%, 6% and 5% respectively, of the total
purchases in China. These seven suppliers accounted for 15%, 7%, 2%, 24%, 11%,
4% and 4%, respectively, of the Company’s consolidated purchases for the nine
months ended March 31, 2009.
 
 NOTE
      10 –
              DEFERRED
      COMPENSATION
 
 As
described in Note 14 (“Stock-Based Compensation”), the Company granted options
to employees and warrants to the private placement agent.  Following
SFAS No. 123R, the Company recognizes expenses based 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
      11 –
              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 nine months ended March 31, 2009 and
2008.
 
 Three Months Ended March 31,
                      
                      
                      Nine Months Ended March 31,Segment
      revenues
                      
                      2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008North
      America/Auto Parts
                      
                      $
                      241,374
                      
                      
                      $
                      369,515
                      
                      
                      $
                      869,407
                      
                      
                      $
                      788,942China/Gear
                      
                      
                      735,593
                      
                      
                      
                      599,399
                      
                      
                      
                      2,114,657
                      
                      
                      
                      1,654,558Corporate
      and elimination
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Consolidated
                      
                      $
                      976,967
                      
                      
                      $
                      968,914
                      
                      
                      $
                      2,984,064
                      
                      
                      $
                      2,443,500
  8
  NOTE
      11 –
              SEGMENT
      REPORTING (continued)
 
 Segment
      operating
                      
                      Three Months Ended March 31,
                      
                      
                      Nine Months Ended March 31,earnings
      (loss)
                      
                      2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008North
      America/Auto Parts
                      
                      $
                      ( 12,677
                      )
                      
                      $
                      ( 4,063
                      )
                      
                      $
                      ( 94,397
                      )
                      
                      $
                      (251,127
                      )China/Gear
                      
                      
                      (234,234
                      )
                      
                      
                      22,366
                      
                      
                      
                      (
      166,918
                      )
                      
                      
                      126,748Corporate
      and elimination
                      
                      
                      (170,060
                      )
                      
                      
                      (201,417
                      )
                      
                      
                      (676,759
                      )
                      
                      
                      (562,726
                      )Consolidated
                      
                      $
                      (416,971
                      )
                      
                      $
                      (183,114
                      )
                      
                      $
                      (938,074
                      )
                      
                      $
                      (687,105
                      )
 
 Three Months Ended March 31,
                        
                        
                        Nine Months Ended March 31,Depreciation
      expense
                        
                        2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008North
      America/Auto Parts
                        
                        $
                        33
                        
                        
                        $
                        -
                        
                        
                        $
                        66
                        
                        
                        $
                        -China/Gear
                        
                        
                        47,821
                        
                        
                        
                        39,994
                        
                        
                        
                        136,196
                        
                        
                        
                        72,981Corporate
      and elimination
                        
                        
                        26
                        
                        
                        
                        -
                        
                        
                        
                        69
                        
                        
                        
                        -Consolidated
                        
                        $
                        47,880
                        
                        
                        $
                        39,994
                        
                        
                        $
                        136,331
                        
                        
                        $ 72,981
 
 As ofSegment identifiable assets
                        
                        March 31, 2009
                        
                        
                        June 30, 2008North
      America/Auto Parts
                        
                        $
                        375,114
                        
                        
                        $
                        451,240China/Gear
                        
                        
                        10,564,525
                        
                        
                        
                        10,257,675Total
      Segment identifiable assets
                        
                        
                        10,939,639
                        
                        
                        
                        10,708,915Goodwill
                        
                        
                        3,407,262
                        
                        
                        
                        3,393,307Corporate
      and elimination
                        
                        
                        130,724
                        
                        
                        
                        688,595Consolidated
                        
                        $
                        14,477,625
                        
                        
                        $
                        14,790,817
 
 Note
      12 –
              SUPPLEMENTAL
      CASH FLOW INFORMATION
 
 Nine Months Ended March 31,2009
                      
                      
                      2008Cash
      paid for interest
                      
                      $
                      191
                      
                      
                      $
                      747Cash
      paid for income taxes
                      
                      $
                      1,171
                      
                      
                      $
                      -
  9
  NOTE
      13–
              STOCK
      AUTHORIZATION AND ISSUANCE
 
 On March
9, 2007, the Company completed the sale of an aggregate of 8,450,704 shares of
its common stock to a limited number of institutional investors in a private
placement transaction pursuant to offering exemptions under the Securities Act
of 1933. The shares, which represented approximately 30% of the outstanding
common stock on an after-issued basis, were sold at a price of $1.42 per share,
for net proceeds of approximately $10 million. The 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.
Currently the shares are eligible for sale under Rule 144.
 
 In the
event the Company did not satisfy the registration obligations of the
registration rights agreement, (“Registration Default”), which were subject to
Rule 144 limitations, the Company would have had to 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 could have incured
under this registration payment arrangement is 10% of the aggregate investment
amount, or $1,200,000. Any payments made would have been prorated for any
portion of a 30-day period of a Registration Default.
 
 Although
the Company had the obligation to register shares of common stock for other
persons under the above described registration rights agreement, the Company
would not be obligated to pay liquidated damages in the event that their shares
were not registered or the registration statement was not approved.
 
 NOTE
      14 –
              STOCK-BASED
      COMPENSATION
 
 As of
March 31, 2009, there are outstanding 366,550 options to employees (“Employee
Options”) and 422,535 warrants (“Agent Warrants”) to the private placement
agent. Both the Employee Options and Agent Warrants vest over three years and
have a life of five years. For the three and nine months ended March 31, 2009,
the Company recorded approximately $27,197 and $81,592, respectively, of
stock-based compensation based on the fair value method of SFAS. No. 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
      15 –
              COMMITMENTS
      AND CONTINGENCIES
 
 In
connection with the offering, for the benefit of the investors, eight of the
former shareholders of Usunco, some of whom are the officers and directors of
Equicap, placed into escrow an aggregate of 10,140,846 shares of common stock
issued in the Share Exchange.  Because the Company did not meet the
criteria for the escrowed shares to be returned to the former shareholders, the
escrowed shares were distributed to the investors, pro rata for no additional
consideration. The placing of shares by the former shareholders of Usunco into
escrow was tantamount to a reverse stock split followed by the grant of a
restricted stock award. Any make good shares issued to the investors are subject
to the registration rights under the Registration Rights Agreement and the Rule
144 limitations on that obligation.
 
 According
to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s),
because the performance criteria were not met, these shares have been treated as
an expense for the amount of the market value of the shares as of the dates of
release. Based upon the market price of $1.00 per share of common stock as of
June 30, 2007, the total expense recognized for the fiscal year of 2007 was
$3,954,930. Based upon the market price of $0.20 per share of common stock as of
June 30, 2008, the total expense recognized for the fiscal year of 2008 was
$1,419,719. Such expense was treated as an unusual item since it is deemed to be
unusual in nature and would be infrequent in occurrence.
  10
 
 NOTE
      16 –
              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.  The Company is obligated to provide
indemnification to vFinance Investment, Inc. for its expenses in its defending
the action.
  11




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




Equicap,
Inc. (“Equicap”) does business through its subsidiary, Usunco Automotive Limited
(“Usunco”), which in turn operates through IBC Automotive Products, Inc.
(“IBC”), its wholly-owned subsidiary established under the laws of the State of
California (the “North America/Auto Parts Segment”), and through Zhejiang
ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture
established under the laws of the People’s Republic of China (the “PRC” or
“China”), and Zhejiang Shengte Transmission Co., Ltd. (“Shengte”) a company
established under the laws of the PRC and wholly owned by ZhongChai JV (the
“China/Gear Segment”).  Through its operating subsidiaries, 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.




Conversion
of Convertible Note of Equicap




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


12




2007
Private Placement Offering




As a
condition to the Share Exchange, Equicap conducted a private placement of its
common stock to 11 accredited, institutional investors in which Equicap raised
gross proceeds of $12 million (“Offering”) under an exemption from registration
under Section 4(2) of the Securities Act of 1933.  After commissions
and expenses related to the Offering and the $450,000 advisory fee payable to
Fountainhead, Equicap received net proceeds of approximately $10,000,000 in the
Offering.  The investors were issued an aggregate of 8,450,704 shares
of common stock, representing approximately 30% of the issued and outstanding
common stock of Equicap. 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 were not achieved by
those dates then Equicap was required to pay each of, and only, the investors 1%
of the share purchase price paid by such investor for each month thereafter that
the investors cannot publicly sell the shares of common stock covered by that
registration statement. 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
were subject to various conditions, and the registration statements were 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 had to be kept effective until
all the shares of these parties are sold or may be sold without limitation under
Rule 144.  Equicap did not meet the effectiveness deadline for the
initial registration statement and paid $32,000 to the investors under the
liquidated damages provision.




The
former principal shareholders of Equicap who have piggy-back rights also have a
demand registration right after all the shares of the investors and vFinance
have either been sold or may be sold without limitation under Rule
144.  The company was 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 March 31, 2009 Compared to Three Months Ended March 31,
2008




Revenue




Revenue
increased by $8,053 or 1% to $976,967 for the three months ended March 31, 2009
compared with $968,914 for the three months ended March 31, 2008. Revenue for
the three months ended March 31, 2009, 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 $241,374 and $735,593,
respectively. Sales revenue for the three months ended March 31, 2008 consisted
of $369,515 for North America/Auto Parts segment, and $599,399 for China/Gear
segment, respectively.




Cost
of Sales and Gross Margin




Cost of
sales was $770,546 for the three months ended March 31, 2009, decreasing by
$15,825 or 2%, from $786,371 for the three months ended March 31, 2008. The
gross margin was approximately 21% for the three months ended March 31, 2009,
compared to approximately 19% for the three months ended March 31, 2008. For the
China/Gears segment, the decrease in gross margin in this quarter as compared to
the same period in prior fiscal year, was attributed mainly to the launch of new
gearbox products to the market, margin of which is lower than for gears; for the
North America/Auto Parts segment, the gross margin has been increased to its
normal level during the period, compared with the same period in prior fiscal
year.




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 $257,735 to $623,392 in the three months ended March 31,
2009, from $365,657 in three months ended March 31, 2008. SG&A increased for
the current period compared with the same period in the prior fiscal year
primarily attributed to incurrence of research and development expenses in
China/Gear segment for gearbox products, and additional legal and other
consulting expenses during the period.


14




Net
Loss




Net loss
reached $319,817 in three months ended March 31, 2009, compared with net loss of
$140,428 in the three months ended March 31, 2008. The net loss was mainly
attributed to R&D expenses for new products, the costs related to being a
public company including professional services related to auditing, legal and
other services, and non-cash expenses recognized for stock based compensation
related to stock options and warrants granted in the period pursuant to SFAS
123(R), partially offset by the net interest income and net other income of
$51,462.




Nine
Months Ended March 31, 2009 Compared to Nine Months Ended March 31,
2008




Revenue




Revenue
increased by $540,564 or 22% to $2,984,064 for the nine months ended March 31,
2009 compared with $2,443,500 for the nine months ended March 31, 2008. Revenue
for the nine months ended March 31, 2009, 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 $869,407 and $2,114,657,
respectively. Sales revenue for the nine months ended March 31, 2008 consisted
of $788,942 for North America/Auto Parts segment, and $1,654,558 for China/Gear
segment, respectively.




Cost
of Sales and Gross Margin




Cost of
sales was $2,316,530 for the nine months ended March 31, 2009, increasing by
$387,549 or 20%, from $1,928,981 for the nine months ended March 31, 2008. The
gross margin was approximately 22% for the nine months ended March 31, 2009,
compared to approximately 21% for the nine months ended March 31, 2008. For the
China/Gears segment, gross margin slightly decreased in the nine-month period as
compared to the same period in prior fiscal year, due to the launch of new
gearbox products to the market, the margin of which is lower than for gears; for
the North America/Auto Parts segment, gross margin has been increased to its
normal level during the period, compared with the same period in prior fiscal
year.




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 $403,984 to $1,605,608 in the nine months ended March 31,
2009, from $1,201,624 in nine months ended March 31, 2008. SG&A increased
for the current period over the same period in the prior fiscal year primarily
attributed to incurrence of research and development expenses in China/Gear
segment for gearbox products, and additional legal and other consulting expenses
during the period.




Net
Loss




Net loss
reached $817,056 in nine months ended March 31, 2009, compared with net loss of
$634,943 in the nine months ended March 31, 2008. The net loss was mainly
attributed to R&D expenses for new products, the costs related to being a
public company including professional services related to auditing, legal and
other services, and non-cash expenses recognized for stock based compensation
related to stock options and warrants granted in the period pursuant to SFAS
123(R), partially offset by the net interest income and net other income of
$106,148.


15


Liquidity
and Capital Resources




As of
March 31, 2009, Equicap had current assets equal to $8,229,219 which primarily
were comprised of cash and cash equivalents of $3,749,327, restricted cash of
$190,992, inventory of $1,459,691 and net trade receivables and other
receivables of $1,155,734, and advance payments of $1,540,640.  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 March 31, 2009,
ZhongChai JV has received refund of approximately $3.4 million and the balance
is under governmental approval procedures before the amount may be returned.
Equicap’s current liabilities as of March 31, 2009 were $1,847,814, which
primarily were trade accounts payable, accrued expenses, trade notes payable,
and other payables. At March 31, 2009, Equicap had working capital of
$6,381,405.  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 sought
to end their investment in the Company.  There had 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
did not conclude any definitive arrangements or any written agreements about any
aspect of the foregoing discussions or considerations.  On November 6,
2008, nine of the investors in the Share Exchange 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.




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.




17




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 March 31, 2009, the Company concluded that there were no impairments on
goodwill or indefinite-lived intangibles.




Revenue
Recognition




Revenue
consists of sales of automotive parts, gears and gearboxes. In accordance with
the provisions of Staff Accounting Bulletin No. 103, revenue is recognized when
merchandise is shipped, title and risk of loss pass to the customer and
collectibility is reasonably assured. Revenue is recorded as the sales price of
goods, 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 March 31, 2009 and 2008 were
insignificant.




Comprehensive
Income (Loss)




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




Foreign
Currency Translation




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




18




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 nine months ended March 31, 2009. For the
China/Gear segment, the ZhongChai JV is located in the PRC, and is therefore
subject to central government and provincial and local income taxes within the
PRC at the applicable tax rate on the taxable income as reported in the PRC
statutory financial statements in accordance with relevant income tax laws. The
standard corporate income tax rate is 25% from January 1, 2008, when China’s new
tax law became effective, decreased from 33%.




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.  The Company is obligated to provide indemnification to
vFinance Investments, Inc. for its expense in defending the claims against it
and any settlement costs.




Item
1A. Risk Factors.




Not applicable to smaller reporting
companies.




20


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 March 31,
  2009.31.2
                    
                    Certification
      of the Company’s Principal Financial Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly
      Report on Form 10-Q for the quarter ended March 31,
  2009.32.1
                    
                    Certification
      of the Company’s Principal Executive Officer and Principal Financial
      Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
      Section 906 of the Sarbanes Oxley Act of
2002.


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


22