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, 2010
 
  ̈
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) 418-9133
 
 Not Applicable
 
 (Former
name, former address and former
 fiscal
year, if changed since last report)
 
 Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.    Yes  xNo
 ̈
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Date File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files.    Yes   ̈No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non accelerated filer, or smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 Large
accelerated filer  ̈Accelerated Filer
 ̈Non
accelerated filer  ̈Smaller reporting
company x
 
 Indicate
by check mark whether the issuer is a shell company (as defined in Rule 12b-2 of
the Exchange Act).Yes   ̈No
x
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
 
 Indicate
the number of shares outstanding of each of the issuer’s classes of common
equity, as of the latest practicable date: 27,613,019shares
of common stock, par value $.001 per share, outstanding as of May 10,
2010.
  
  EQUICAP,
INC.
 
 -
INDEX -
 
 PagePART I – FINANCIAL
      INFORMATION:Item
      1. Financial Statements
                                        1Unaudited
      Consolidated Balance Sheet as of March 31, 2010 and June 30,
      2009
                                        2Unaudited
      Consolidated Statements of Operations and Comprehensive Income (Loss) for
      the three and nine months ended March 31, 2010 and 2009
                                        3Unaudited
      Consolidated Statements of Cash Flows for the nine months ended March 31,
      2010 and 2009
                                        4Notes
      to Consolidated Financial Statements
                                        5Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of OperationsItem
      3 Quantitative and Qualitative Disclosures About Market
    RiskItem
      4 Controls and ProceduresPART II – OTHER
      INFORMATION:Item
      6. ExhibitsSignatures
  
  FORWARD-LOOKING
STATEMENTS
 
 Statements
made in this Form 10-Q (the “Quarterly Report”) that are not historical or
current facts are “forward-looking statements” made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). These statements often can be identified by the use of terms
such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”,
“approximate”, or “continue”, or the negative thereof. Equicap, Inc. (the
“Company”) intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management’s best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include our current dependence on a limited number of
products and customers, the focus of the business on the gear and gearbox
(transmission) markets in the Peoples Republic of China, the need to develop new
products and create demand for them, the effect of the global recession and
availability of credit, pricing pressures on our products and margins, product
quality, customer satisfaction and the ability to sustain and grow sales and
expand the customer base, warranty obligations and claims, operating a business
primarily in the Peoples Republic of China, currency controls and exchange rate
exposure, and the other risk factors discussed in our reports filed with the
Securities and Exchange Commission. The Company disclaims any obligation to
revise any forward-looking statements to reflect events or circumstances after
the date of such statement or to reflect the occurrence of anticipated or
unanticipated events.
 
 PART I – FINANCIAL
INFORMATION
 
 Item
1.  Financial Statements.
  1
  EQUICAP,
INC.
  Consolidated
Balance Sheets
  March 31,
                                  
                                  
                                  June 30,2010
                                  
                                  
                                  2009(Unaudited)AssetsCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  539,914
                                  
                                  
                                  $
                                  3,990,767Restricted
      cash
                                  
                                  
                                  90,441
                                  
                                  
                                  
                                  315,151Accounts
      receivable, net of allowance for doubtful accounts of $18,189 and $7,732
      at March 31, 2010 and June 30, 2009, respectively
                                  
                                  
                                  2,426,475
                                  
                                  
                                  
                                  1,540,402Inventories
                                  
                                  
                                  2,207,522
                                  
                                  
                                  
                                  1,568,445Notes
      receivable
                                  
                                  
                                  1,058,565
                                  
                                  
                                  
                                  448,655Advance
      payments
                                  
                                  
                                  5,329,020
                                  
                                  
                                  
                                  2,988,235Other
      current assets
                                  
                                  
                                  597,275
                                  
                                  
                                  
                                  115,266Total
      current assets
                                  
                                  
                                  12,249,212
                                  
                                  
                                  
                                  10,966,921Property
      and equipment, net
                                  
                                  
                                  2,962,393
                                  
                                  
                                  
                                  2,662,924Goodwill
                                  
                                  
                                  3,411,913
                                  
                                  
                                  
                                  3,407,262Other
      assets
                                  
                                  
                                  708
                                  
                                  
                                  
                                  65,575Total
      assets
                                  
                                  $
                                  18,624,226
                                  
                                  
                                  $
                                  17,102,682LiabilitiesCurrent
      liabilities:Accounts
      payable and accrued expenses
                                  
                                  $
                                  3,121,790
                                  
                                  
                                  $
                                  1,562,217Short-term
      bank loans
                                  
                                  
                                  1,422,990
                                  
                                  
                                  
                                  2,197,500Trade
      notes payable
                                  
                                  
                                  90,441
                                  
                                  
                                  
                                  315,151Taxes
      payable
                                  
                                  
                                  178,256
                                  
                                  
                                  
                                  54,292Other
      current liabilities
                                  
                                  
                                  667,453
                                  
                                  
                                  
                                  635,408Total
      current liabilities
                                  
                                  
                                  5,480,930
                                  
                                  
                                  
                                  4,764,568Total
      liabilities
                                  
                                  
                                  5,480,930
                                  
                                  
                                  
                                  4,764,568EquityStockholders’
      equity:Common
      stock, $.001 par value, 500,000,000 shares authorized, 27,613,019 shares
      issued and outstanding at March 31, 2010 and June 30, 2009,
      respectively
                                  
                                  
                                  27,613
                                  
                                  
                                  
                                  27,613Stock
      subscription receivable
                                  
                                  
                                  (33,120
                                  )
                                  
                                  
                                  (33,120
                                  )Additional
      paid-in capital
                                  
                                  
                                  16,484,097
                                  
                                  
                                  
                                  16,484,097Statutory
      reserves
                                  
                                  
                                  124,460
                                  
                                  
                                  
                                  124,460Accumulated
      deficit
                                  
                                  
                                  (8,158,417
                                  )
                                  
                                  
                                  (8,440,255
                                  )Accumulated
      other comprehensive income
                                  
                                  
                                  1,431,995
                                  
                                  
                                  
                                  1,415,474Total
      stockholders’ equity
                                  
                                  
                                  9,876,628
                                  
                                  
                                  
                                  9,578,269Noncontrolling
      interest
                                  
                                  
                                  3,266,668
                                  
                                  
                                  
                                  2,759,845Total
      equity
                                  
                                  
                                  13,143,296
                                  
                                  
                                  
                                  12,338,114Total
      liabilities and equity
                                  
                                  $
                                  18,624,226
                                  
                                  
                                  $
                                  17,102,682
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  2
  EQUICAP,
INC.
  Consolidated
Statements of Operations and Comprehensive Income (Loss)
  (Unaudited)
  For the Three Months Ended
                  
                  
                  For the Nine Months EndedMarch 31,
                  
                  
                  March 31,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Sales
                  
                  $
                  3,202,350
                  
                  
                  $
                  976,967
                  
                  
                  $
                  7,040,579
                  
                  
                  $
                  2,984,064Cost
      of sales
                  
                  
                  2,454,953
                  
                  
                  
                  770,546
                  
                  
                  
                  5,481,480
                  
                  
                  
                  2,316,530Gross
      profit
                  
                  
                  747,397
                  
                  
                  
                  206,421
                  
                  
                  
                  1,559,099
                  
                  
                  
                  667,534Operating
      expensesSelling,
      general and administrative
                  
                  
                  284,340
                  
                  
                  
                  623,392
                  
                  
                  
                  916,530
                  
                  
                  
                  1,605,608Income
      (loss) from operations
                  
                  
                  463,057
                  
                  
                  
                  (416,971
                  )
                  
                  
                  642,569
                  
                  
                  
                  (938,074
                  )Other
      income (expenses):Interest
      income (expenses), net
                  
                  
                  (29,095
                  )
                  
                  
                  4,003
                  
                  
                  
                  (63,364
                  )
                  
                  
                  9,722Other
      income, net
                  
                  
                  16,289
                  
                  
                  
                  47,459
                  
                  
                  
                  56,598
                  
                  
                  
                  96,427Total
      other income (expenses)
                  
                  
                  (12,806
                  )
                  
                  
                  51,462
                  
                  
                  
                  (6,766
                  )
                  
                  
                  106,149Income
      (loss) before provision for income taxes
                  
                  
                  450,251
                  
                  
                  
                  (365,509
                  )
                  
                  
                  635,803
                  
                  
                  
                  (831,925
                  )Provision
      for income taxes
                  
                  
                  73,448
                  
                  
                  
                  -
                  
                  
                  
                  140,541
                  
                  
                  
                  1,172Net
      income (loss)
                  
                  
                  376,803
                  
                  
                  
                  (365,509
                  )
                  
                  
                  495,262
                  
                  
                  
                  (833,097
                  )Less:
      Net income (loss) attributable to noncontrolling interest
                  
                  
                  112,942
                  
                  
                  
                  (45,692
                  )
                  
                  
                  213,424
                  
                  
                  
                  (16,041
                  )Net
      income (loss) attributable to Equicap
                  
                  
                  263,861
                  
                  
                  
                  (319,817
                  )
                  
                  
                  281,838
                  
                  
                  
                  (817,056
                  )Other
      comprehensive income (loss)Foreign
      currency translation adjustment
                  
                  
                  398
                  
                  
                  
                  (17,231
                  )
                  
                  
                  16,521
                  
                  
                  
                  42,698Comprehensive
      income (loss)
                  
                  $
                  264,259
                  
                  
                  $
                  (337,048
                  )
                  
                  $
                  298,359
                  
                  
                  $
                  (774,358
                  )Earnings
      (loss) per common share:Basic
                  
                  $
                  0.01
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.03
                  )Diluted
                  
                  $
                  0.01
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.03
                  )Weighted
      average number of common sharesoutstanding:Basic
                  
                  
                  27,613,019
                  
                  
                  
                  28,169,013
                  
                  
                  
                  27,613,019
                  
                  
                  
                  28,169,013Diluted
                  
                  
                  27,613,019
                  
                  
                  
                  28,169,013
                  
                  
                  
                  27,613,019
                  
                  
                  
                  28,169,013
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  3
  EQUICAP,
INC.
  Consolidated
Statements of Cash Flows
  (Unaudited)
 
 For the Nine Months EndedMarch 31,2010
                  
                  
                  2009Cash
      flows from operating activities:Net
      income (loss)
                  
                  $
                  281,838
                  
                  
                  $
                  (817,056
                  )Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activities:Noncontrolling
      interest
                  
                  
                  213,424
                  
                  
                  
                  (16,041
                  )Depreciation
      and amortization
                  
                  
                  229,508
                  
                  
                  
                  137,136Loss
      on disposal of fixed assets
                  
                  
                  4,846
                  
                  
                  
                  -Provision
      for bad debts
                  
                  
                  10,442
                  
                  
                  
                  87,971Share-based
      payments
                  
                  
                  63,606
                  
                  
                  
                  81,592Non-cash
      payments of rent
                  
                  
                  -
                  
                  
                  
                  3,750Changes
      in assets and liabilities:Accounts
      receivable
                  
                  
                  (894,050
                  )
                  
                  
                  (258,324
                  )Inventories
                  
                  
                  (636,675
                  )
                  
                  
                  (267,824
                  )Notes
      receivable – trade
                  
                  
                  (620,622
                  )
                  
                  
                  222,572Advance
      payments
                  
                  
                  (136,150
                  )
                  
                  
                  3,640,626Other
      current assets
                  
                  
                  (494,611
                  )
                  
                  
                  152,665Accounts
      payable and accrued expenses
                  
                  
                  1,557,049
                  
                  
                  
                  198,159Trade
      notes payable
                  
                  
                  (225,048
                  )
                  
                  
                  190,927Taxes
      payable
                  
                  
                  123,839
                  
                  
                  
                  25,425Other
      current liabilities
                  
                  
                  44,461
                  
                  
                  
                  45,541Total
      adjustments
                  
                  
                  (759,981
                  )
                  
                  
                  4,244,175Net
      cash provided by (used in) operating activities
                  
                  
                  (478,143
                  )
                  
                  
                  3,427,119Cash
      flows from investing activities:Advance
      payments for the purchase of land use rights and building
                  
                  
                  (2,199,600
                  )
                  
                  
                  (102,515
                  )Additions
      to property and equipment
                  
                  
                  (326,239
                  )
                  
                  
                  (343,972
                  )Additions
      to construction in progress
                  
                  
                  (203,021
                  )
                  
                  
                  -Collection
      on notes receivable – other
                  
                  
                  11,500
                  
                  
                  
                  -Net
      cash used in investing activities
                  
                  
                  (2,717,360
                  )
                  
                  
                  (446,487
                  )Cash
      flows from financing activities:Repayment
      for short-term bank loans
                  
                  
                  (777,192
                  )
                  
                  
                  -Contribution
      from minority shareholders
                  
                  
                  293,280
                  
                  
                  
                  -Net
      cash used in financing activities
                  
                  
                  (483,912
                  )
                  
                  
                  -Effect
      of foreign currency translation on cash
                  
                  
                  3,852
                  
                  
                  
                  2,714Net
      (decrease) increase in cash and cash equivalents and restricted
      cash
                  
                  
                  (3,675,563
                  )
                  
                  
                  2,983,346Cash and cash
      equivalentsand
      restricted cash–beginning
                  
                  
                  4,305,918
                  
                  
                  
                  956,973Cash and cash
      equivalentsand
      restricted cash –ending
                  
                  $
                  630,355
                  
                  
                  $
                  3,940,319Supplemental
      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, 2010 and 2009
 (Unaudited)
 
 Note
1 –  Organization and Nature of Business
 
 Equicap,
Inc. (“Equicap” or “the Company”), a Nevada corporation, is a manufacturer and
distributor of gears and gearboxes, which are marketed and sold to customers in
China.
 
 On July
6, 2007, the Board of Directors of Zhejiang Zhongchai Machinery Co., Ltd.
(“Zhongchai”), the China based and 75% owned subsidiary of the Company, approved
and finalized a Share Purchase Agreement (“Share Purchase Agreement”) with
Xinchang Keyi Machinery Co., Ltd., (“Keyi”) a corporation incorporated in the
People’s Republic of China. Pursuant to the Share Purchase Agreement, Zhongchai
purchased all the outstanding equity of Zhejiang Shengte Transmission Co., Ltd.
(“Shengte”) from Keyi, the sole owner of Shengte for approximately $3.7
million.
 
 On March
7, 2007, the Company and Usunco Automotive, Ltd. (“Usunco”), a British Virgin
Islands company, entered into a Share Exchange Agreement (“Exchange Agreement”)
which was consummated on March 9, 2007. Under the terms of the Exchange
Agreement, the Company acquired all of the outstanding equity securities of
Usunco in exchange for 18,323,944 shares of the Company’s common
stock.
 
 For
accounting purposes, because the Company had been a public shell company prior
to the share exchange, the share exchange was treated as a recapitalization of
the Company.  As such, the historical financial information prior to
the share exchange is that of Usunco and its subsidiaries. Historical share
amounts have been restated to reflect the effect of the share
exchange.
 
 On June
18, 2006, Usunco acquired 100% of IBC Automotive Products Inc (“IBC”), a
California Corporation as of May 14, 2004 (date of inception), through a Share
Exchange Agreement of 28% of Usunco’s shares. IBC was considered a “predecessor”
business to Usunco as its operations constituted the business activities of
Usunco formed to consummate the acquisition of IBC.  The consolidated
financial statements reflect all predecessor statements of income and cash flow
activities from the inception of IBC in May 2004.
 
 On June
15, 2009, IBC was sold to certain of the management persons of IBC in exchange
for the following: (i) the cancellation of an aggregate of 555,994 shares of
common stock of the Company which those individuals owned, and (ii) the payment
of $60,000 in installments pursuant to the terms of an unsecured promissory
note, the final payment of which will be November 15, 2010. As part of the
transaction, the Company cancelled $428,261 through the closing date, of
inter-company debt which funds had been used in the business of IBC prior to the
transaction.
 
 On
September 22, 2009, Xinchang Xian Lisheng Machinery Co., Ltd. (“Lisheng”) was
incorporated by Zhongchai and two individual investors. Total registered capital
of Lisheng is RMB 5 million, of which Zhongchai accounts for 60%. The Company
plans to start production of die casting products in 2010 for use in gearboxes,
diesel engines and other machinery products.
 
 On
December 16, 2009, Equicap and its wholly owned subsidiaries, Usunco and
Zhongchai Holding (Hong Kong) Limited, a Hong Kong company (“Zhongchai
Holding”), took action to approve transfer of the shares of Zhejiang Zhongchai
Machinery Co., from Usunco to Zhongchai Holding. The transfer was completed on
December 23, 2009. The purpose of the transfer was to take advantage of the tax
treaty between the Peoples Republic of China and the Special Administrative
Region of Hong Kong which reduces the withholding tax rate of the PRC on
payments to entities outside of China. Usunco no longer has any assets after
transferring all of them to Zhongchai Holding and therefore will be dissolved in
the future. The consolidated financial statements will continue to account for
Zhejiang Zhongchai Machinery Co., in the same manner as before the transfer of
the ownership. Shareholder approval by the shareholders of Equicap was not
required under Nevada law, as there was no sale of all or substantially all the
assets of the company. The shareholder ownership and shareholder rights of
Equicap remain the same as before the transaction.
 
  5
  
 Note
2 –  Summary of Significant Accounting Policies
 
 Basis
of Presentation
 
 The
Company’s consolidated financial statements include the accounts of Equicap,
Inc. and its wholly and majority owned subsidiaries. All intercompany balances
and transactions are eliminated in consolidation. The accompanying unaudited
financial statements have been prepared in accordance with generally accepted
accounting principles (“GAAP”) applicable to interim financial information and
the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities
and Exchange Commission. Accordingly, they do not include all of the information
and disclosures 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.
 
 In
preparing the accompanying unaudited consolidated financial statements, we
evaluated the period from March 31, 2010 through the date the financial
statements were issued, for material subsequent events requiring recognition or
disclosure. No such events were identified for this period.
 
 Interim
Financial Statements
 
 These
interim financial statements should be read in conjunction with the Company’s
audited financial statements for the years ended June 30, 2009 and 2008, as not
all disclosures required by GAAP for annual financial statements are presented.
The interim financial statements follow the same accounting policies and methods
of computations as the audited financial statements for the years ended June 30,
2009 and 2008.
 
 Recent
Accounting Pronouncements
 
 On July
1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched
the FASB Accounting Standards Codification (“ASC”), which has become the single
official source of authoritative nongovernmental U.S. GAAP, in addition to
guidance issued by the Securities and Exchange Commission. The ASC is designed
to simplify U.S. GAAP into a single, topically ordered structure. All guidance
contained in the ASC carries an equal level of authority. The ASC is effective
for all interim and annual periods ending after September 15, 2009. The
Company’s implementation of this guidance effective July 1, 2009 did not have a
material effect on the Company’s condensed consolidated financial
statements.
 
 On July
1, 2009, the Company adopted the accounting and disclosure requirements of
Statement of Financial Accounting Standard (“SFAS”) No. 160, Noncontrolling
Interests in Consolidated Financial Statements, an Amendment of ARB No. 51,
which is now included with ASC Topic 810 Consolidation.  This standard
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation.  On a
prospective basis, any changes in ownership will be accounted for as equity
transactions with no gain or loss recognized on the transactions unless there is
a change in control.
 
 Goodwill
and Other Intangible Assets
 
 Goodwill
represents costs in excess of fair values assigned to the underlying net assets
of acquired businesses. Goodwill and intangible assets deemed to have indefinite
lives are not amortized. All other intangible assets are amortized over their
estimated useful lives. Goodwill and intangible assets with indefinite lives are
subject to annual impairment test using the guidance and criteria described in
Statement of Financial Accounting Standard No. 142, (ASC 350) “Goodwill and
Other Intangible Assets”. This test compares carrying values to fair values and,
when appropriate, the carrying value of these assets is reduced to fair
value.
 
 Reclassification
 
 Certain
amounts as of March 31, 2009 were reclassified for presentation
purposes.
  6
 
 Note
3 –  Accounts Receivable
 
 Trade
accounts receivable are stated at original invoice amount less allowance for
doubtful receivables based on management’s periodic review of aging of
outstanding balances and customer credit history. If the financial condition of
the Company’s customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.
 
 The
balance of allowance for doubtful accounts amounted to $18,189 and $7,732 as of
March 31, 2010 and June 30, 2009, respectively.
 
 Note
4 –  Inventories
 
 Inventories
at March 31, 2010 and June 30, 2009 consist of the following:
 
 March 31, 2010
                    
                    
                    June 30, 2009Gears
      products
                    
                    $
                    1,229,170
                    
                    
                    $
                    885,559Gearbox
      products
                    
                    
                    976,957
                    
                    
                    
                    680,317Other
                    
                    
                    1,395
                    
                    
                    
                    2,569Total
                    
                    $
                    2,207,522
                    
                    
                    $
                    1,568,445
 
 Note
5  – Notes Receivable
 
 Notes
receivable at March 31, 2010 and June 30, 2009 consists of the
following:
 
 March 31, 2010
                    
                    
                    June 30, 2009Notes
      receivable-trade
                    
                    $
                    1,012,565
                    
                    
                    $
                    391,155Notes
      receivable-other
                    
                    
                    46,000
                    
                    
                    
                    57,500Total
                    
                    $
                    1,058,565
                    
                    
                    $
                    448,655
 
 Note
6 –  Advance Payments
 
 Advance
payments amounted to approximately $5.3 million as of March 31, 2010,
approximately $4.6 million of which represented an advance payment made by the
Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a
corporation in China, for the purchase of land use rights and building for
Zhongchai JV’s future expansion of its production capabilities. Zhongchai JV is
currently leasing a portion of the land and building to be purchased. The total
land area to be purchased is approximately 250,000 square feet. The total
contract price for the land use rights, building and fixtures is approximately
$4.6 million. The Company is currently in the process of transferring
title.
 
 Note
7 –  Property and Equipment
 
 Property
and equipment at March 31, 2010 and June 30, 2009 consists of the
following:
 
 March 31, 2010
                    
                    
                    June 30, 2009Manufacturing
      equipment
                    
                    $
                    3,252,649
                    
                    
                    $
                    2,923,420Office
      equipment and furniture
                    
                    
                    50,402
                    
                    
                    
                    56,597Vehicles
                    
                    
                    62,317
                    
                    
                    
                    62,039Subtotal
                    
                    
                    3,365,368
                    
                    
                    
                    3,042,056Less:
      Accumulated depreciation
                    
                    
                    606,078
                    
                    
                    
                    379,132$
                    2,759,290
                    
                    
                    $
                    2,662,924Construction
      in progress
                    
                    
                    203,103
                    
                    
                    
                    -Total
                    
                    $
                    2,962,393
                    
                    
                    $
                    2,662,924
  7
 
 Note
7 –  Property and Equipment (continued)
 
 Depreciation
expense for the three months ended March 31, 2010 and 2009 was $81,083 and
$47,880, and for the nine months ended March 31, 2010 and 2009 was $228,701 and
$136,331, respectively.
 
 Note
8 –  Accounts Payable and Accrued Expenses
 
 Accounts
payable and accrued expenses consist of the following:
 
 March 31, 2010
                    
                    
                    June 30, 2009Accounts
      payable
                    
                    $
                    2,893,581
                    
                    
                    $
                    1,400,162Accrued
      expenses
                    
                    
                    228,209
                    
                    
                    
                    162,055Total
                    
                    $
                    3,121,790
                    
                    
                    $
                    1,562,217
 
 The
carrying value of accounts payable and accrued expenses approximates their fair
value due to the short-term nature of these obligations.
 
 Note
9 –  Short Term Bank Loans
 
 Short-term
bank loans consist of the following:
 
 March 31,
                        
                        
                        June 30,2010
                        
                        
                        2009On
      May 25, 2009, the Company obtained a loan from Agricultural Bank of China,
      which was re-paid on August 26, 2009. The annual interest was At the fixed
      interest rate of 4.374% and paid monthly. The loan was secured by a third
      party.
                        
                        $
                        -
                        
                        
                        $
                        776,450On
      June 15, 2009, the Company obtained a loan from Agricultural Bank of
      China, which is due on June 16, 2010. The interest is calculated using an
      annual fixed interest rate of 5.31% and paid monthly. The loan is secured
      by a third party.
                        
                        
                        1,422,990
                        
                        
                        
                        1,421,050Total
      short-term bank loans
                        
                        $
                        1,422,990
                        
                        
                        $
                        2,197,500
 
 Note10–Other Current
Liabilities
 
 Other
current liabilities amounted to $667,453 and $635,408 as of March 31, 2010 and
June 30, 2009, respectively, approximately $424,854 of which represents the last
payment due to Xingchang Keyi Machinery Co., Ltd from Shengte acquisition in
July 2007 for both of the above periods.
 
 Note
11 – Risk
Factors
 
 The
Company’s operations are carried out in the PRC. Accordingly, the Company’s
business, financial condition and results of operations may be influenced by the
political, economic and legal environments in the PRC as well as by the general
state of the PRC’s economy. The Company’s business may be influenced by changes
in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of
taxation, among other things.
 
 Note
12 –
Concentrations of Credit Risk
 
 Two
customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd.,
accounted for 32% and 24%, respectively, of the Company’s sales for the three
months ended March 31, 2010. The same two customers accounted for 40% and 23%,
respectively, of the Company’s sales for the nine months ended March 31,
2010.
  8
 
 Note
12 –
Concentrations of Credit Risk(continued)
 
 One major
supplier, Zhejiang Yuyang Machinery Co. accounted for approximately 16% of the
Company’s total purchases for the three months ended March 31, 2010 and 20% for
the nine months ended March 31, 2010.
 
 Note
13 – Supplemental Disclosure of Cash Flow Information
 
 For the Nine Months Ended March 31,2010
                      
                      
                      2009Cash
      paid for interest
                      
                      $
                      76,107
                      
                      
                      $
                      191Cash
      paid for income taxes
                      
                      $
                      93,222
                      
                      
                      $
                      1,171
 
 Note
14 – Earnings (Loss) Per Share
 
 The
Company presents earnings (loss) per share on a basic and diluted basis. Basic
earnings (loss) per share have been computed by dividing net earnings by the
weighted average number of shares outstanding. Diluted earnings (loss) per share
has been computed by dividing net earnings by the weighted average number of
shares outstanding including the dilutive effect of equity securities. All share
and per share data have been adjusted to reflect the recapitalization of the
Company after the share exchange agreement with Usunco. The weighted average
number of shares calculated for Diluted EPS excludes the potential common stock
that would be exercised under the options granted to employees and warrants
granted to agents because of their anti-dilutive effect.
 
 For the Three Months Ended March 31,2010
                                    
                                    
                                    2009Net
      income (loss)
                                    
                                    $
                                    263,861
                                    
                                    
                                    $
                                    (319,817
                                    )Weighted
      average common shares
                                    
                                    
                                    27,613,019
                                    
                                    
                                    
                                    28,169,013(denominator
      for basic loss per share)Effect
      of dilutive securities:
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Weighted
      average common shares(denominator
      for diluted loss per share)
                                    
                                    
                                    27,613,019
                                    
                                    
                                    
                                    28,169,013Basic
      net earnings (loss) per share
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    (0.01
                                    )Diluted
      net earnings (loss) per share
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    (0.01
                                    )For the Nine Months Ended March
      31,2010
                                    
                                    
                                    2009Net
      income (loss)
                                    
                                    $
                                    281,838
                                    
                                    
                                    $
                                    (817,056
                                    )Weighted
      average common shares
                                    
                                    
                                    27,613,019
                                    
                                    
                                    
                                    28,169,013(denominator
      for basic loss per share)Effect
      of dilutive securities:
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Weighted
      average common shares(denominator
      for diluted loss per share)
                                    
                                    
                                    27,613,019
                                    
                                    
                                    
                                    28,169,013Basic
      net earnings (loss) per share
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    (0.03
                                    )Diluted
      net earnings (loss) per share
                                    
                                    $
                                    0.01
                                    
                                    
                                    $
                                    (0.03
                                    )
  9
  Note
15 – Share-Based Payments
 
 As of
March 31, 2010, there were 366,550 outstanding options to employees (“Employee
Options”) and 422,535 outstanding warrants to the private placement agent
(“Agent Warrants”). Both the Employee Options and Agent Warrants vest over three
years and have a life of five years. For the three and nine months ended March
31, 2010, the Company recorded approximately $9,211 and $63,606, respectively,
of stock-based compensation based on the fair value method of SFAS. No. 123R
(ASC 718). The fair value of each option and warrant granted is estimated on the
measurement date using Black-Scholes pricing model using the following
assumptions: volatility of 34.94%, risk free interest rate of 4.63%, dividend
yield of 0%, and expected life of 5 years. No estimate of forfeitures was made
as the Company has a short history of granting options and
warrants.
 
 Note
16 – Employee
Welfare Plan
 
 The
Company has established an employee welfare plan in accordance with Chinese laws
and regulations. Full-time employees of the Company in the PRC participate in a
government-mandated multi-employer defined contribution plan pursuant to which
certain pension benefits, medical care, unemployment insurance, employee housing
fund and other welfare benefits are provided to employees. PRC labor regulations
require the Company to accrue for these benefits based on a certain percentage
of the employees’ salaries.
 
 Note
17 – Legal Proceedings
 
 On
November 6, 2008, a group of the investors filed a law suit in federal court in
New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and
vFinance Investment, Inc. based on alleged violations of the Securities Exchange
Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional
malpractice and negligent misrepresentation arising out of the private placement
closed on March 7, 2007. The action was settled by an agreement dated July 31,
2009, which provided (i) for a third party, Ruihua International Limited
("Ruihua"), to purchase all the shares of common stock of the Company owned and
held by the plaintiffs, (ii) upon the purchase of the shares, for the Company
and Mr. Wang and each of the plaintiffs to exchange general mutual releases as
to all matters arising concerning the plaintiffs' purchase and holding of the
common shares of the Company, and (iii) for a stipulation to dismiss the
action.  The action was discontinued with prejudice by stipulation
among all the parties which was ordered by the court on August 4,
2009.
 
 In
connection with the purchase by Ruihua of the shares sold to it as part of the
settlement of the above described action, Ruihua also bought shares from another
shareholder who was not a party to the action.  As a result of the
two share acquisitions, Ruihua acquired a total of 17,431,104 shares,
currently representing 61.88% of the issued and outstanding shares of common
stock of the Company.  Ruihua does not have any registration rights
with respect to the shares or other provisions related to control of the
Company, such as the right to have specific representation on the board of
directors or nominate potential directors for election, other than their rights
as a shareholder under the certificate of incorporation and by laws of the
Company and under the provisions of Nevada law and the United States securities
laws.
 
 NOTE
18 – Subsequent Events
 
 None.
  10
  Item
2.       Management’s Discussion and Analysis of
Financial Condition and Results of Operations or Plan of
Operations.
  Equicap,
Inc. (“Equicap”), a Nevada corporation, does business through its subsidiary,
Zhongchai Holding (Hong Kong) Limited, a Hong Kong company (“Zhongchai
Holding”), which in turn operates through Zhejiang ZhongChai Machinery Co., Ltd.
(the “ZhongChai JV”), a 75%-owned joint venture established under the laws of
the People’s Republic of China (the “PRC” or “China”), Zhejiang Shengte
Transmission Co., Ltd. (“Shengte”) a company established under the laws of the
PRC and wholly owned by ZhongChai JV, and Xinchang Xian Lisheng Machinery Co.,
Ltd. (“Lisheng”), a company established under the laws of the PRC and 60% owned
by ZhongChai JV.  Through its operating subsidiaries, Equicap is
currently engaged in the manufacturing and sale of gears and gearboxes
(transmissions) in China.
  Results
of Operations
  Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
  Sales
  Sales
increased by $2,225,383 or 228% to $3,202,350 for the three months ended
March 31, 2010 compared to $976,967 for the three months ended March
31, 2009. Sales for the three months ended March 31, 2010 consisted solely of
sales of gears and gearboxes in China, as a result of the Company’s sale of IBC,
the North America / Auto Parts segment in June 2009. Sales for the three months
ended March 31, 2009, consisted of sales of automotive parts in North America
and sales of gears and gearboxes in China, for $241,374 and $735,593,
respectively. The sales of gears and gearboxes for the period grewby approximately 335%
compared to the sales of the same products in China for the comparable period in
the prior fiscal year. The increase in gear and gearbox sales was
attributable to the Company’s introduction of new gearbox products, expansion in
production capacity and its continued marketing efforts to develop its customer
base.  Sales during the period were also beneficially affected by the
recovery of the domestic market in China for gear and gearbox products as a
result of Chinese government’s economic stimulus plan.
  Cost
of Sales and Gross Profit  Margin
  Cost of
sales was $2,454,953 for the three months ended March 31, 2010, increasing by
$1,684,407, or 219%, from $770,546 for the three months ended March 31,
2009. The gross profit margin was approximately 23% for the three months ended
March 31, 2010, compared to approximately 20% (excluding auto parts business)
for the three months ended March 31, 2009. The increase in gross profit
margin in this quarter as compared to the same period in the prior fiscal year
was attributable mainly to the decrease in gearbox unit cost and therefore the
increase in gearbox margin after the expansion in gearbox production capacity
and sales.
  Selling,
General and Administrative Expenses
  Selling,
general and administrative (“SG&A”) expenses consisted primarily of labor
costs and overhead costs for sales, marketing, finance, legal, human resources
and general management. Such costs also include the expenses recognized for
stock-based compensation pursuant to SFAS 123R (ASC 718).
  11
  SG&A
expenses decreased by $339,052 to $284,340 in the three months ended March
31, 2010, from $623,392 in three months ended March 31, 2009. The decrease
primarily was attributable to the exclusion of the expenses associated with IBC,
reduction in rental expense for less office space leased, and reduction in some
professional and consulting service expenses due to less capital market related
services incurred in the period compared to the same period in the prior fiscal
year.
  Net
Income (Loss)
  Net
income was $263,861 in three months ended March 31, 2010, compared to a net loss
of ($319,817) in the three months ended March 31, 2009. The Company became
profitable in the quarter mainly attributable to increased sales and gross
profit and lower operating expenses.
  Accounts
Receivable
  Accounts
receivable was $2,426,475 after reduction of $18,189 for doubtful accounts at
March 31, 2010, compared to accounts receivable of $1,540,402 after reduction of
$7,732 for doubtful accounts at June 31, 2009. The increase in the amount of
accounts receivable is mainly attributable to the increased operations of the
Company during the period reported upon. The payment term for sold products
usually is 60-90 days, and, to date, it has experienced that the accounts
receivable are within the payment terms.
  Note
Receivable
  Notes
receivable was $1,058,565 at March 31, 2010, compared to $448,655 at June 31,
2009. The increase in the amount was from the increase sales of products. Of the
total amount, $46,000 was an unpaid balance of promissory notes due from two
individuals, and  $1,012,565 was from product sales to customers using
bank accepted forward notes.
  Nine
Months Ended March 31, 2010 Compared to Nine Months Ended March 31,
2009
  Sales
  Sales increased
by $4,056,515 or 136% to $7,040,579 for the nine months ended March
31, 2010 compared to $2,984,064 for the nine months ended March 31, 2009. Sales
for the nine months ended March 31, 2010 consisted solely of sales of gears and
gearboxes in China, as a result of the Company’s sale of IBC, the North America
/ Auto Parts segment in June 2009. Sales for the nine months ended March 31,
2009, consisted of sales of automotive parts in North America and sales of gears
and gearboxes in China, for $869,407 and $2,114 ,657, respectively. The sales of
gears and gearboxes for the period grewby approximately
233% compared to the sales of the same products in China for same period in
the prior fiscal year. The increase in gears and gearboxes sales was
attributable to the Company’s introduction of new gearbox products, expansion in
production capacity and its continued marketing efforts to develop its customer
base.  Sales during the period were also beneficially affected by the
recovery of the domestic market in China for gear and gearbox products as a
result of Chinese government’s economic stimulus plan.
  Cost
of Sales and Gross Profit Margin
  Cost of
sales was $5,481,480 for the nine months ended March 31, 2010, increasing by
$3,164,950 or 137%, from $2,316,530 for the nine months ended March 31,
2009. The gross profit margin was approximately 22% for the nine months ended
March 31, 2010, compared to approximately 24% (excluding auto parts business)
for the nine months ended March 31, 2009. The decrease in gross profit margin in
the period as compared to the same period in the prior fiscal year was
attributable mainly to a general decrease in gear prices and the launch of new
gearbox products, the margin of which is lower than for gears. The shift in
product mix and development of new products has been implemented by the Company
as a strategy to quickly penetrate the market for its products and build
sales.
  12
  Selling,
General and Administrative Expenses
  Selling,
general and administrative (“SG&A”) expenses consisted primarily of labor
costs and overhead costs for sales, marketing, finance, legal, human resources
and general management. Such costs also include the expenses recognized for
stock-based compensation pursuant to SFAS 123R (ASC 718).
  SG&A
expenses decreased by $689,078 to $916,530 in the nine months ended March
31, 2010, from $1,605,608 in nine months ended March 31, 2009. The
decrease primarily was attributable to the exclusion of the expenses associated
with IBC, reduction in rental expense for less office space leased, and
reduction in some professional and consulting service expenses due to less
capital market related services incurred in the period compared to the same
period in the prior fiscal year.
  Net
Income (Loss)
  Net
income was $281,838 for the nine months ended March 31, 2010, compared to a net
loss of ($817,056) for the nine months ended March 31, 2009. The Company became
profitable for the period mainly attributable to increased revenue and gross
profit and lower operating expenses.
  Liquidity
and Capital Resources
  As of
March 31, 2010, Equicap had current assets equal to $12,249,212, current
liabilities equal to $5,480,930 and working capital of $6,768,282. Equicap
believes that it has sufficient operating capital for its current
operations.
  Operating
Activities
  Net cash
used in operating activities was approximately $0.48 million for the nine months
ended March 31, 2010, as compared to $3.43 million net cash provided by
operating activities for the same period in the prior fiscal year. The change
was because Zhongchai was refunded approximately $3.4 million out of the total
$5 million advance payment from Zhejiang Xinchai Holdings Co., Ltd. ( "Xinchai
Holdings"), a corporation in China, in the nine months ended March 31, 2009.
This amount was used to secure Zhongchai's exclusive right to acquire 100%
interest of a project from Xinchai Holdings. Zhongchai, however, decided not to
pursue the project, and Xinchai Holding agreed to refund the
payment.
  Investing
Activities
  Net cash
used in investing activities was $2.72 million for the nine-month period ended
March 31, 2010, increased from $0.45 million for the same period in fiscal year
2009. The increase was mainly due to $2.2 million advance payment made during
the nine-month period ended March 31, 2010. The advance payment was made
by the Zhongchai JV to Xinchai Holdings, for the purchase of land use rights and
building for Zhongchai JV’s future expansion of its production
capabilities.
  Financing
Activities
  Net cash
used in financing activities was $0.48 million for the nine-month period
ended March 31, 2010. During this period, the Company repaid bank loan of $0.78
million. There was also $0.29 million capital contribution to Lisheng from
minority shareholders.
  As
Equicap expands its operations and considers additional acquisitions of private
companies, divisions or product lines, it may require additional capital for its
business development and operations.  Equicap does not have any
specific sources of capital at this time, therefore, it would need to find
additional funding for its capitalization needs.  Such capital may be
in the form of either debt or equity or a combination.  To the extent
that financing is in the form of debt, it is anticipated that the terms will
include various restrictive covenants, affirmative covenants and credit
enhancements such as guarantees or security interests.  The terms of
any proposed financing may not be acceptable to Equicap.  There is no
assurance that funding will be identified or accepted by Equicap or, that if
offered, it will be concluded.
  13
 
 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
  Please
refer to “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” in our Annual Report on Form 10-K for the year ended
June 30, 2009, for disclosures regarding Equicap Inc.’s critical accounting
policies and estimates.  The interim financial statements follow the
same accounting policies and methods of computations as those for the year ended
June 30, 2009.  There was no new accounting policies and estimates
during the period ended March 31, 2010 which affects the Company.
  Recent
Accounting Pronouncements
  On July
1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched
the FASB Accounting Standards Codification (“ASC”), which has become the single
official source of authoritative nongovernmental U.S. GAAP, in addition to
guidance issued by the Securities and Exchange Commission. The ASC is designed
to simplify U.S. GAAP into a single, topically ordered structure. All guidance
contained in the ASC carries an equal level of authority. The ASC is effective
for all interim and annual periods ending after September 15, 2009. Accordingly,
the Company refers to Codification in respect to the appropriate accounting
standards throughout this document as “ASC”. Implementation of the Codification
did not have any impact on the Company’s consolidated financial
statements.
  Item
3. Quantitative and Qualitative Disclosures about Market Risk
  The
information is not required for smaller reporting companies.
  Item
4.          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.
  14
  PART II — OTHER
INFORMATION
  Item
5.     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,
  2010.31.2
                  
                  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,
  2010.32.1
                  
                  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.
  15
  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, 2010
                    EQUICAP,
      INC.By:
                    /s/ Peter WangName:
      Peter WangTitle:
      President & Acting Chief Financial
Officer
  16