10-K 1 v160941_10k.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended: June 30, 2009

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______________to ______________

Commission File Number 000-31091

EQUICAP, INC.

(Name of Small Business Issuer in Its Charter)

NEVADA (State of Incorporation)	33-0652593 (Small Business Issuer I.R.S. Employer I.D. Number)

224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Zhangzhou, P.R. China (Address of principal executive offices)	310007 (zip code)

(904) 507-4937

(Issuer’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ .

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨Smaller reporting company x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of the last business day or registrant’s most recently completed second fiscal quarter. As of December 31, 2008, the value was approximately $135,219.

State the number of shares outstanding of each of the issuer’s classes of common equity: 27,613,019 as of September 21, 2009.

Equicap, Inc.

Annual Report on Form 10-K

Fiscal Year Ended June 30, 2009

Table of Contents

		Page No.

PART I

Item 1	Description of Business	1
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	19
Item 2	Description of Properties	19
Item 3	Legal Proceedings	20
Item 4	Submission of Matters to a Vote by Security Holders	20

PART II

Item 5	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
	Securities	20
Item 6	Selected Financial Data.	22
Item 7	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	24
Item 8	Financial Statements and Supplementary Data	33
Item 9	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	33
Item 9A	Controls and Procedures	34
Item 9B	Other Information	34

PART III

Item 10	Directors, Executive Officers and Corporate Governance	35
Item 11	Executive Compensation	38
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
Item 13	Certain Relationships and Related Transactions and Director Independence	42
Item 14	Principal Accountant Fees and Services	43
Item 15.	Exhibits, Financial Statement Schedules	43

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, and Section 27A of the Securities Act of 1933. Any statements contained in this report that are not statements of historical fact may be forward-looking statements. When we use the words “anticipates,” “plans,” “expects,” “believes,” “should,” “could,” “may,” “will” and similar expressions, we are identifying forward-looking statements. Forward-looking statements involve risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by forward-looking statements. These factors include our current dependence on a limited number of sources of products and customers, continuing demand for our products, pricing pressures on our products caused by demand and competition, delivery deadlines, customer satisfaction, our ability to generate sales and expand our customer base, warranty obligations and claims, integrating any enterprises acquired, operating a portion of our business in the Peoples Republic of China, currency controls and exchange rate exposure and future need for capital to expand our business.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements, and we assume no obligation to update any forward-looking statements contained in this report as a result of new information or future events or developments. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. You should carefully review and consider the various disclosures we make in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.

For further information about these and other risks, uncertainties and factors, please review the disclosure included in this report under “Part I, Item 1A - Risk Factors.”

PART I

Item 1. Description of Business

Background of Equicap

Reincorporation of Equicap

Equicap, Inc. (“Equicap” or the “Company”) was incorporated in the State of Nevada on March 13, 2002, for the purpose of entering into a merger with and redomiciling its predecessor, Equicap, Inc., a California corporation ("Equicap California"). Effective January 25, 2005, Equicap California was merged with and into Equicap in a statutory merger based on management's belief that Nevada law is more advantageous to a corporation than California law. Equicap was considered a blank check company until March 2007, prior to its acquisition of Usunco Automotive Limited, a British Virgin Islands company (“Usunco”).

Predecessor Corporation to Equicap

Equicap's predecessor, Equicap California, was incorporated under the laws of the State of California on March 1, 1995, under the name of VWR Acquisition Company, Inc. ("VWR"); the name was later changed to Equicap, Inc. Equicap's business activities prior to July 1996 were that of an investment banking and consulting firm. On December 29, 1995, BBU Systems Inc. ("BBU") was merged with and into Equicap, with Equicap as the surviving entity, pursuant to an Agreement and Plan of Merger. Equicap became a dormant corporation in July 1996 when the Company's board of directors determined that the business of BBU could not be developed, due to the lack of operating capital and the lack of prospects for raising adequate funding. From July 1996 until the acquisition of Usunco, Equicap was a shell corporation.

On July 31, 1998, Equicap's common stock underwent a reverse split in which each 100 of the issued and outstanding shares were changed into one share, which decreased the number of issued and outstanding shares from 7,442,005 to 74,732. Then, on January 18, 2000, Equicap's common stock underwent a reverse and forward split of the common shares in which (i) each 50 of the issued and outstanding shares were changed into one share, with each fraction being rounded up to a whole share, and (ii) immediately following the reverse split, each resulting share was changed into 100 shares. Upon conclusion of the January 2000 recapitalization, Equicap had 390,100 common shares issued and outstanding.

2007 Share Exchange

Equicap and Usunco entered a Share Exchange Agreement on March 7, 2007, which was consummated on March 9, 2007.

Under 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. Each share of common stock of Equicap issued in the exchange to the former shareholders of Usunco was issued as restricted stock, and the holders thereof may not sell, transfer or otherwise dispose of the shares without registration under the Act or an available exemption therefrom. These shares do not carry any registration rights and have not been registered for resale.

The Exchange Agreement provides that the principal shareholders of Equicap immediately before the Share Exchange have piggy-back and demand registration rights as provided in a registration rights agreement that also was executed with the investors in the offering, described below.

In connection with the Exchange Agreement, Equicap engaged Fountainhead Capital Partners Limited (“Fountainhead”), to act as a financial advisor for Equicap in connection with the Share Exchange. At the closing of the Share Exchange, Fountainhead was paid an advisory fee of $450,000.

In connection with the Share Exchange, vFinance Investments, Inc. (“vFinance”) provided advice in connection with the Share Exchange and was issued 161,633 shares of common stock as compensation. These shares have the registration rights described below.

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

Conversion of Convertible Note of Equicap

Equicap and Fountainhead, then an affiliate of Equicap, entered into a convertible note on September 30, 2006, the principal of which was for working capital and discharge of then accrued payables of Equicap. The note was due December 31, 2007, and carried an annual interest rate of 3%. 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. The rate of conversion was negotiated in connection with the acquisition of Equicap between the Usunco stockholders and Fountainhead, and represented a significant discount to the sale price of the shares in the private placement offering. Upon the conversion, the note was cancelled. The shares were issued as “restricted stock”. Fountainhead was granted piggyback and demand registration rights for these shares.

Private Placement Offering in Connection with Share Exchange

As a condition to the Share Exchange, Equicap and Usunco conducted a private placement offering of its common stock to accredited and institutional investors in which it raised gross proceeds of $12 million (“Offering”) from 11 investors. 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, then representing approximately 30% of the issued and outstanding common stock of Equicap. The price per share of common stock was $1.42.

vFinance was the exclusive placement agent for the Offering. For their services as placement agent, Equicap paid vFinance a fee equal to approximately $983,000 and reimbursed 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 Agent Warrant vests over three years, and once vested is exercisable in whole or in part from time to time prior to March 6, 2012. In certain circumstances, the Agent Warrant may be exercised on a cashless basis. Upon the expiration of the warrant exercise period each warrant will expire and become void and of no value. The exercise price and number for which the warrant is exercisable are subject to adjustments in certain events such as mergers, reorganizations or stock splits, to prevent dilution. The holder of the warrant will not possess the rights that the shareholders have unless and until the holder exercises the warrants and then only as a holder of the common stock.

Registration Rights for Investors, vFinance and Former Stockholders

In connection with the Offering, Equicap granted registration rights to the investors in the Offering, the holders of the Agent Warrant and the shares issued to vFinance, and under the terms of the Share Exchange certain former principal shareholders of Equicap were granted piggy-back and demand registration 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 the 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 (including 702,132 shares issued on conversion of the Fountainhead note) held by the former principal shareholders of Equicap. In addition, the registration rights covered the make good shares (described below) that were distributable to the investors. 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. Equicap filed a registration statement in satisfaction of the registration rights agreement, but it was not declared effective by the required date of within 150 days of the closing date of the Offering. As a result, the liquidated damages provision of the registration rights agreement required Equicap to pay $32,000 to the investors. The provision required the Company to pay 1% of the share purchase price paid only by the investors for each month that the investors cannot publicly sell the shares of common stock covered by that registration statement. The same penalties for the failure to file or have declared effective a registration statement within the stated time periods and maintain its effectiveness also apply to the subsequent required registration statements. The maximum penalties under the liquidated damages provision payable to the investors is 10% of the share purchase price paid by the investors in the Offering. The above timing and number of shares are subject to various conditions, and the registration statements are subject to the rules and regulations of the SEC and the staff interpretations thereof. The registration statements required for the investors and vFinance under the registration rights agreement must be kept effective until all the shares of these parties are sold or may be sold without limitation under then Rule 144k, promulgated under the Act (“Rule 144k”).

The former principal shareholders of Equicap who have piggy-back registration rights also have a demand registration right after all the shares of the investors in the Offering, the holders of the Agent Warrants and vFinance have either been sold or may be sold without limitation under Rule 144k. The Company is obliged to keep this registration statement effective until all the shares have been sold or are eligible for sale under Rule 144k.

Because of the availability of the resale opportunities under the current Rule 144 and the sale of the securities sold in the Offering by many of the investors, the Company believes that its obligations under the registration rights agreement are largely satisfied.

Make Good Escrow Agreement

In connection with the Offering, for the benefit of the investors, eight of the former shareholders of Usunco, some of whom were the officers and directors of Equicap, agreed to place into escrow an aggregate of 10,140,846 shares of common stock issued in the Share Exchange. These shares are referred to as the “make good shares.” The purpose of the make good shares was to adjust the per share investment of the investors in the Offering by increasing their holdings if certain defined financial targets were not achieved by the Company. The Company did not meet these financial targets in each of the two fiscal years ending June 30, 2007 and 2008; as a result, all the make good shares were distributed to the investors, pro rata based on their initial investment amounts in 2007 and 2008.

Usunco Automotive Limited

Usunco was organized in the British Virgin Islands as a limited liability company on April 24, 2006. Usunco owns 75% of the equity interest of Zhejiang ZhongChai Machinery Co., Ltd. (“ZhongChai JV”), which in turn owns all of Zhejiang Shengte Transmission Co., Ltd., that makes gears and gearboxes (transmissions) in China. Until June 15, 2009, Usunco also owned 100% of the equity interest of IBC Automotive Products, Inc. (“IBC”), which distributed automotive parts in North America. Until June 2009 Usunco operated with two business segments of the Company, represented by the China/Gear Segment of ZhongChai JV and its subsidiary, which focuses on manufacturing and distribution of gears and gearboxes in China and by the North America/Auto Parts Segment of IBC, which focused on sourcing automotive parts and products from China and distributing them in North America and other regions.

ZhongChai JV is a Sino-foreign equity joint venture established in the Peoples Republic of China (the “PRC”) by Usunco, and a local party in China, Xinchang Keyi Machinery Co., Ltd., the successor in interest to Xinchai Holding Group Co., Ltd. with respect to the 25% joint venture interest (“Xinchang Keyi”). The ZhongChai JV manufacturers and sells gears and gearboxes in China. The gears are sold to engine and gearbox manufacturers for their engine and gearbox products. ZhongChai JV’s gearboxes are sold primarily to forklift and truck manufacturers. The ZhongChai JV was approved by local authorities in the PRC as a Sino-foreign joint venture company with limited liability to be operated for a term of 25 years. Usunco and Xinchang Keyi have contributed $8 million and $2.6 million in cash for 75% and 25% equity ownership, respectively, for an aggregate amount of $10.6 million in registered capital for the joint-venture. The registered capital may be used as general working capital for it operations and other corporate purposes.

Pursuant to the Articles of Association, the board of directors of ZhongChai JV consists of four directors, of which Usunco has the right to designate three directors and Xinchang Keyi has the right to designate one director. All material issues and actions of ZhongChai JV require approval by a majority of the board of directors.

On July 6, 2007, ZhongChai JV completed the acquisition of all the outstanding equity of Zhejiang Shengte Transmission Co., Ltd. (“Shengte”). Shengte is a company organized under the laws of the PRC. The equity interest was acquired for approximately $3,700,000 in cash. Shengte manufactures and distributes gears and gearboxes mainly used in or together with diesel engines for industrial and agricultural machinery. Shengte was founded in 2006.

Discontinued Business

IBC was incorporated on May 14, 2004 in the State of California, and while it was a Usunco subsidiary it specialized in sourcing automotive parts and products from the China for distribution in North America and other regions. Most of the products were alternators and starters which were sold to retailers, wholesalers and other U.S. master distributors in the automotive replacement parts sector. Its principal customers included, among others, BBB/OCA, JNS Tsusho Corp., LTD/Visteon, Sankaku and IAP. End-users of parts and products sourced from IBC included, among others, O’Rilleys, Pep Boys, Worldpac/Carquest, and Dura International.

On June 8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an agreement to sell IBC to the management of IBC. The transaction was closed on June 15, 2009. IBC was sold because it no longer fitted the overall business strategy of focusing on the development and manufacture of gears and gearboxes for use primarily in diesel engines for the industrial and agricultural industries in China and the expansion opportunities that exist in the Chinese and Asian markets for those and similar products. Additionally, IBC no longer represented a significant amount of the assets or gross revenues of the Company.

Products

The Company, through its majority owned subsidiaries, is focused on the production and sale of gears and gearboxes. These products are primarily used in or together with diesel engines for industrial and agricultural machinery, fork lifts, excavators, construction equipment, tractors, pumps and other machinery.

During the fiscal year ended June 30, 2008, the Company and Xinchai Holding Group Co., Ltd. (“Xinchai Holding”), the original joint venture partner of the ZhongChai JV, determined to place the distribution agreement between the ZhongChai JV and Xinchai Holding in suspension so that the joint venture could focus its resources on development and marketing of the gear and gearbox products of Xinchang Keyi. The joint venture partners determined to put the agreement in suspension because the economics of distributing the Xinchai Holding products under the distribution agreement had been adversely affected by several factors, notably the dramatic increase in the product costs because of the cost of steel which cut into margins and the disinclination of the equipment integrators who use those products to buy engines from a middleman with the added costs, and the overall competition in the industry segment. The use of a suspension arrangement was so the parties could ultimately work to continue to pursue the joint venture in some other profitable endeavor. As a result, Zhongchai JV agreed to work with Xinchai Holding to produce gearboxes that will be sold stand-alone to Xinchai’s customers or sold with the diesel engines made by Xinchai’s subsidiary as a diesel power-train. It was believed that this rearrangement would change Zhongchai JV’s market position from a middleman to an original manufacturer, which is more acceptable in the OEM marketplace.

Market Overview

The Company is primarily focused on the domestic market in China. As a result of the continued expansion of the Chinese economy and various government initiatives, the Company believes its best opportunity at this time is to concentrate its commercial efforts in that market. The domestic market in China for gear and gearbox products has grown in recent years because of the increase in domestic demand driven by country wide economic growth and urban expansion. In addition, beginning in 2005, because of the favorable government policies towards farmers, the Chinese agricultural equipment market has experienced growth for the kinds of products that the Company produces and sells. As a result, the Company has seen growth of the gear and gearbox business in recent years, and it expects it to continue.

The main customers of the Company are manufacturers of engines, gearboxes and industrial equipment. The Company products are used as components in its customers’ final products, such as diesel engines, gearboxes, forklifts and other equipment or machinery. Typically the gears are used in diesel engines and gearboxes that are incorporated into equipment and machinery for the industrial and agricultural markets. The range of uses includes forklifts, excavators, construction equipment, tractors, pumps and other machinery. The Company started small production of gearboxes in the last quarter of fiscal year 2008.

Principal Customers

The Company’s major customers in its gear business are Chinese diesel engine producers, and the major customers in its gearbox business are Chinese original equipment manufactures.

For the gear segment, two customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd., accounted for 69% and 17%, respectively, of the net revenue in China, for the fiscal year ended June 30, 2009. In the discontinued North American auto parts business, BBB/OCA and World Pac, accounted for approximately 73% and 12%, respectively, of the Company's net revenue for the fiscal year ended June 30, 2009. These four customers accounted for 16%, 3%, 54% and 13%, respectively, of the Company’s consolidated revenue for the fiscal year ended June 30, 2009.

The Company performs appropriate credit checks before orders are accepted and invoices are issued. Most accounts are collected within 120 days. Customers generally do not provide long-term volume purchase commitments. Rather, transactions are based on non-binding purchase plans that provide only purchase forecasts and state basis terms.

Product Returns and Warranties

In its Chinese business, the Company provides only a limited right of return for non-conforming products if returned in a timely fashion. The Company generally provides a one-year limited warranty covering manufacturing defects and functional failures of gearbox and auto part products. After evaluation and confirmation, the Company will either replace the defective product or accept returns by crediting the customer account. The Company, thus, becomes responsible for the costs and expenses of the returns.

Sales and Marketing

Because the principal market for the Company is other manufacturers, the Company undertakes sales and marketing principally designed to acquaint those types of enterprises with its products. Therefore, the Company focuses on direct sales on a business to business basis, by developing contacts with engine and gearbox producers and original equipment manufacturers. These contacts are developed through direct relationships, referrals and trade shows. One of the principal aspects of the marketing is to focus customers on the Company’s commitment to quality products, customer service and after sales support.

Once a sale is developed, the customer typically will provide the Company with a forecast and a desired shipment schedule up to one year in advance, which are reviewed quarterly, and in some cases monthly. These forecasts and schedules are dependant on the demand for and delivery schedules developed with the ultimate finished goods buyer. The Company’s customers usually will issue to the Company an irrevocable purchase order combined with the firm shipment schedule three months prior to shipment.

Principal Suppliers

For the gear segment, the Company sources parts and components and semi-finished products mainly from Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., Xinchang Liyuan Foundry Co., Ltd., and Xinchang Zhisheng Machinery Co., Ltd. for Zhongchai JV’s for further fine processing and assembly.

For the gear segment, 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 32%, 13%, 5% and 4%, respectively, of the total purchases, for the fiscal year ended June 30, 2009. For the auto parts segment, the Company had three major suppliers, Zhejiang Yongkang Boyu, Wuxi Susun and Pico Industries Co., Ltd., which provided approximately 45%, 25%, and 7%, respectively, of the Company's purchases of the auto parts for the fiscal year ended June 30, 2009. These seven suppliers accounted for 11%, 6%, 2%, 24%, 10%, 4% and 3%, respectively, of the Company’s consolidated purchases for the fiscal year ended June 30, 2009.

The Company does not have any long term supply agreements with any of these companies, and it purchases products on the basis of purchase orders. None of our suppliers have any ownership in the Company or any relationship with the insiders of the Company.

Distribution

For our gear and gearbox business, currently the Company ships finished products directly to its customers from the factory warehouse in Zhejiang, China.

For our discontinued automotive parts business, the Company did not maintain inventories in China. Most of the orders received by IBC were container based with the shipment pre-scheduled. In most of cases IBC arranged for shipments directly from the suppliers in China to the customers’ warehouse in North America. Occasionally, IBC leased warehouse space in California to receive returned products which were still under warranty and to refurbish them locally.

Competition

As the demand for gear and gearbox products has grown in China, the competition within that market has also grown and has become severe. There are many local manufacturers making gears and gearboxes, and most of them are willing to compete for customers and market share through low pricing. There are also many global manufacturers interested in the large Chinese market who are entering the market and selling gear and gearbox products having better quality and design than many Chinese suppliers. ZhongChai JV faces the many challenges of being a new entrant to compete for new customers. Management believes it will take ZhongChai JV a few years to establish a solid customer base for itself.

Employees

As of June 30, 2009, the Company employed directly and through its subsidiaries approximately 110 individuals in the United States and China, consisting of 3 executives and managers, 9 technical personnel, 3 sales and marketing personnel, and 22 administrative and support personnel, and 73 production personnel. The employees are not currently represented by any labor union or similar collective bargaining group.

Item 1A. Risk Factors

An investment in our common stock is speculative and involves a high degree of risk and uncertainty. You should carefully consider the risks described below, together with the other information contained in this Annual Report on Form 10-K, including the consolidated financial statements and notes thereto, when evaluating our Company and our business before deciding to invest in our common stock. The risks described below are not the only ones facing us. Additional risks not presently known to us or that we presently consider immaterial may also harm us. If any of the following risks occur, our business, financial condition and results of operations and the value of our common stock could be materially harmed.

Risks Related to Our Business

We anticipate that a significant portion of our revenue will be from the sale of gears to one customer. We have considerable risk related to the reliance on that one customer which could have a detrimental consequence to our long term viability.

We anticipate that a significant portion of our revenues will be from the sale of gear and gearbox products to Zhejiang Xinchai Co., Ltd., which represents about 69% of our sales. We face the risks inherent in relying on a single customer. If Zhejiang Xinchai Co., Ltd. experiences any events that affect its purchase of our products, there could be considerable detrimental consequences to our financial results and long term viability.

Our revenues will decrease if there is less demand for the kinds of products in which our products are component parts.

Our principal customers are manufacturers of engines, gearboxes and industrial equipment. Our products are part of the larger end product of these manufacturers, including things such as fork lifts, excavators, construction equipment, tractors, pumps and other machinery. If sales of these kinds of end products decrease, then the demand for our products and our revenues would likewise decrease. Therefore, we are dependent on a limited market segment.

Because of competition, we could experience downward pricing pressure on our products from our customers, which may adversely affect our growth, profit margins and net income.

We could face downward pricing pressure from our customers as a result of the intense competition in our industry. To retain our existing customers and gain new ones, we will have to continue to keep our unit prices competitive and possibly improve or expand our product offerings. In view of our need to maintain competitive prices on our products, our growth, profit margins and net income will be affected if we cannot effectively continue to control our sourcing and other costs.

We receive a significant portion of our revenues from a small number of customers which may make it difficult to negotiate price increases for our products.

A significant portion of our revenues depends on a small number of customers. Dependence on a few major customers could make it difficult to negotiate price increases for our products. Therefore, in addition to competitive pressures, we may face limitations on our ability to increase our prices to account for raw material price increases, increases in wages and production costs and other expenses of production. In such event, our profit margins may be reduced and our overall profitability reduced.

Our contracts with our customers generally are short-term and do not require the purchase of a minimum amount, which may result in periods of time during which we have limited orders for our products.

Our customers generally do not provide long-term volume purchase commitments. Although we anticipate receiving non-binding purchase plans from significant customers who will have continuing demand for certain products, these plans provide only purchase forecasts and state terms such as price, payment method, payment period, quality standards and inspection and similar matters rather than provide firm, long-term commitments to purchase products. As we are not likely to have many long term contracts for the majority of our sales, we could have periods during which we have no or only limited orders for our products, but will continue to have to pay the costs to maintain our work force and our operating facilities and to service our indebtedness without the benefit of current revenues.

We face short lead-times for delivery of products to customers. Failure to meet delivery deadlines could result in the loss of customers and damage to our reputation and goodwill.

Our customers’ purchase agreements typically contain short lead-times for the delivery of products, leading to production and manufacturer supply schedules that can reduce our profit margins on the products procured from our suppliers. Our suppliers may lack sufficient capacity at any given time to meet all of our customers’ demands if orders exceed their production capacity. We will strive for rapid response to customer demand which can lead to reduced purchasing efficiency and increased procurement costs, therefore reducing margins. If we are unable to sufficiently meet our customers’ demands, we may lose our customers. Moreover, failure to meet customer demands may damage our reputation and goodwill.

If our selling efforts generate growth in demand, we may not be able to respond effectively if our capacity or sources of supply or capital are not adequate, resulting in lost business opportunity.

If our marketing plans result in market growth and demand for our products, we will be required to deliver larger volumes of products to our customers. Meeting customer order demand will require us to increase our capacity to produce, or ability to source quality products. Such demand would require us to expand our current production capacities, or it will necessitate our securing additional qualified suppliers. In addition, we may require more working capital than we currently have available to support new supply arrangements or additional inventory. The failure to meet demand for our products may result in customers seeking other sources of supply and may adversely affect our reputation as a ready and consistent supplier.

Because of market conditions, we will have to grant relatively long payment terms for accounts receivable which can adversely affect our cash flow.

As is customary in China, for competitive reasons, we grant relatively long payment terms to most of our customers. As a result of the size of many of our orders, these payment terms may adversely affect our cash flow and our ability to fund our operations out of our operating cash flow. In addition, the reserves we establish for our receivables may not prove to be adequate in view of an actual experience of bad debts. The failure of our customers to pay us timely would negatively affect our working capital, which could in turn adversely affect our cash flow.

Because our customers are likely to be large manufacturers, they generally will be placing large orders for our products and require their prompt delivery which will impact our working capital. If our customers do not use our products and sell the final end products in a timely fashion to generate their income, they, in turn may not pay us in a timely fashion. This failure to pay our invoices in a timely manner may defer or delay further product orders from us, which may adversely affect our cash flows, sales or income in subsequent periods.

We may not be able to finance the development of new products, which could negatively impact our competitiveness.

Our future operating results will depend, to some extent, on our ability to continue to provide new products that compare favorably on the basis of cost and performance with the products of our competitors. Some of our competitors have design and manufacturing capabilities and technologies that compete well with our products, particularly in markets outside of China. To remain competitive, we believe that in the future we will have to incur product development expense and invest in research for new products. These costs could result in greater operating expenses. All of these factors will create demands on our working capital and our ability to fund our current and future marketing and distribution activities and the expansion of our business.

Our ability to effectively implement our business strategy depends upon, among other factors, the successful recruitment and retention of additional skilled and experienced management and other key personnel, and we cannot assure that we will be able to hire or retain such employees.

We must attract, recruit and retain a sizeable workforce of technically competent management and employees, particularly in the areas of marketing and sales, production and technical personnel. These individuals can be difficult to find in China, and as the economy in China expands, there is increasing competition for these types of educated and trained workers. We cannot give assurance that we will be able to find, hire or retain such management persons and employees, or even if we are able to so hire such persons, that the financial costs therefrom may have an adverse affect on our net income.

It may be difficult to find or integrate acquisitions which could have an adverse effect on our expansion plans.

Although we have no commitments or agreements for any acquisitions at this time, a component of our growth strategy is to invest in or establish strategic alliances such as joint ventures with other companies, or acquire companies or divisions of companies that design, manufacture or distribute complementary products such as other sizes or designs of diesel engines, gearboxes or parts. We may be unable to identify suitable investments or acquisition candidates or to make these investments, alliances or acquisitions on a commercially reasonable basis, if at all. If we complete an investment, alliance or acquisition, we may not realize the anticipated benefits from the transaction.

Integrating an acquired company, division or product line is complex, distracting and time consuming, as well as a potentially expensive process. The successful integration of an acquisition would require us to:

integrate and retain key management, sales, research and development, and other personnel;

incorporate the acquired products or capabilities into our offerings both from an engineering and sales and marketing perspective;

coordinate research and development efforts;

integrate and support pre-existing supplier, distribution and customer relationships; and

consolidate duplicate facilities and functions and combine back office accounting, order processing and support functions.

The geographic distance between the companies, the complexity of the technologies and operations being integrated and the disparate corporate cultures being combined may increase the difficulties of combining an acquired company. Acquired businesses are likely to have different standards, controls, contracts, procedures and policies, making it more difficult to implement and harmonize company-wide financial, accounting, billing, information and other systems. Management’s focus on integrating operations may distract attention from our day-to-day business and may disrupt key research and development, marketing or sales efforts.

The cyclical nature of industrial and agricultural equipment and medium and light duty commercial vehicle production and sales could result in a reduction in gears and gearboxes sales, which could adversely affect our financial condition.

Our sales to manufacturers rely on industrial and agricultural equipment and medium and light duty commercial vehicle production and sales by our customers, which are cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. They also can be affected by government policies, labor relations issues, regulatory requirements, and other factors. All or any one of these factors may result in fluctuations in the demand for our products with an impact on our financial condition.

Increasing costs of goods from our suppliers as a result of increasing costs for manufactured components and raw materials may adversely affect our profitability.

A broad range of manufactured components and raw materials are used in the production of gears and gearboxes. The prices of these products are increasing as a result of the growth of the Chinese economy. Our suppliers may further increase the price of raw materials and components we use in our production. Because it may be difficult for us to pass increased costs on to our customers, any significant increase in the prices of our purchased goods could materially increase our operating costs and adversely affect our profit margins and profitability.

We may be subject to product liability and warranty and recall claims, which may increase the costs of doing business and adversely affect our reputation, financial condition and liquidity.

We face an inherent business risk of exposure to product liability and warranty claims if our products actually or allegedly fail to perform as expected or the use of our products results, or are alleged to result, in bodily injury and/or property damage. We may be exposed to potential liability even if we have product liability insurance. We cannot give any assurance that we will not incur significant costs to defend these claims or that we will not experience any product liability losses in the future. In addition, if any of our designed products are or are alleged to be defective, we may be required to participate in a recall of such products. We cannot assure you that the future costs associated with providing product warranties and/or bearing the cost of repair or replacement of our products will not have an adverse effect on our financial condition and liquidity.

We are subject to environmental and safety regulations, which may increase our compliance costs.

We are subject to the requirements of environmental and occupational safety and health laws and regulations in China. To the extent that we expect to expand our operations into other geographic areas, we will become subject to such laws and regulations of those countries as well. We cannot provide assurance that at all times we have been or will be in full compliance with all of these requirements, or that we will not incur material costs or liabilities in connection with these requirements. The capital requirements and other expenditures that may be necessary to comply with environmental requirements could increase and become a material expense of doing business.

Our business depends on our ability to protect and enforce our intellectual property effectively which may be difficult particularly in China.

The success of our business depends in some measure on the legal protection of proprietary rights in the technology we hold. We will protect our proprietary rights in our products and operations through contractual obligations, including nondisclosure agreements. If these contractual measures fail to protect our proprietary rights, any advantage those proprietary rights provide us would be negated.

Monitoring infringement of intellectual property rights is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our intellectual property and know-how, particularly in China and other countries in which the laws may not protect our proprietary rights as fully as the laws of the United States. Accordingly, other parties, including competitors, may duplicate our products using our proprietary technologies. Pursuing legal remedies against persons infringing our patents or otherwise improperly using our proprietary information is a costly and time consuming process that would divert management’s attention and other resources from the conduct of our other business, and could cause delays and other problems with the marketing and sales of our products, as well as delays in deliveries.

Our commercial viability depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.

In the event that our technologies infringe or violate the patent or other proprietary rights of third parties, we may be prevented from pursuing product development, commercialization or distribution of our products that utilize such technologies. There may be patents held by others of which we are unaware that contain claims that our products or operations infringe. In addition, given the complexities and uncertainties of patent laws, there may be patents of which we know that we may ultimately be held to infringe, particularly if the claims of the patent are determined to be broader than we believe them to be. As a result, avoiding patent infringement may be difficult.

If a third party claims that we infringe its patents, any of the following may occur:

we may become liable for substantial damages for past infringement if a court decides that our technologies infringe upon a competitor’s patent;

a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms or at all, or which may require us to pay substantial royalties or grant cross-licenses to our patents; and

we may have to redesign our product so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time.

In addition, employees, consultants, contractors, suppliers and others may use the trade secret information of others in their work for us or disclose our trade secret information to others. Either of these events could lead to disputes over the ownership of inventions derived from that information or expose us to potential damages or other penalties. If any of these events occurs, our business will suffer and the market price of our common stock will likely decline.

International expansion may subject us to risks inherent in doing business internationally, such as protectionist limitations, higher sales costs and additional importation taxes, all of which could affect our profitability.

Our long-term business strategy includes plans to expand sales outside China by targeting markets, such as Europe and the United States. Risks affecting international expansion include challenges caused by distance, language and cultural differences, conflicting and changing laws and regulations, international import and export legislation, trading and investment policies, foreign currency fluctuations, the burdens of complying with a wide variety of laws and regulations, protectionist laws and business practices that favor local businesses, foreign tax consequences, higher costs associated with doing business internationally, restrictions on the export or import of technology, difficulties in staffing and managing international operations, trade and tariff restrictions, and variations in tariffs, quotas, taxes and other market barriers. These risks could restrain international expansion, which in turn could limit our opportunities and the sought benefits of international sales. Such expansion, may require us to incur additional expenses which are not recovered though improved sales.

Risks Related to Management

We do not intend to pay dividends on shares of our common stock in the foreseeable future.

We have never paid cash dividends on our common stock. Our current board of directors does not anticipate that we will pay cash dividends in the foreseeable future. Instead, we intend to retain future earnings for reinvestment in our business and/or to fund future acquisitions. Determination of net income under PRC accounting standards and regulations may differ from determination under U.S. GAAP in significant aspects, such as the use of different principles for recognition of revenues and expenses. Under PRC law, our PRC joint venture is required to set aside a portion of its net income each year to fund designated statutory reserve funds. Therefore, there may be limitations on the availability of cash for the payment of dividends.

We currently have only one independent director and there is no assurance that any additional independent directors will be appointed or what their qualifications may be if they are appointed.

We currently have only one independent director, Mr. Haining Liu. We may not be able to identify independent directors qualified to be on our board to increase the independence of the board or replace any independent directors. There is no assurance that we will have an independent board at any time.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the Securities and Exchange Commission adopted rules requiring public companies to include a report of management on the Company’s internal controls over financial reporting in their annual reports, including Form 10-K. We can provide no assurance that we will meet all of the requirements imposed thereby for each year and from time to time. There can be no assurance that we will receive a positive attestation from our independent auditors. In the event there are significant deficiencies or material weaknesses identified in our internal controls, and we cannot remediate in a timely manner, we may not be able to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements.

Risks Related to Doing Business in China

We are subject to the risks associated with doing business in the People’s Republic of China.

Our operations, assets and sales are located in China. Therefore, we are subject to special considerations and significant risks not typically associated with companies operating in North America and Western Europe. These include risks associated with, among other things, the political, economic and legal environment of China which is a partially controlled economy. Our results may be adversely affected by changes in the political and social conditions in China and by changes in governmental policies with respect to social and commercial laws and regulations, anti-inflationary measures, currency controls, conversion restrictions and remittances abroad. The recent changes in the tax laws will also have an impact on the operations of the Company.

Although a large portion of the productive assets in China are owned by the Chinese government, in the past years the government has implemented economic reform measures that emphasize decentralization and encourage private economic activity. Because these economic reform measures may be inconsistent or ineffectual, there are no assurances that:

We will be able to capitalize on economic reforms;

The Chinese government will continue its pursuit of economic reform policies;

The economic policies, even if pursued, will be successful;

Economic policies will not be significantly altered from time to time; and

Business operations in China will not become subject to the risk of nationalization.

Economic reform policies or nationalization could result in a total loss of investment in our common stock.

Since 1979, the Chinese government has implemented policies to reform its economic system, which reforms have accelerated in the last 15 years. Because many reforms are unprecedented or experimental in the China context, they are expected to be changed over time. Other political, economic and social factors, such as political changes, changes in the rates of economic growth, unemployment or inflation, or in the disparities in per capita wealth between regions within China, could lead to readjustment of the reform measures so far taken. Any refining and readjustment may negatively affect our operations or our profits.

Over the last few years, China’s economy has registered a particularly high growth rate. Recently, there have been indications that rates of inflation have increased. For example, employee costs are increasing as are the costs of raw materials. In response, the Chinese government has taken some measures to regulate the growth of the economy. These measures include restrictions on the availability of domestic credit, monitoring international currency transactions, reducing the purchasing capability of certain of its customers, and limited re-centralization of the approval process for purchases of some foreign products. There has been some revaluation of the currency which has increased the costs of imported products. The Chinese government may adopt additional measures to further combat inflation, including the establishment of freezes or restraints on certain projects or markets. These measures may adversely affect our manufacturing operations and margins.

To date, the basic reforms to China’s economic system have not adversely impacted our operations and are not expected to adversely impact operations in the foreseeable future. We, however, will be affected by the change in the tax structure and rising costs of an expanding and increasingly sophisticated economy. We cannot assure you that the reforms to China’s economic system will continue or that we will not be adversely affected by changes in China’s political, economic, and social conditions and by changes in policies of the Chinese government, such as changes in laws and regulations, measures which may be introduced to control inflation and changes in the rate or method of taxation.

On November 11, 2001, China signed an agreement to become a member of the World Trade Organization, sometimes referred to as the WTO, the international body that sets most trade rules, further integrating China into the global economy and significantly reducing the barriers to international commerce. China’s membership in the WTO was effective on December 11, 2001. China has agreed upon its accession to the WTO to reduce tariffs and non-tariff barriers, remove investment restrictions and provide trading and distribution rights for foreign firms. The tariff rate reductions and other enhancements will enable us to develop better investment strategies. In addition, the WTO’s dispute settlement mechanism provides a credible and effective tool to enforce members’ commercial rights. Also, with China’s entry to the WTO, it is believed that the relevant laws on foreign investment in China will be amplified and will follow common practices.

The legal authorities in China are in the process of changing heretofore tax and fee benefits provided to foreign investors and companies to encourage development within the country such that these benefits will be lessened or removed with the consequence that expenses may rise and adversely impact margins and net income.

The legal authorities are in the process of changing business income tax and fee benefits that have been available to foreign investors and foreign companies operating in China and reducing the availability of tax holidays for new enterprises. In the near term, there will be changes that reduce or eliminate many, if not all, the tax and other governmental fee advantages that heretofore have been available to foreign entities and newly created entities whether or not such new entities are foreign. The goal is to institute greater equalization of tax and government fee treatment of all corporate and similar entities organized and operating in China. China is being encouraged to create this more equal treatment because of its WTO obligations and public opinion within China. There may be phase-ins of various taxes and fees for entities that currently benefit from either no or lower tax rates and fees compared to wholly Chinese companies and entities, but there can be no assurance of this. Even if there are phase-in periods, the length of such periods is not known. There may also be extended tax benefits for certain industries. Overall, it is expected that the cost of operating in China will increase for those companies and entities that have had various tax and fee advantages in the past. As a result, Usunco, a company which has had and expected to have benefits from some forms of preferential tax and fee rates, expects that in the near term certain of its costs will increase which may have an adverse impact on operating margins and will have an impact on net income.

The Chinese legal system is not fully developed and has inherent uncertainties that could limit the legal protections available to investors.

The Chinese legal system is a system based on written statutes and their interpretation by the Supreme People’s Court. Prior court decisions may be cited for reference but have limited legal precedents. Since 1979, the Chinese government has been developing a comprehensive system of commercial laws, and considerable progress has been made in introducing laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade. Two examples are the promulgation of the Contract Law of the People’s Republic of China to unify the various economic contract laws into a single code, which went into effect on October 1, 1999, and the Securities Law of the People’s Republic of China, which went into effect on July 1, 1999. However, because these laws and regulations are relatively new, and because of the limited volume of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve uncertainties. In addition, as the Chinese legal system develops, changes in such laws and regulations, their interpretation or their enforcement may have a material adverse effect on our business operations.

Enforcement of regulations in China may be inconsistent.

Although the Chinese government has introduced new laws and regulations to modernize its securities and tax systems, China does not yet possess a comprehensive body of business law. As a result, the enforcement, interpretation and implementation of regulations may prove to be inconsistent and it may be difficult to enforce contracts.

We may experience lengthy delays in resolution of legal disputes.

As China has not developed a dispute resolution mechanism similar to the Western court system, dispute resolution over Chinese projects and joint ventures can be difficult and we cannot assure you that any dispute involving our business in China can be resolved expeditiously and satisfactorily.

Impact of the United States Foreign Corrupt Practices Act on our business.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with us, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. We have attempted to implement safeguards to prevent and discourage such practices by our employees and agents. We cannot assure you, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

It may be difficult to serve us with legal process or enforce judgments against our management or us.

Most of our assets are located in China. In addition, some of our directors and officers are non-residents of the United States, and all, or substantial portions of the assets of such non-residents, are located outside the United States. As a result, it may not be possible to effect service of process within the United States upon such persons. Moreover, there is doubt as to whether the courts of China would enforce:

Judgments of United States courts against us, our directors or our officers based on the civil liability provisions of the securities laws of the United States or any state; or

Original actions brought in China relating to liabilities against non-residents or us based upon the securities laws of the United States or any state.

The Chinese government could change its policies toward private enterprise or even nationalize or expropriate it, which could result in the total loss of your investment.

Our business may be adversely affected by political, economic and social developments in China. Over the past several years, the Chinese government has pursued economic reform policies including the encouragement of private economic activity and greater economic decentralization. The Chinese government may not continue to pursue these policies or may significantly alter them to our detriment from time to time with little, if any, prior notice. Changes in policies, laws and regulations or in their interpretation or the imposition of confiscatory taxation, restrictions on currency conversion, restrictions or prohibitions on dividend payments to stockholders, devaluations of currency or the nationalization or other expropriation of private enterprises could have a material adverse effect on our business. Nationalization or expropriation could even result in the total loss of our investment in China and in the total loss of your investment.

The source of funds for any dividend and other equity based distributions will be from our operating subsidiary in China, which is subject to various legal and contractual restrictions and uncertainties as well as the practice of such subsidiary in declaring dividends, and our ability to pay dividends or make other distributions to our shareholders is negatively affected by those restrictions, uncertainties and dividend practices.

We conduct our business operations through our Chinese joint venture. As a result, our profits available for distribution to our shareholders are dependent on the profits available for distribution from our joint venture. Under current PRC law, our PRC joint venture is regarded as a foreign-invested enterprise in China. PRC law permits payment of dividends only out of net income as determined in accordance with PRC accounting standards and regulations. Determination of net income under PRC accounting standards and regulations may differ from determination under U.S. generally accepted accounting principles in significant aspects, such as the use of different principles for recognition of revenues and expenses. Under PRC law, our PRC joint venture is required to set aside 10% of its net income each year to fund a designated statutory reserve fund until such funds reach 50% of registered share capital. These reserves are not distributable as cash dividends. As a result, our primary internal source of funds for dividend payments is subject to these and other legal and contractual restrictions and uncertainties, which in turn may limit or impair our ability to pay dividends to our shareholders although we do not presently anticipate paying any dividends. Moreover, any transfer of funds from us to our PRC joint venture, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by PRC governmental authorities. These limitations on the flow of funds between us and our PRC joint venture could restrict our ability to act in response to changing market conditions. Distributions will also be subject to taxation and withholding requirements, imposed by the PRC and under United States tax law. To date, our PRC Joint Venture has not distributed any profits and does not anticipate doing so for the near term.

Foreign Exchange Control Risks

Fluctuations in the value of the Chinese Renminbi relative to foreign currencies could affect our operating results.

Our revenues and expenses are China based, whose currency is the Chinese Renminbi. However, we use the United States dollar for financial reporting purposes. The value of Chinese Renminbi against the United States dollar and other currencies may fluctuate. The Chinese government is valuing the exchange rate of the Chinese Renminbi against a number of currencies, rather than just exclusively to the United States dollar. Although the Chinese government has stated its intention to support the current international value range of the Chinese Renminbi, we cannot assure you that the government will not take steps to revalue it. As our operations are in China, any significant revaluation of the Chinese Renminbi may materially and adversely affect our cash flows, revenues and financial condition. To date, we have not engaged in any hedging transactions in connection with our operations.

The PRC government imposes control over the conversion of the Chinese Renminbi into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China publishes an exchange rate, which we refer to as the PBOC exchange rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC exchange rate according to market conditions.

Pursuant to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July 1, 1996, regarding foreign exchange control, conversion of Renminbi into foreign exchange by Foreign Investment Enterprises, or FIEs, for use on current account items, including the distribution of dividends and profits to foreign investors, is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign exchange to their foreign exchange bank accounts in the PRC.

Conversion of Renminbi into foreign currencies for capital account items, including direct investment, loans, and security investment, is still subject to certain restrictions. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides that the PRC government shall not impose restrictions on recurring international payments and transfers under current account items.

Enterprises in the PRC (including FIEs) which require foreign exchange for transactions relating to current account items, may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.

Convertibility of foreign exchange in respect of capital account items, such as direct investment and capital contribution, is still subject to certain restrictions, and prior approval from the SAFE or its relevant branches must be sought.

Risks Related to Our Common Stock

An active trading market for Equicap’s common stock may not develop or be sustained.

Currently, there is very limited trading in our common stock. There can be no assurance that an active trading market will develop for such shares. If an active public trading market does not develop or continue, you may have limited liquidity and may be forced to hold your investment in the Company for an indefinite period of time. Further, the prices and volume of trading in the common stock may be adversely affected if its securities are not listed or quoted.

There may be substantial sales of the common stock by stockholders which could cause the price of the stock to fall.

Future sales of substantial amounts of the common stock in the public market, if one develops, or the perception that such sales might occur, could cause the market price for our common stock to decline and could prevent an active market developing. Such “overhang” could impair the value of an investment in the common stock. These factors may could also restrict the Company’s ability to raise equity capital in the future. A relatively small proportion of the outstanding shares are free trading. All the shares that were issued as restricted stock and the shares held by our affiliates, which represent the majority of our outstanding shares of common stock, may be sold pursuant to Rule 144 as applicable to former shell companies, subject to the limitations on the number of shares held by affiliates that can be sold from time to time. The sales of common stock by the stockholders able to sell under Rule 144 may depress any trading market that develops.

The common stock of Equicap will be subject to the “penny stock” rules for the foreseeable future.

Equicap is subject now and expects in the future to be subject to the SEC’s “penny stock” rules if its common stock sells below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction, the broker and/or dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for the common stock. As long as the common stock is subject to the penny stock rules, the holders of its shares may find it more difficult to sell their securities.

Equicap’s articles of incorporation authorize the issuance of shares of preferred stock, the rights, preferences, designations and limitations of which may be set by the board of directors.

Equicap’s articles of incorporation have authorized the issuance of up to 10,000,000 shares of preferred stock in the discretion of its board of directors. Any undesignated shares of preferred stock may be issued by the Equicap board of directors; no further shareholder action is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by the board of directors and could operate to the disadvantage of the holders of outstanding common stock. Such terms could include, among others, preferences as to dividends and distributions on liquidation, or could be used to prevent possible corporate takeovers.

Item 1B.

Unresolved Staff Comments

None.

Item 2. Description of Properties

The Company has an office in China and one operating facility in China.

The principal executive office of the Company is located in the city of Hangzhou in China, where the Company leases an aggregate of approximately 1,400 square feet at an approximate, aggregate annual rental of $12,000. The lease has term of one year. This office mainly handles general corporate affairs, administrative matters, accounting activities and other supporting functions.

The ZhongChai JV and Shengte conduct operations from a facility in Xinchang County, Zhejiang Province in China, with an aggregate leased space of approximately 32,000 square feet, for annual rental of approximately $32,000.

Item 3. 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 was 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 were 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 sought 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 Company was obligated to provide indemnification to vFinance Investments, Inc. for its expense in defending the claims against it and any settlement costs.

In July 2009, the Company and Mr. Wang agreed upon the terms of a settlement agreement to the action. The settlement agreement provided (i) for a third party, Ruihua International Limited ("Ruihua"), to purchase all the shares of common stock of the Company owned and held of 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 settlement agreement was consummated on July 31, 2009. The action was discontinued with prejudice by stipulation among all the parties which was signed and filed on July 31, 2009, and the stipulation was "so 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.

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

During the fourth quarter of fiscal year 2009, no matters were submitted to a vote by security holders.

PART II

Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock price is quoted on the OTC Bulletin Board, or OTCBB, under the symbol “EQPI.OB”. There is a very limited trading market for our stock. There can be no assurance that a liquid market for our securities will ever develop. The following table sets forth for the periods indicated the high and low prices per share traded for our common stock as reported on the OTCBB.

Quarter Ended	High		Low
2007
September 30	$	2.00	$	1.00
December 31	$	1.00	$	0.40
2008
March 31	$	0.40	$	0.20
June 30	$	0.30	$	0.15
September 30	$	0.20	$	0.05
December 31	$	0.07	$	0.01
2009
March 31	$	0.05	$	0.01
June 30	$	0.06	$	0.02

The quotations shown above reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Our common stock is designated as “penny stock” and thus may be illiquid for that reason. The SEC has adopted rules (Rules 15g-2 through l5g-6 of the Exchange Act), which regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are any non-NASDAQ equity securities with a price of less than $5.00, subject to certain exceptions. The penny stock rules require a broker-dealer to deliver a standardized risk disclosure document to provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, monthly account statements showing the market value of each penny stock held in the customers account, to make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a stock that is subject to the penny stock rules. Since our common shares are subject to the penny stock rules, persons holding or receiving such shares may find it more difficult to sell their shares. The market liquidity for the shares could be severely and adversely affected by limiting the ability of broker-dealers to sell the shares and the ability of stockholders to sell their stock in any secondary market.

The trading volume in our common stock has been and is extremely limited. The limited nature of the trading market can create the potential for significant changes in the trading price for the common stock as a result of relatively minor changes in the supply and demand for our common stock and perhaps without regard to our business activities.

The market price of our common stock may be subject to significant fluctuations in response to numerous factors, including: variations in our annual or quarterly financial results or those of our competitors; conditions in the economy in general; announcements of key developments by competitors; loss of key personnel; unfavorable publicity affecting our industry or us; adverse legal events affecting us; and sales of our common stock by existing stockholders.

Holders

We have approximately 415 record holders of our common stock. We believe that in addition to the record ownership there are additional beneficial owners who hold their shares in street name or through other nominees, but we have not ascertained the number of such persons.

Dividend Policy

We plan to retain all earnings generated by our operations, if any, for use in our business. We do not anticipate paying any cash dividends to our stockholders in the foreseeable future. The payment of future dividends on the common stock and the rate of such dividends, if any, and when not restricted, will be determined by our board of directors in light of our earnings, financial condition, capital requirements, the requirements of PRC law and other factors.

Recent Sales of Unregistered Securities

None.

Transfer Agent

The transfer agent and registrar for the common shares of Equicap is Olde Monmouth Stock Transfer Co., Inc., 200 Memorial Parkway, Atlantic Highlands, NJ 07716.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options, warrants or rights under our existing equity compensation plans. The information in this table is as of June 30, 2009.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants, and rights		Number of securities remaining available
Equity compensation plans approved by security holders		-0-		-0-		-0-
Equity compensation plans not approved by security holders		366,550	$	1.065		1,604,148

Total		366,550	$	1.065		1,604,148

ITEM 6. Selected Financial Data

The following selected financial data for the three years ended June 30 are derived from the audited consolidated financial statements of Equicap, Inc. after the Share Exchange between Equicap and Usunco in March 2007. Prior to the Share Exchange, Equicap was a shell company with nominal assets and operations and with a different fiscal year end. The data should be read in conjunction with the consolidated financial statements, related notes, and other financial information.

SELECTED FINANCIAL DATA

	Year ended June 30,

	2009			2008			2007

OPERATIONS DATA

Revenues	$	4,923,918		$	3,333,325		$	1,817,264

Net income (Loss)		(1,132,190	)		(1,964,725	)		(5,279,437	)


Income/(loss) per common share (basic and diluted)	$	(0.04	)	$	(0.07	)	$	(0.24	)

BALANCE SHEET DATA
Total assets	$	17,102,682		$	14,790,817		$	13,893,621
Shareholders' equity	$	9,578,269		$	10,701,893		$	10,046,397

QUARTERLY FINANCIAL DATA

Unaudited quarterly results of operations for the fiscal years ended June 30, 2009 and 2008 should be read in conjunction with the consolidated financial statements, related notes and other financial information and the Company's quarterly reports on Forms 10-Q and 10-QSB, for the fiscal years 2009 and 2008.

	First			Second		Third		Fourth
	Quarter			Quarter		Quarter		Quarter		Year
Year Ended June 30, 2009
Revenues	$	1,186,570		820,527		976,967		1,939,854		$	4,923,918
Gross profit	$	334,483		126,630		206,421		416,885		$	1,084,419
Net loss	$	(130,538	)	(366,701	)	(319,817	)	(315,134	)	$	(1,132,190	)
Loss per common share - basic and diluted	$	(0.00	)	(0.01	)	(0.01	)	(0.02	)	$	(0.04	)

Year Ended June 30, 2008
Revenues	$	732,607		741,978		968,914		889,826		$	3,333,325
Gross profit	$	144,169		187,806		182,543		176,993		$	691,511
Net loss	$	(137,741	)	(356,774	)	(140,428	)	(1,329,782	)	$	(1,964,725	)
Loss per common share -basic and diluted	$	(0.01	)	(0.01	)	(0.00	)	(0.05	)	$	(0.07	)

Item 7.

Management’s Discussion and Analysis of Financial Condition and Result of Operations

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes,” “anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,” “continue,” and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including, but not limited to, those described in the “Risk Factors” set forth in Item 1A – Risk Factors and the matters set forth in other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements that speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes included in this report.

Overview

Equicap, Inc. (“Equicap”) does business through its subsidiary, Usunco Automotive Limited (“Usunco”) which in turn operated through IBC Automotive Products, Inc. (“IBC”), its wholly-owned subsidiary established under the laws of the State of California until June 15, 2009 (the “North America/Auto Parts Segment”), and through Zhejiang ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture established under the laws of the People’s Republic of China (the “PRC” or “China”) and Zhejiang Shengte Transmission Co., Ltd.(“Shengte”) a company established under the laws of the PRC and wholly owned by ZhongChai JV (the “China/Gear Segment”). Through its operating subsidiaries, the Company is currently engaged in manufacturing and sale of gears and gearboxes in China and, prior to June 15, 2009, was engaged in the distribution of automotive parts in North America. In June 2009, IBC, which represented all the North America/Auto Parts Segment, was sold because it no longer fitted the overall business strategy of the Company and because it no longer represented a significant amount of the assets or gross revenues of the Company.

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

Share Exchange

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

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

In connection with the Share Exchange, vFinance Investments, Inc. (“vFinance”), for advice in connection with the transaction, was issued 161,633 shares of common stock as compensation. The shares were issued as restricted stock. These shares have registration rights.

Since the former shareholders of Usunco owned approximately 65% of the shares of common stock of Equicap at the time of its acquisition of Usunco, the former shareholders of Usunco had control over Equicap immediately after the acquisition. 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 entered into a convertible note on September 30, 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.

Private Placement Offering

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

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

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

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

Critical Accounting Policies and Estimates

Below is a description of accounting policies that we consider critical to the preparation and understanding of our financial statements. In addition, certain amounts included in or affecting our financial statements and related disclosure must be estimated, which requires us to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. Actual results may differ from these estimates under different assumptions or conditions. The selection of critical accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our consolidated financial statements.

We believe that the critical accounting policies set forth below involve the most significant judgments and estimates used in the preparation of our consolidated financial statements. We regularly evaluate these policies, in light of historical results and experience, consultation with experts, trends and other methods we consider reasonable in the particular circumstances, as well as our forecasts as to how these might change in the future.

Principles of Consolidation

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

Cash and Cash Equivalents

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

Accounts Receivable and Bad Debt Reserves

Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at the end of the period. Based on its assessment of the credit history with customers having outstanding balances and current relationships with them, management makes conclusions whether any realization of losses on balances outstanding at the end of the period will be deemed uncollectible based on the age of the receivables. The Company reserves 0.5% of accounts receivable balances that have been outstanding below three months, 5% of accounts receivable balances that have been outstanding between three months and six months, 20% of receivable balances that have been outstanding within one year, 50% of receivable balances that have been outstanding for between one year and two years, and 100% of receivable balances that have been outstanding more than two years. The balance of allowance for doubtful accounts amounted to $7,732 and $29,747 as of June 30, 2009 and 2008, respectively.

Inventory

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

Property and Equipment

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

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

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. All other intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are subject to annual impairment testing using the guidance and criteria described in Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. As of June 30, 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 and services, net of rebates and discounts and is reported on a gross basis. The gross basis is used mainly due to the fact that the Company acts as principal in each transaction and is responsible for fulfillment and acceptability of the products purchased, the Company takes title to its products before the products are ordered by its customers, the Company has risk of inventory loss as title of the products is transferred to the Company, the Company is responsible for collection of sales and delivery of products, and the Company does not act as an agent or broker and is not compensated on a commission or fee basis.

Sales Return and Warranties

Generally the Company does not accept the return of products once sold to customers. The Company generally provides a one-year limited warranty covering manufacturing defects and/or product functional failures. After evaluation and confirmation of customer complaints, the Company either replaces the defective products or accepts returns by crediting the customer's account, and is responsible for the costs and expenses thus incurred. For auto parts distribution business, replacements and returns, and handling costs are passed through to supplying manufacturers.

Advertising Costs

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

Research and Development Costs

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

Comprehensive Income (Loss)

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

Foreign Currency Translation

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

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168”), which establishes the FASB Accounting Standards CodificationTM as the single source of authoritative US GAAP, organized by topic, and creates a new referencing system to identify authoritative literature such that references to SFAS, EITF, etc. will no longer be valid. The Codification does not create any new GAAP standards. In addition, the Securities and Exchange Commission (“SEC”) rules and releases will remain as sources of authoritative US GAAP for SEC registrants. SFAS 168 will be effective for the Company’s first quarter of fiscal 2010 and is not expected to have a material impact on the Company’s consolidated financial statements.

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

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

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

In December 2007, the FASB issued SFAS No. 141 (revised 2007) Business Combinations (“SFAS 141R”). SFAS 141R establishes the requirements for how an acquirer recognizes and measures the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R requires acquisition costs be expensed instead of capitalized as is required currently under SFAS 141 and also establishes disclosure requirements for business combinations. SFAS 141R applies to business combinations for which the acquisition date is on or after fiscal years beginning on or after December 15, 2008, and as such, SFAS 141R is effective beginning in the Company’s fiscal year 2010. The Company is evaluating the impact of SFAS No. 141 (R).

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

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. 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 July 1, 2008. It is not expected that the adoption of SFAS No. 159 will have a material impact on the Company’s financial condition or results of operations.

Fair Value of Financial Instruments

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

Income Taxes

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

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.

Operating Results

The Fiscal Year Ended June 30, 2009 Compared to the Fiscal Year Ended June 30, 2008

Revenue

Revenue increased by $1,590,593 or 48% to $4,923,918 for the year ended June 30, 2009 compared with $3,333,325 for the year ended June 30, 2008. Revenue for the year ended June 30, 2009 consists of sales of automotive parts in North America and sales of gears and gearboxes in China, for $1,094,028 and $3,829,890, respectively. Revenue for the year ended June 30, 2008 consists of sales from these two segments for $778,838 and $2,554,487, respectively. Increase in gears and gearboxes sales in fiscal 2009 compared to last year was attributed to the Company’s expansion in production capacity and continuous marketing efforts, taking advantage of the recovery of domestic market in China for gear and gearbox products as a result of Chinese government’s economic stimulus plan.

Cost of Sales and Gross Margin

Cost of sales was $3,839,489 for the year ended June 30, 2009, increasing by $1,197,675 or 45%, from $2,641,814 for the year ended June 30, 2008. The gross margin was approximately 22% for the year ended June 30, 2009 compared to approximately 21% for the year ended June 30, 2008. For the North America/Auto Parts segment, gross margin dropped by more than 1% to 14% on average for fiscal 2009, mainly attributed to the appreciation of RMB against USD, and IBC’s relatively weak market position. For the China/Gears segment, gross margin improved from 22% for fiscal 2008 to 24% for fiscal 2009, mainly attributed to the Company’s achievement of a larger economy of scale and the lowered material prices, despite the introduction of new gearbox products which bear a relatively low margin.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consisted primarily of labor cost and related 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 $700,053 to $2,048,155 in the year ended June 30, 2009 from $1,348,102 in year ended June 30, 2008. SG&A expenses for fiscal years 2009 and 2008 mainly consist of selling expenses, and costs related to being a public company including professional services related to auditing, legal and other services, costs associated with the operating expenses in China, and non-cash expenses amounting to $108,789, respectively, recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R). The increase of SG&A in fiscal year 2009 is mainly attributed to additional legal and other consulting expenses and indemnifications for approximately $315,000 related to the lawsuit and the settlement efforts thereof (as described in Item 3 Legal Proceedings); and ZhongChai JV’s increase in R&D expenses for approximately $208,000 and in rental expense for approximately $44,000 in the fiscal 2009.

Unusual Charge

In connection with the private placement in connection with the Share Exchange, for the benefit of the investors, eight of the former shareholders of Usunco, some of whom were the officers and directors of Equicap, agreed to place into escrow an aggregate of 10,140,846 shares of common stock issued in the Share Exchange. These shares were subject to distribution to the investors if certain defined financial targets were not achieved on a consolidated basis by Equicap for the fiscal years ending June 30, 2007 and 2008. These financial targets were not reached, and consequently, in each of those years, the required number of shares were transferred to the investors, which represented all the 10,140,846 shares.

According to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s), because the performance criteria was not met in either of the two fiscal years and all the shares were released to the investors, the shares were treated as an expense for the aggregate market value of the shares as of the date of release. For the year ended June 30, 2007, based upon the market value of $1.30 per share as of June 30, 2007, the total expense recognized for the fiscal year of 2007 was $3,954,930. For the year ended June 30, 2008, based upon the market value of $0.20 per share as of June 30, 2008, the total expense recognized for the fiscal year of 2008 was $1,419,719. The expense is treated as an unusual item since it is deemed to be unusual in nature but may not be infrequent in occurrence. This recognition of expense would not occur if the shares are forfeited or cancelled and are not released to either the investors or the former shareholders of Usunco.

Included in Unusual Charge for fiscal 2009 is Loss on Disposal of IBC for amount of $220,782. On June 8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an agreement to sell IBC, the wholly owned subsidiary of Usunco, to certain of the management of IBC. The transaction was closed on June 15, 2009.

Net Loss

Net loss reached $1,132,190 in the year ended June 30, 2009 compared with net loss of $1,964,725 in the year ended June 30, 2008. The net loss for fiscal year of 2008 was mainly attributed to the recognition of $1,419,719 unusual loss arising from the make good arrangement for fiscal year 2008. Loss for fiscal year of 2009 was mainly attributed to the increase in SG&A related to the lawsuit, increase in R&D expenses, and the loss on disposal of IBC.

Liquidity and Capital Resources

As of June 30, 2009, Equicap had assets equal to $17,102,682 which primarily were comprised of cash and cash equivalents and restricted cash of $4,305,918, net account receivables, note receivable and other receivables of $2,065,548, inventory of $1,568,445, and advance payment of $2,988,235. The advance payment represented an advance payment made by the Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), for purchase of the land use right and plant building for the purpose of Zhongchai JV’s future production expansion. Equicap’s current liabilities as of June 30, 2009 were $4,764,568, which primarily were comprised of trade accounts payable and accrued expenses, notes payable, short term loan and other payable. At June 30, 2009, Equicap had working capital of $6,202,353. Equicap believes that it has sufficient operating capital for its current operations.

Through the fiscal year ended June 30, 2009, Equicap has funded its operations from income generated by its IBC subsidiary and, to a greater extent, by the income generated by Usunco and its PRC subsidiaries and from the sale of equity securities. The principal equity funding for the Company was a private placement in March 2007, in which Equicap sold 8,450,704 shares at an aggregate offering price of $12,000,000. After related expenses, Equicap had net proceeds of approximately $10,000,000. The net proceeds of the private placement are being used by Equicap and its various subsidiaries principally for market expansion, product development, product acquisition and working capital and general corporate purposes.

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

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

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

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

On November 6, 2008, a group of the investors, which acquired shares of common stock in the March 2007 private placement, 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, among other things. In July 2009, the Company and Mr. Peter Wang concluded the terms of a settlement agreement to the action. The settlement agreement provided (i) for a third party, Ruihua International Limited ("Ruihua"), to purchase all the shares of common stock of the Company owned and held of 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 settlement agreement was consummated on July 31, 2009. The action was discontinued with prejudice by stipulation among all the parties which was signed and filed on July 31, 2009, and the stipulation was "so ordered" by the court on August 4, 2009. The Company incurred legal and other consulting expenses and indemnification claims for approximately $315,000 related to the lawsuit and the settlement efforts thereof.

As Equicap expands its operations and considers additional acquisitions of private companies, divisions or product lines, it may require additional capital for its business development and operations. Equicap does not have any specific sources of capital at this time, therefore, it would need to find additional funding for its capitalization needs. Such capital may be in the form of either debt or equity or a combination. To the extent that financing is in the form of debt, it is anticipated that the terms will include various restrictive covenants, affirmative covenants and credit enhancements such as guarantees or security interests. The terms of any proposed financing may not be acceptable to Equicap. There is no assurance that funding will be identified or accepted by Equicap or, that if offered, it will be concluded.

Off-Balance Sheet Arrangements

The Company does not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

Item 8.

Financial Statements

The information required by this Item is incorporated herein by reference to the financial statements beginning on page F-1.

Item 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.

Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report on Form 10-K. Based upon such evaluation, the Certifying Officers have concluded that, as of the end of such period, June 30, 2009, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Certifying Officers, and that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework. Based on our assessment, we believe that, as of June 30, 2009, the Company’s internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Item 9B.

Other Information

None.

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

The following table sets forth certain information about each of the members of the Board of Directors and each executive officer as of June 30, 2009:

Name	Age	Position with company	Serving as a Director or an Officer Since
Peter Wang	55	Chairman and President	2007
Haining Liu	56	Director	2007
David Ming He	39	Chief Financial Officer	2007

Mr. Peter Wang has been the Chairman of the board of directors and President since the inception of Usunco in April 2006. He has more than 20 years of experience in technology and service area with strong background in research and development, operations and corporate management. Mr. Wang successfully co-founded a telecom venture in China, Unitech Telecom (now named UTStarcom, NASDAQ: UTSI) in 1990 and was the Executive Vice President until August 30, 1995. From August 1995 to December 2000, Mr. Wang was the Chairman and CEO of World Communication Group. From December 2000 to the present, Mr. Wang was Chairman and CEO of China Quantum Communication Limited (later changed to Techedge, Inc. and then to China Biopharma, Inc.) Before forming his own companies, Mr. Wang worked at AT&T Bell Labs during 1987-1990 and Racal-Milgo Information System during 1983-1987. Mr. Wang was also a co-chairman of Business Advisory Council of the National Republican Congressional Committee during the period 1994-1995. In 2004, Mr. Wang received Outstanding 50 Asian Americans in Business Award. Mr. Wang earned his BS in Math & Computer Science and MS in Electrical Engineering from University of Illinois in 1983, as well as MBA in Marketing from Southeast-Nova University in 1986. Mr. Wang is the Chairman and CEO of China Biopharma, Inc. (Pink Sheet: CHBO), a company involved in pharmaceutical distribution.

Mr. Haining Liu has been a director of Usunco since its inception in April 2006. He has been the Chairman and President of Zhejiang Province Science & Technology Venture Capital since 1995. This fund has brought nine of its portfolio companies to the public market in China. Before joining the fund, Mr. Liu served as the President of Zhejiang Keji Qicai Company, which is under direct supervision of Zhejiang Province Science and Technology Commission, handling technology licensing and scientific instruments import and export.

Mr. David Ming He joined Usunco in January 2007 as the Chief Financial Officer. From October 2004 until January 2007 Mr. He served as the Senior Manager of SORL Auto Parts, Inc. (NASDAQ: SORL) in charge of capital market operations, investor relations, SEC filings and corporate internal controls. In his two years with SORL, Mr. He has been instrumental in SORL’s progress in US capital market from an OTC bulletin board company to a NASDAQ Global Market listed company, and also successfully completed a secondary public offering in November 2006. Before going to graduate school, from 1994 to 2001, Mr. He was a senior manager in corporate banking with Credit Agricole Indosuez (now Calyon) in Shanghai. Mr. He holds the designations of Chartered Financial Analyst and Illinois Certified Public Accountant. Mr. He pursued graduate degrees from 2001 to 2004 and received his Master of Science degree in Accountancy in 2004 and Master of Business Administration degree in Finance in 2003 from University of Illinois at Urbana-Champaign. He also received his BA from Shanghai Institute of Foreign Trade in 1992.

All directors are elected to annual terms by the holders of common stock. All directors hold office until the next annual meeting of shareholders and the election and qualification of their successors. Outside directors receive no fee for meetings attended but are reimbursed for expenses. Officers are elected annually by the board of directors and serve at the discretion of the Board.

There are no family relationships (whether by blood, marriage or adoption) among the Equicap directors or executive officers.

The business address of the directors is: 224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Hangzhou 310007, P.R. China.

Director Compensation

The board of directors will consider granting stock options or additional equity compensation to outside directors as it determines from time to time, but there is no established plan at this time for such awards. Equicap does not provide cash compensation to directors for attending meetings, but it does reimburse them for their out-of-pocket expenses for attending meetings.

The following Director Compensation Table summarizes the compensation of our non-employee directors for services rendered by Equicap during the fiscal year ended June 30, 2009.

NON-EMPLOYEE DIRECTOR COMPENSATION TABLE

Name		Fees Earned or Paid in Cash				Option Awards				Total
Haining Liu		$	-0-			$	-0-			$	-0-

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires Equicap’s officers and directors, and persons who own more than ten percent of a registered class of Equicap’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission (the “Commission”). Officers, directors and greater than ten percent beneficial owners are required by Commission regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a). Based solely on the Company’s review of the copies of such forms it received and written representations from reporting persons required to file reports under Section 16(a), to Equicap’s knowledge all of the Section 16(a) filing requirements applicable to such persons with respect to fiscal 2009 were complied with.

Board Committees

The board of directors considers all major decisions. The board has not established any standing committees thereunder. The board has affirmatively determined that Mr. Haining Liu is an independent director as defined by applicable securities law and corporate governance guidelines.

If Equicap seeks listing of its shares on a United States securities exchange, then it will take action prior to listing to comply with all corporate governance requirements of the selected exchange, including having audit and executive compensation committees.

The board of directors does not have a nominations committee because there are a limited number of directors, and the board believes that shareholder suggestions would be known to the entire board if and when communicated to the Company. As such, the board of directors believes there will be sufficient communication by shareholders with the board about matters and nominees to be brought to its attention.

Currently the board of directors functions as an audit committee and performs some of the same functions as an audit committee including: (1) selection and oversight of our independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; and (3) engaging outside advisors. The Company is not a "listed company" under SEC rules and is therefore not required to have an audit committee comprised of independent directors. The board has determined that its members do not include a person who is an "audit committee financial expert" within the meaning of the rules and regulations of the SEC. The board has determined, however, that each of its members is able to read and understand fundamental financial statements and has substantial business experience that results in that member's financial sophistication. Accordingly, the board believes that each of its members have the sufficient knowledge and experience necessary to fulfill the duties and obligations that an audit committee would have.

Code of Ethics

A code of ethics relates to written standards that are reasonably designed to deter wrongdoing and to promote:

1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2) Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to the Securities and Exchange Commission and in other public communications made by Equicap;

3) Compliance with applicable government laws, rules and regulations;

4) The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

5) Accountability for adherence to the code.

Equicap adopted a formal code of ethics statement that is designed to deter wrong doing and to promote ethical conduct and full, fair, accurate, timely and understandable reports that Equicap files or submits to the SEC and others. A copy of the form of Equicap’s code of ethics is filed as an exhibit to a Report on Form 8-K dated March 9, 2007. Requests for copies of Equicap’s code of ethics should be sent in writing to 224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Hangzhou 310007, P.R. China, Attention: Secretary.

Limitation of Director Liability; Indemnification

Under Nevada law and the bylaws, the Company is required to indemnify its officers, directors, employees and agents in certain situations. In some instances, a court must approve indemnification. As permitted by Nevada statutes, the articles of incorporation eliminate in certain circumstances the monetary liability of its directors for a breach of their fiduciary duties. These provisions do not eliminate a director’s liability for:

a willful failure to deal fairly with us or our shareholders in connection with a matter in which the director has a material conflict of interest,

a violation of criminal law unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable cause to believe that his or her conduct was unlawful,

a transaction from which the director derived an improper personal profit, and

willful misconduct.

As to indemnification for liabilities arising under the Securities Act of 1933 for directors, officers or persons controlling the Company, we have been informed that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy and therefore unenforceable.

Item 11.

Executive Compensation

The table below sets forth for the fiscal year ended June 30, 2009, the compensation of the President and the three other most highly compensated executive officers of Equicap.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Fiscal Year	Salary		Bonus		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Peter Wang, Chairman	2008	$	50,000		-		-		-		-		-	$	50,000
and President	2009	$	50,000		-		-		-		-		-	$	50,000
Jason Lu, Chief Executive	2008	$	75,000		-		-		-		-		-	$	75,000
Officer(1)	2009	$	68,750		-		-		-		-		-	$	68,750
David Ming He, Chief	2008	$	48,000		-		-		-		-		-	$	48,000
Financial Officer	2009	$	48,000		-		-		-		-		-	$	48,000
Philip Widmann, SVP	2008	$	45,000		-		-		-		-		-	$	45,000
Global Marketing(2)	2009	$	-0-		-		-		-		-		-	$	-0-

(1)	Mr. Jason Lu resigned from the positions of chief executive officer and director of the Company on May 18, 2009.

(2)	Mr. Philip Widmann did not receive cash salary payment from the Company for fiscal 2009. Mr. Widmann discontinued service with the Company as result of the Company’s sale of IBC on June 15, 2009.

The following table sets forth information concerning the other compensation granted to the named executive officers for the fiscal year ended June 30, 2009.

Name	Year	Medical Premiums		401K Employer Match
Peter Wang	2009	$	12,000		-
Jason Lu	2009	$	11,000		-
David Ming He	2009	$	12,000		-
Philip Widmann	2009	$	16,204		-

The following table sets forth information concerning the outstanding equity awards granted to the named executive officers at June 30, 2009.

Name

Number of Securities

Underlying

Unexercised

Options (#)

Exercisable

Number of Securities

Underlying

Unexercised

Options (#)

Unexercisable

Option

Exercise

Price ($)

Option

Expiration Date

David Ming He

183,275

1.065

1/14/2012

Employment Agreements

Currently, all employees of Equicap are employed on “at will” employment agreements except Mr. David Ming He, the Chief Financial Officer, who has signed an employment agreement with the Company. The Company intends to establish formal employment contracts for certain other key employees in the future.

The employment agreement with Mr. He provides for a term of employment ending January 2012, unless terminated in accordance with the agreement. Mr. He reports to the Chief Executive Officer. He is entitled to a base salary of $48,000 which will be reviewed annually by the Chief Executive Officer or the compensation committee if there is one to determine if increases should be made in light of the size and performance of the Company. There is provided a 10% increase on January 15, 2009. Mr. He is entitled to a bonus in each of the fiscal years during the term of the agreement, which may be in the form of cash, stock options or stock. Mr. He will also be eligible to participate in the stock option and similar plans of the Company. He is granted an option for 183,275 shares of common stock, of which one third will vest 12 months after the commencement of employment and the balance will vest pro rata each month thereafter. Mr. He is provided insurance under the Company health plans or paid $1,000 in respect of premiums if not so covered. He is also entitled to $1,000 per month as a non-accountable expense account, in addition to reimbursement for all other actual travel and other business related expenses. The employment agreement provides for non-competition and non-solicitation restrictions, confidentiality obligations and restrictions on engaging in other employment. In the event of termination without cause or for good reason by the executive or upon a change of control, Mr. He will be paid the consideration due for the balance of the employment period of the contract, bonuses for the prior and current year of termination and insurance coverage.

2006 Stock Option Plan

Usunco adopted its 2006 Stock Option Plan on May 18, 2006 by the board of directors and approved by the shareholders on May 18, 2006. The plan provides for the issuance of up to 1,970,698 shares of common stock under incentive or non-statutory stock options. The plan is administered by the board of directors. The board of directors, at the time of a grant, will determine the type of option, the exercise price, vesting schedule, and expiration date, as well as any other terms of the grant. The minimum exercise price of incentive stock option cannot be less than 75% (or 100% if granted to an employee who, at the time of grant of such option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any parent or subsidiary) of the fair market value on the date of the grant, and the minimum exercise price of non-statutory stock option cannot be less than 100% of the fair market value on the date of the grant. Incentive stock options may be granted only to employees, otherwise options may be granted to officers, directors, employees and consultants, or collectively “Service Providers”. No stock options were awarded during the fiscal year ended June 30, 2008. Currently, there are 366,550 shares which Usunco has committed to issue as incentive stock option grants under the plan at an average weighted exercise of $1.065 per share. The Company plans to take steps to provide any options that were committed to be issued under this plan are modified to provide that they will be issued under a plan under which the shares to be issued will be those of Equicap rather than Usunco.

Executive Compensation Determination

It is the intention of Equicap to determine executive compensation by a decision of the majority of the directors, at a meeting at which the chief executive officer will not be present. In the future, the board may establish a compensation committee.

From time to time key employees may receive a cash bonus as rewards for their job performance that meet or exceed the operation goals and results set up by the board of directors or high-level management. The Company will also consider other employee benefits for which it will assume the cost, such as health and dental insurance benefits. The Company also will reimburse employees for their travel expenses.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information regarding common stock beneficially owned on September 21, 2009, for (i) each stockholder known to be the beneficial owner of 5% or more of the outstanding common stock, (ii) each current executive officer and director, and (iii) all executive officers and directors as a group. The table is based on a total of 27,613,019 shares of common stock outstanding.

Name and Address of Beneficial Owner	Number of Shares Beneficially Owned (1)		% of common stock Beneficially Owned
Sinoquest Management Ltd. (2) 224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Hangzhou, 310007 P.R.C.		4,120,990		14.92	%
Peter Wang (2) 224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Hangzhou, 310007 P.R.C.		1,957,470		7.09	%
Haining Liu Huanchen Beilu Hangzhou, 310007 P.R.C.		-		*
Jason Zhongyuan Lu 10510 Hillsboro Road Santa Ana, CA 92705 U.S.A.		1,553,634		5.63	%
David Ming He (3) 224 Tianmushan Road, Zhongrong Chengshi Huayuan 5-1-602, Hangzhou, 310007 P.R.C.		173,093		*
Ruihua International Ltd. (4) 11/F Front Block, Hang Lok Building, 130 Wing Lok Street, Sheung Wan, Hong Kong		17,431,104		63.13	%
All Directors and Executive Officers as a Group (3 persons) (5)		2,130,563		7.72	%

*	Less than 1%

(1)

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, which include holding voting and investment power with respect to the securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for computing the percentage of the total number of shares beneficially owned by the designated person, but are not deemed outstanding for computing the percentage for any other person.

(2)	Peter Wang has a 47.5% beneficial ownership in Sinoquest Management Limited.

(3)	David Ming He has been granted options to purchase 183,275 shares at an exercise price of $1.065 per share, 173,093 of which will vest and become exercisable within 60 days.

(4)

Ruihua International Limited ("Ruihua") has an address at 11/F Front Block, Hang Lok Building, 130 Wing Lok Street, Sheung Wan, Hong Kong. The officer and director of Ruihua who has the right to vote and dispose of the shares is Mr. Yang Yong HU. The foregoing information is derived from an amended 13D filed by Ruihua with the SEC on August 4, 2009.

(5)	Consists of Peter Wang, Haining Liu and David Ming He.

Item 13.

Certain Relationships and Related Transactions and Director Independence

During the fiscal year ended June 30, 2009, other than as set forth in this section, the Company did not enter into any related party transactions with any director, officer, nominee for director, beneficial owner of 5% or more of the equity securities of the Company, or their family members.

During the fiscal year ended June 30, 2008, the Company and Xinchai Holding Group Co., Ltd. (“Xinchai Holding”), the original joint venture partner of the ZhongChai JV, determined to place the distribution agreement between the ZhongChai JV and Xinchai Holding in suspension so that the joint venture could focus its resources on development of the gear and gearbox products of Xinchang Keyi and their marketing. The joint venture partners determined to put the agreement in suspension because the economics of distributing the Xinchai Holding products under the distribution agreement had been adversely affected by several factors, notably the dramatic increase in the product costs because of the cost of steel which cut into margins and the disinclination of the equipment integrators who use those products to buy engines from a middleman with the added costs, and the overall competition in the industry segment. The use of a suspension arrangement was so the parties could ultimately work to continue to pursue the joint venture in some other profitable endeavor. As a result, Zhongchai JV agreed to work with Xinchai Holding to produce gearboxes that will be sold stand-alone to Xinchai’s customers or sold with the diesel engines made by Xinchai’s subsidiary as a diesel power-train. It was believed that this rearrangement would change Zhongchai JV’s market position from a middleman to an original manufacturer, which is more acceptable in the OEM marketplace.

In October 2007, Zhongchai JV and Xinchai Holding entered into a letter of intent (“LOI”) regarding the “Hangchai Project,” a project to establish Hangzhou Xinchai Company Limited (“Hangzhou Xinchai”) in Hangzhou, for the purpose of manufacturing diesel engines, engine components and related products. At the time of the LOI execution, Xinchai Holding had obtained approvals from the relevant government authorities for the Hangchai Project, and had initiated the processes of establishing the Company and bidding for land. The LOI, among other things, also provided for ZhongChai JV to place a deposit of up to RMB 35 million with Xinchai Holding. The deposit was only to satisfy the payments or registered capital requirements related to the Hangchai Project. The LOI is terminable if within 12 months of its execution the Hangchai Project is not completed or ZhongChai JV decides not to pursue the transaction. On termination, Xinchai Holding is obliged to refund to Zhongchai JV the full amount of the deposit. Due to changes in the macro economic conditions and business operations for the proposed project, ZhongChai JV has decided not to pursue the project, and Xinchai Holding has agreed with that decision. All of the deposit placed has been refunded by end of fiscal year ended June 30, 2009 except that a RMB 4 million will be returned until governmental approval for cancellation of Hangzhou Xinchai is obtained in compliance with local regulations.

Item 14.

Principal Accountant Fees and Services

The following table shows the fees paid or accrued for the audit and other services provided by Patrizio & Zhao for the fiscal years ended June 30, 2008 and June 30, 2009:

	June 30, 2008		June 30, 2009
Audit Fees	$	93,000	$	93,000
Audit Related Fees		-		-
Tax Fees		-		-
All Other Fees		-		-
	$	93,000	$	93,000

Audit services of Patrizio & Zhao for the fiscal years 2008 and 2009 consisted of the audit of the year end financial statements and the review of the quarterly financial statements of Equicap and registration statements and other SEC filings.

Because the board of directors of Equicap does not have an audit committee, the above services and engagements were approved by the board of directors.

Item 15.

Exhibits

Exhibit No.		Description
3.1		Certificate of Incorporation – (Incorporated by reference from Form 10-KSB for fiscal year ended December 31, 2004, Exhibit 3.1)
3.2		By-laws (Incorporated by reference from Form 10-KSB for fiscal year ended December 31, 2004, Exhibit 3.2)
4.1		Form of Common Stock Purchase Warrant Agreement issued to vFinance Investments, Inc. dated March 7, 2007 (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 4.1)
10.1		Form of Securities Purchase Agreement with investor in March 2007 private placement. (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.1)

Exhibit No.		Description
10.2		Form of Registration Rights Agreement with investors and others dated March 7, 2007 (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.4)
10.3		Joint Venture Agreement dated July 4, 2007 2006 between Xinchai Holding Group Co., Ltd and Usunco Automotive Limited in respect of Zhejiang Zhongchai Machinery Co., Ltd. (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.1)
10.4		Exclusive Distribution Agreement between Xinchai Holding Group C., Ltd and Zhejiang Zhongchai Machinery Co., Ltd., Dated as of January 28, 2007 (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.6)
10.5		Share Exchange Agreement dated March 7, 2007, among Usunco Automotive Limited and Equicap, Inc. (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.7)
10.6		Convertible Note Conversion Agreement dated March 7, 2007 with Fountainhead Capital Partners Limited (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.8)
10.7		Consulting Agreement with Fountainhead Capital Partners Limited dated March 7, 2007 (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 10.9)
14.1		Code of Ethics (Incorporated by reference from Form 8-K, Current Report, Event dated March 9, 2007, Exhibit 14.1)
21.1		Subsidiaries of Equicap, Inc. *
31.1		Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Peter Wang*
31.2		Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 –David Ming He *
32.1		Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Peter Wang *
32.2		Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – David Ming He *

* Filed herewith

b. Reports on Form 8-K.

N/A

EQUICAP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2009 AND 2008

CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets		F-3

Consolidated Statements of Operations and Comprehensive Income (Loss)		F-4

Consolidated Statements of Stockholders’ Equity		F-5

Consolidated Statements of Cash Flows		F-6

Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Equicap, Inc.

We have audited the accompanying consolidated balance sheets of Equicap, Inc. and Subsidiaries (the “Company”) as of June 30, 2009 and 2008, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Equicap, Inc. and Subsidiaries as of June 30, 2009 and 2008, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Parsippany, New Jersey

September 15, 2009

F-2

EQUICAP, INC.

Consolidated Balance Sheets

	June 30, 2009			June 30, 2008
Assets
Current assets:
Cash and cash equivalents	$	3,990,767		$	956,973
Restricted cash		315,151			-
Accounts receivable, net of allowance for doubtful accounts of $7,732 and $29,747 at June 30, 2009 and 2008, respectively		1,540,402			807,484
Inventory		1,568,445			1,186,900
Notes receivable		57,500			-
Trade notes receivable		391,155			294,686
Other receivables, net		76,491			141,496
Advance payments		2,988,235			5,059,154
Prepaid expenses		38,775			212,405

Total current assets		10,966,921			8,659,098

Property and equipment, net		2,662,924			2,511,602

Goodwill		3,407,262			3,393,307

Other assets:
Intangible assets, net		1,522			2,586
Deferred compensation		63,606			172,395
Deferred expenses		447			51,829
Total other assets		65,575			226,810

Total assets	$	17,102,682		$	14,790,817

Liabilities
Current liabilities:
Short term bank loans	$	2,197,500		$	-
Accounts payable and accrued expenses		1,562,217			851,284
Trade notes payable		315,151			-
Taxes payable		54,292			946
Other current liabilities		635,408			530,381
Total current liabilities		4,764,586			1,382,611

Total liabilities		4,764,568			1,382,611

Commitments and contingencies

Equity
Stockholders’ equity:
Common stock, $.001 par value, 500,000,000 shares authorized, 27,613,019 and 28,169,013 shares issued and outstanding at June 30, 2009 and 2008, respectively		27,613			28,169
Stock subscription receivable		(33,120	)		(32,400	)
Additional paid-in capital		16,484,097			16,516,901
Statutory reserves		124,460			62,253
Retained earnings (deficit)		(8,440,255	)		(7,245,858	)
Accumulated other comprehensive income		1,415,474			1,372,828
Total stockholders’ equity		9,578,269			10,701,893

Noncontrolling interest		2,759,845			2,706,313

Total equity		12,338,114			13,408,206

Total liabilities and equity	$	17,102,682		$	14,790,817

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

F-3

EQUICAP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

	For the Years Ended June 30,
	2009			2008

Revenue	$	4,923,918		$	3,333,325

Cost of sales		3,839,489			2,641,814

Gross profit		1,084,429			691,511

Operating expenses
Selling, general and administrative		2,048,155			1,348,102

Loss from operations		(963,726	)		(656,591	)

Other income (expense):
Interest income, net		16,145			89,326
Other income		138,697			119,527
Loss on disposal of subsidiary-IBC		(220,782	)		-
Make good provision		-			(1,419,719	)
Total other income (expenses)		(65,940	)		(1,210,866	)

Loss before provision for income taxes		(1,029,666	)		(1,867,457	)

Provision for income taxes		57,246			-

Net loss before minority interest		(1,086,912	)		(1,867,457	)

Minority interest		45,278			97,268

Net loss		(1,132,190	)		(1,964,725	)

Other comprehensive income
Foreign currency translation adjustment		42,646			1,190,651

Comprehensive loss	$	(1,089,544	)	$	(774,074	)

Loss pre common share:
Basic	$	(0.04	)	$	( 0.07	)
Diluted	$	(0.04	)	$	( 0.07	)

Weighted average number of common stock outstanding:
Basic		28,146,164			28,169,013
Diluted		28,146,164			28,169,013

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

F-4

EQUICAP, INC.

Consolidated Statements of Stockholders’ Equity

																		Accumulated
							Stock			Additional					Retained			Other		Total
	Common Stock						Subscriptions			Paid-in			Statutory		Earnings			Comprehensive		Stockholders’
	Shares			Amount			Receivable			Capital			Reserves		(Deficit)			Income		Equity

Balance June 30, 2007		28,169,013		$	28,169		$	(37,400	)	$	15,092,331		$	-	$	(5,218,880	)	$	182,177	$	10,046,397

Shareholder Contribution		-			-			5,000			-			-		-			-		5,000

Make Good		-			-			-			1,419,719			-		-			-		1,419,719

Net Loss		-			-			-			-			-		(1,964,725	)		-		(1,964,725	)

Statutory reserves		-			-			-			-			62,253		(62,253	)		-		-

Foreign Currency Translation		-			-			-			4,851			-		-			1,190,651		1,195,502

Balance June 30, 2008		28,169,013		$	28,169		$	(32,400	)	$	16,516,901		$	62,253	$	(7,245,858	)	$	1,372,828	$	10,701,893

Cancellation of common stock		(555,994	)		(556	)		-			(32,804	)		-		-			-		(33,360	)

Shareholder Contribution		-			-			(720	)		-			-		-			-		(720	)

Net Loss		-			-			-			-			-		(1,132,190	)		-		(1,132,190	)

Statutory reserves		-			-			-			-			62,207		(62,207	)		-		-

Foreign Currency Translation		-			-			-			-			-		-			42,646		42,646

Balance June 30, 2009		27,613,019		$	27,613		$	(33,120	)	$	16,484,097		$	124,460	$	(8,440,255	)	$	1,415,474	$	9,578,269

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

F-5

EQUICAP, INC.

Consolidated Statements of Cash Flows

	For the Years Ended June 30,
	2009			2008
Cash flows from operating activities:
Net loss	$	(1,132,190	)	$	(1,964,725	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Minority interest		45,278			97,268
Depreciation and amortization		215,844			129,684
Make good provision		-			1,419,719
Provision for bad debts		92,017			(26,763	)
Stock based compensation		108,789			108,789
Non-cash payments of rent		3,750			5,000
Loss on disposal of a subsidiary-IBC		390,431			-
Changes in assets and liabilities:
Accounts receivable		(1,154,135	)		103,307
Inventory		(322,261	)		(726,573	)
Trade notes receivable		(95,257	)		(278,104	)
Other receivables		64,834			4,255,394
Advance payments		2,091,724			(4,051,931	)
Prepaid expenses		68,485			(181,706	)
Deferred expenses		51,593			(48,912	)
Accounts payable and accrued expenses		838,019			(28,154	)
Trade notes payable		315,151			-
Taxes payable		54,145			(39,387	)
Other current liabilities		118,561			(312,175	)
Total adjustments		2,886,968			425,456

Net cash provided by (used in) operating activities		1,754,778			(1,539,269	)

Cash flows from investing activities:
Additions to property and equipment		(368,312	)		(409,605	)
Additions to construction in progress		-			(1,618,887	)
Loss on disposal of a subsidiary –IBC, net of cash		(178,965	)		-
Notes receivable		(57,500	)		-
Additions to intangible assets		-			(3,029	)
Acquisition of Shengte, net of cash from Shengte		-			(3,642,655	)

Net cash used in investing activities		(604,777	)		(5,674,176	)

Cash flows from financing activities:
Proceeds from short term bank loans		2,197,500			-
Proceeds from capital stock and subscriptions		-			322

Net cash provided by financing activities		2,197,500			322

Effect of foreign currency translation on cash		1,444			321,284

Net increase (decrease) in cash and cash equivalents		3,348,945			(6,891,839	)

Cash and cash equivalents and restricted cash at beginning of year		956,973			7,848,812

Cash and cash equivalents and restricted cash at end of year	$	4,305,918		$	956,973

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

F-6

EQUICAP, INC.

Notes to Consolidated Financial Statements

June 30, 2009 and 2008

Note 1 – Organization and Description of Business

Equicap, Inc. (the “Equicap” or 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.

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 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.

Note 2 – Summary of Significant Accounting Policies

Basis Of Presentation

F-7

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 Allowance for Doubtful Accounts

Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at the end of the period. Based on its assessment of the credit history with customers having outstanding balances and current relationships with them, management makes conclusions whether any realization of losses on balances outstanding at the end of the period will be deemed uncollectible based on the age of the receivables. The Company reserves 0.5% of accounts receivable balances that have been outstanding less than three months, 5% of accounts receivable balances that have been outstanding between three months and six months, 20% of accounts receivable balances that have been outstanding within one year, 50% of accounts receivable balances that have been outstanding for between one year and two years, and 100% of accounts receivable balances that have been outstanding more than two years. The balance of allowance for doubtful accounts amounted to $7,732 and $29,747 as of June 30, 2009 and 2008, respectively.

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 records a provision for loss to reduce the computed weighted-average cost if it exceeds the net realizable value. The Company did not record any provision for slow-moving and obsolete inventory as of June 30, 2009 and 2008.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated based 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.

Long-Lived Assets

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

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. All other intangible assets are amortized over their estimated useful lives. Goodwill and 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 testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. As of June 30, 2009, the Company concluded that there were no impairments of goodwill or intangible assets with indefinite lives.

F-8

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 are passed to the customers and the collectibility is reasonably assured. Revenue is recorded as the sales price of goods and services, net of rebates and discounts and is reported on a gross basis. The gross basis is used mainly due to the fact that the Company acts as principal in each transaction and is responsible for fulfillment and acceptability of the products purchased, the Company takes title to its products before the products are ordered by its customers, the Company has risk of inventory loss as title of the products is transferred to the Company, the Company is responsible for collection of sales and delivery of products, and the Company does not act as an agent or broker and is not compensated on a commission or fee basis.

Sales Returns and Warranties

Advertising Costs

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

Research and Development Costs

Research and development ("R&D) costs are classified as general and administrative expenses and are expensed as incurred. R&D costs amounted to $207,881 and $-0-, respectively, for the years ended June 30, 2009 and 2008.

Comprehensive Income (Loss)

Foreign Currency Translation and Transactions

Substantially all 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.

F-9

Recent Accounting Pronouncements

In April 2009, FSP 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly, was issued to provide additional guidance for estimating fair value in accordance with SFAS No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also provides guidance on identifying circumstances which indicate that a transaction is not orderly. FSP 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

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

In October 2008, the FASB issued FSP 157-3, Determining Fair Value of a Financial Asset in a Market That Is Not Active (“FSP 157-3”). FSP 157-3 clarifies the application of Statement of Financial Accounting Standards No. 157, Fair Value Measurements, in an inactive market. It demonstrates how the fair value of a financial asset is determined when the market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. The Company’s implementation of this standard did not impact its consolidated results of operations or financial condition.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees, an Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (“FSP FAS 133-1 and FIN 45-4”). FSP FAS133-1 and FIN 45-4 amends Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), to require disclosures by sellers of credit derivatives, including credit derivatives embedded in hybrid instruments. FSP FAS 133-1 and FIN 45-4 also amend FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others (“FIN 45”), to require additional disclosure about the current status of the payment/performance risk of a guarantee. The provisions of the FSP that amend SFAS 133 and FIN 45 are effective for reporting periods ending after November 15, 2008. FSP FAS 133-1 and FIN 45-4 also clarifies the effective date in Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS 161”). Disclosures required by SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company’s adoption of FSP FAS 133-1 and FIN 45-4 on January 1, 2009, will not impact its consolidated results of operations or financial condition.

F-10

Fair Value Of Financial Instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, investment securities, accounts receivable, accounts payable, accrued expenses and other obligations, approximate their fair value due to the short-term maturities of the related instruments.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include valuation reserves for accounts receivable, inventory and income taxes. Actual results could differ from those estimates

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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 year ended June 30, 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%.

Earnings (Loss) per Share

In accordance with SFAS No. 128, “Computation of Earnings Per Share” (“SFAS No. 128”) and EITF No. 03-6, “Participating Securities and the Two-Class Method under FASB Statement No. 128” (“EITF No. 03-6”),basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The Company’s Series A redeemable convertible preferred shares are participating securities. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary equivalent shares consist of the ordinary shares issuable upon the conversion of the convertible preferred shares (using the if-converted method) and ordinary shares issuable upon the exercise of outstanding share options (using the treasury stock method).

F-11

Note 3 – Restricted Cash

As of June 30, 2009 and 2008, the Company had $315,151 and $-0- restricted cash, respectively. These restricted cash balances are reserved for settlement of trade notes payable in connection with inventory purchases. The cash held in custody by bank issuing the trade notes payable is restricted as to withdrawal or use, and is currently earning interest.

Note 4 – Inventory

Inventory at June 30, 2009 and 2008 consists of the following:

	June 30, 2009		June 30, 2008

Gears products	$	885,559	$	574,097
Starters & alternators		-		-
Gearbox products		680,317		612,597
Other		2,569		206
Total	$	1,568,445	$	1,186,900

Note 5 – Advance Payments

Advance payments amounted to approximately $3 million as of June 30, 2009, out of which approximately $2.3 million represents an advance payment made by the Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a corporation in China, for purchase of the land use right and plant building for purpose of Zhongchai JV’s future production expansion. Zhongchai JV is currently leasing a portion of the land and building to be purchased. Total area of the land to be purchased is approximately 250,000 square feet, for a total price of approximately $3.7 million. The balance of the payment is due when the registration and transfer of title is completed.

Note 6 – Property and Equipment

Property and equipment at June 30, 2009 and 2008 consists of the following:

	June 30, 2009		June 30, 2008

Manufacturing equipment	$	2,923,420	$	784,658
Office equipment and furniture		56,597		45,537
Vehicles		62,039		61,785
Subtotal		3,042,056		891,980
Less: Accumulated depreciation		379,132		164,204
		2,662,924		727,776
Construction in progress		-		1,783,826

Total	$	2,662,924	$	2,511,602

Depreciation expenses for the years ended June 30, 2009 and 2008 were $214,770 and $129,095, respectively.

Note 7 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	June 30, 2009		June 30, 2008

Accounts payable	$	1,400,162	$	828,336
Accrued expenses		162,055		22,948

Total	$	1,562,217	$	851,284

F-12

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

Note 8 – Short Term Bank Loans

Short-term bank loans consist of the following:

	June 30, 2009		June 30, 2008
On May 25th, 2009, the Company obtained a loan from Agricultural Bank of
China, out of which the principal is to be paid in full by August 26th, 2009.The
interest is to be calculated using an annual fixed interest rate of 4.374% and paid
monthly. The loan is secured by third party.	$	776,450	$	-

On June 15th, 2009, the Company obtained a loan from Agricultural Bank of
China, out of which the principal is to be paid in full by June 16th, 2010.The
interest is to be calculated using an annual fixed interest rate of 5.31% and paid
monthly. The loan is secured by third party.		1,421,050		-

Total short-term bank loans	$	2,197,500	$	-

Note 9 – Rental Expense

The Company's U.S. office site was located in the state of California. Rental expense for the years ended June 30, 2009 and 2008 was $3,750 and $5,000, respectively. The Company’s Chinese operation is located in Hangzhou, China, and the rental expense for the years ended June 30, 2009 and 2008 was $61,007 and $34,253 respectively.

Note 10 – Supplemental Disclosure of Cash Flow Information

	For the Years Ended June 30,
	2009		2008

Interest paid	$	3,786	$	757
Income taxes paid	$	57,246	$	-

Note 11 – Supplemental Schedule of Non Cash Activities

	For the Years Ended June 30,
	2009			2008

Construction in progress reclassified to property and equipment	$	1,791,161		$	-
Return and cancellation of Equicap Common Stock	$	33,360		$	-
Cancellation of debt due from IBC	$	( 428,261	)	$	-

Note 12 – Earnings (Loss) Per Share

The Company presents earnings (loss) per share on a basic and diluted basis. Basic earnings (loss) per share have been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings (loss) per share has been computed by dividing net earnings by the weighted average number of shares outstanding including the dilutive effect of equity securities. All share and per share data have been adjusted to reflect the recapitalization of the Company after the share exchange agreement with Usunco. The weighted average number of shares calculated for Diluted EPS excludes the potential common stock that would be exercised under the options granted to employees and warrants granted to agents because the inclusion of the potential shares from these options and warrants would cause an antidilutive effect by reducing the net loss per share.

F-13

	June 30, 2009			June 30, 2008

Net loss	$	(1,132,190	)	$	(1,964,725	)

Weighted average common shares (denominator for basic loss per share)		28,146,164			28,169,013

Effect of diluted securities:		-			-

Weighted average common shares (denominator for diluted loss per share)		28,146,164			28,169,013

Basic net loss per share	$	(0.04	)	$	(0.07	)
Diluted net loss per share	$	(0.04	)	$	(0.07	)

Note 13 – Major Customers and Suppliers

The Company had two major customers, BBB/OCA and World Pac, who accounted for approximately 73% and 12%, respectively, of the Company's net revenue of the auto parts segment for the year ended June 30, 2009. For the gear segment, two customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd. accounted for 69% and 17%, respectively, of the net revenue in China, for the year ended June 30, 2009. These four customers accounted for 16%, 3%, 54% and 13%, respectively, of the Company’s consolidated revenue for the year ended June 30, 2009.

The Company had three major suppliers, Wuxi Susun Auto Parts Co., Ltd., Zhejiang Boyu Industrial Co., Ltd, and Pico who provided approximately 45%, 25%, and 7%, respectively of the Company's purchases of the auto parts segment for the year ended June 30, 2009. For the gear segment, 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 32%, 13%, 5% and 4%, respectively of the total purchases, for the year ended June 30, 2009. These seven suppliers accounted for 11%, 6%, 2%, 24%, 10%, 4% and 3%, respectively, of the Company’s consolidated purchases for the year ended June 30, 2009.

Note 14 – Deferred Compensation

As described in Note 18 (“Stock-based Compensation), the Company granted options to employees and warrants to the private placement agent. Following SFAS No. 123R, the Company recognizes expenses on the fair value of the options and warrants. Deferred compensation represents stock-based compensation that will be expensed in future periods based on the vesting time of such options and warrants.

Note 15 – Stock Authorization and Issuance

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

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

F-14

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

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

Note 16 – Disposal of a Subsidiary - IBC

On June 8, 2009, the Company, with its wholly owned subsidiary Usunco, entered into an agreement to sell IBC, the wholly owned subsidiary of Usunco. The transaction was closed on June 15, 2009.

The automotive parts distribution business of the Company in the United States was carried out through IBC. IBC was sold because it no longer fitted the overall business strategy of focusing on the development and manufacture of gears and gearboxes for use primarily in diesel engines for industrial and agricultural industries in China and the expansion opportunities that exist in the Chinese and Asian markets for those and similar products. Additionally, IBC no longer represented a significant amount of the assets or gross revenues of the Company.

The sale agreement provided for the sale of all the shares of equity of IBC owned by Usunco to the current top management persons of IBC, Mr. Philip Widmann and Ms. Ruth Kirshner, in exchange for the following: (i) the cancellation of an aggregate of 555,994 shares of common stock of Company which those individuals currently own, 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 on 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.

The agreement provides for various standard representations about the operations of the respective companies as of the signing and closing dates. There are no substantive continuing covenants binding either party.

The Company recognized a loss of $220,782 on the disposal of IBC. Such charge was treated as an unusual item since it is deemed to be unusual in nature or would be infrequent in occurrence.

Note 17 – Segment Reporting

The Company’s reporting segments have been determined based on the geographic location of their operations and meanwhile the nature of the products offered to customers. The North America/Auto Parts Segment, represented by the 100% owned subsidiary of IBC Automotive Products, Inc. headquartered in California, USA, focuses on sourcing automotive parts and products from the China and distributing them in North America and other regions. The China/Gear Segment, represented by the 75% owned subsidiary Zhejiang ZhongChai Machinery Co., Ltd. in Hangzhou, China, currently focuses on manufacturing and distribution of gears and gearboxes, for the industrial equipment markets in China. As described in Note 16, the Company sold IBC in June 2009 as it no longer fits the overall business strategy of the Company.

F-15

The accounting policies of the segments are the same as those described in Note 2 Summary of Significant Accounting Policies. Segment operating results evaluate earnings before corporate and unallocated shared expenses, amortization of intangible assets, gain or loss on sale of assets, net interest income, income tax benefits and minority interests. Intersegment and intergeographic sales, if any, are accounted for on an arm’s length pricing basis. There were no intersegment sales for the years ended June 30, 2009 and 2008

	For the Years ended June 30,
Segment revenues	2009		2008
North America/Auto Parts	$	1,094,028	$	778,838

China/Gear		3,829,890		2,554,487
	$	4,923,918	$	3,333,325

	For the Years ended June 30,
Segment operating earnings (loss)	2009			2008
North America/Auto Parts	$	( 55,445	)	$	( 97,754	)

China/Gear		87,243			230,959

Corporate and Elimination		(995,524	)		(789,796	)
	$	( 963,726	)	$	( 656,591	)

	For the Years ended June 30,
Depreciation expense	2009		2008
North America/Auto Parts	$	517	$	-

China/Gear		214,158		129,095

Corporate and Elimination		95		-
	$	214,770	$	129,095

	For the Years ended June 30,
Segment identifiable assets	2009		2008
North America/Auto Parts	$	-	$	451,240

China/Gear		17,080,740		13,650,982

Corporate and Elimination		21,942		688,595
	$	17,102,682	$	14,790,817

Note 18 – Stock-Based Compensation

As of June 30, 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 year ended June 30, 2009, the Company recorded approximately $108,789 of stock-based compensation based on the fair value method of SFAS. No.123R using the assumptions noted in the following tables.

F-16

For Employee Options:
Dividend Yield		0	%
Expected Volatility		34.94	%
Risk-Free Interest Rate		4.63	%
Contractual Term	5 years
Evaluated Stock Price at Date of Grant		1.30
Exercise Price		1.065

For Agent Warrants:
Dividend Yield		0	%
Expected Volatility		34.94	%
Risk-Free Interest Rate		4.63	%
Contractual Term	5 years
Evaluated Stock Price at Date of Grant		1.30
Exercise Price		1.065
Exercised		0	%

A summary of the employee stock option activity for the fiscal years ended June 30, 2009 and 2008 is set forth below:

			Weighted
	Number of		Average
	Options		Exercise Price

Outstanding at June 30, 2007		366,550	$	1.065

Granted		-		-

Exercised		-		-
Canceled / Expired		-		-

Outstanding at June 30, 2008		366,550	$	1.065

Granted		-		-

Exercised		-		-
Canceled / Expired		-		-

Outstanding at June 30, 2009		366,550	$	1.065

Exercisable at June 30, 2009		295,276	$	1.065

The per share weighted average remaining life of the options outstanding at June 30, 2009 and 2008 is 3.6 and 2.6 years, respectively.

Note 19 – 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.

F-17

Note 20 – Statutory Reserve

Under PRC law, our subsidiaries in PRC are required to set aside 10% of its net income each year to fund a designated statutory reserve fund until such funds reach 50% of registered share capital. These reserves are not distributable as cash dividends. The Company provided the statutory surplus reserve of $124,460 and $62,253 for the years ended June 30, 2009 and 2008, respectively.

Note 21 – 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 or infrequent in occurrence.

Note 22 – 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 sought 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 Company and Mr. Wang denied any wrongdoing and have defended the action.

Note 23 – Reclassification of Prior Year Retained Earnings (Deficit)

As per the laws of the People’s Republic of China, the Company is required to allocate 10% of its net income each year to fund a designated statutory reserve fund. The Company has reclassified an amount of $62,253 to the statutory reserve from the retained earnings of June 30, 2008. This reclassification has no effect on the net income and the earnings per share. A reconciliation of the retained earnings of June 30, 2008 after reclassification is presented as follows:

F-18

	Retained Earnings
	(Deficit)			Statutory Reserves

Balance at June 30, 2008	$	(7,183,605	)	$	-

Reclassification to statutory reserve for the year ended June 30, 2008		(62,253	)		62,253

Adjusted balance at June 30, 2008	$	(7,245,858	)	$	62,253

Note 24 – Subsequent Events

In July 2009, the Company and Mr. Peter Wang agreed upon the terms of a settlement agreement to the investor law suit filed November 6, 2008. The settlement agreement 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 settlement agreement was consummated on July 31, 2009. The action was discontinued with prejudice by stipulation among all the parties which was signed and filed on July 31, 2009, and the stipulation was "so 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.

F-19

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereunto duly authorized on September 21, 2009.

	EQUICAP, INC.

	By:	/s/ Peter Wang
		Peter Wang
		President

In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.

Signature	Capacities	Date

/s/ Peter Wang	Chairman and President (Principal	September 21, 2009
Peter Wang	Executive Officer)

/s/ David Ming He	Chief Financial Officer (Principal	September 21, 2009
David Ming He	Financial and Accounting Officer)

/s/ Haining Liu	Director	September 21, 2009
Haining Liu