10QSB

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

x QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission file number: 000-31091

Equicap, Inc. 

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

Nevada	33-0652593
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification number)

10510 Hillsboro Road Santa Ana, California	92705
(Address of principal executive offices)	(Zip Code)

Issuer’s telephone number: (904) 507-4937

Not Applicable

(Former name, former address and former

fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 ýNo o

Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 28,169,013 shares of common stock, par value $.001 per share, outstanding as of May 7, 2008.

Transitional Small Business Disclosure Format (Check one):YES o NO x

EQUICAP, INC.

- INDEX -

		Page
PART I – FINANCIAL INFORMATION:
Item 1.	Financial Statements	1
	Consolidated Balance Sheet as of March 31, 2008 (unaudited)	2
	Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2008 and 2007 (unaudited)	3
	Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2008 and 2007 (unaudited)	5
	Notes to Consolidated Financial Statements, March 31, 2008 and 2007	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3A(T).	Controls and Procedures	20
PART II – OTHER INFORMATION:
Item 1.	Legal Proceedings	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Submission of Matters to a Vote of Security Holders	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
Signatures		22

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Statements made in this Form 10-QSB (the “Quarterly Report”) that are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “approximate”, or “continue”, or the negative thereof. Equicap, Inc. (the “Company”) intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. These factors include our current dependence on a limited number of products and customers, the shift in focus of our business, the demand for our products, pricing pressures on our products caused by demand and competition, delivery deadlines, customer satisfaction, our ability to generate sales and expand our customer base, warranty obligations and claims, operating a portion of our business in the Peoples Republic of China, currency controls and exchange rate exposure, and the other risk factors discussed in our reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.

1

EQUICAP, INC.

CONSOLIDATED BALANCE SHEET

MARCH 31, 2008

(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,249,268
Accounts receivable, net of allowance of $233,033		627,141
Inventory		937,114
Other receivables, net of allowance of $37,131		1,411,392
Advance payments		3,546,748
Prepaid expenses		59,113
Notes receivable		270,106
Total Current Assets		8,100,882
PROPERTY AND EQUIPMENT, NET		2,514,792
GOODWILL		3,321,208
OTHER ASSETS
Intangible assets		2,793
Deferred compensation		199,592
Other deferred assets		1,299
Total Other Assets		203,684
Total Assets	$	14,140,566
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	655,231
Taxes payable		40,034
Other payables		431,310
Total Current Liabilities		1,126,575
MINORITY INTEREST		2,668,512
COMITTMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY
Preferred stock, $.001 par value, 10,000,000 shares authorized, -0- shares issued and outstanding		-
Common stock, $.001 par value, 100,000,000 shares authorized, 28,169,013 shares issued and outstanding		28,169
Additional paid-in capital		15,063,532
Accumulated deficit		(5,878,586	)
Accumulated other comprehensive income		1,132,364
Total Stockholders’ Equity		10,345,479
Total Liabilities and Stockholders’ Equity	$	14,140,566

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

2

EQUICAP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For Three Months Ended
	March 31,
	2008			2007
REVENUE	$	968,914		$	491,981
COST OF SALES		786,371			436,637
GROSS PROFIT		182,543			55,344
OPERATING EXPENSES
Selling, general and administrative		365,657			990,236
LOSS FROM OPERATIONS		(183,114	)		(934,892	)
OTHER INCOME (EXPENSE)
Interest income (expense)		7,154			-
Other income (expense), net		55,432			(1,073	)
Total other income (expense)		62,586			(1,073	)
LOSS BEFORE PROVISION FOR INCOME TAX		(120,528	)		(935,965	)
PROVISION FOR INCOME TAX		-			825
NET LOSS BEFORE MINORITY INTEREST		(120,528	)		(936,790	)
MINORITY INTEREST		19,900			-
NET LOSS		(140,428	)		(936,790	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment		471,505			17,697
COMPREHENSIVE INCOME (LOSS)	$	331,077		$	(919,093	)
LOSS PER COMMON SHARE
Basic	$	(0.00	)	$	(0.04	)
Diluted	$	(0.00	)	$	(0.04	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK
Basic		28,169,013			20,839,906
Diluted		28,169,013			20,839,906

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

3

EQUICAP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

	For Nine Months Ended
	March 31,
	2008			2007
REVENUE	$	2,443,500		$	1,206,077
COST OF SALES		1,928,981			1,100,715
GROSS PROFIT		514,519			105,362
OPERATING EXPENSES
Selling, general and administrative		1,201,624			1,108,588
LOSS FROM OPERATIONS		(687,105	)		(1,003,226	)
OTHER INCOME (EXPENSE)
Interest income		85,189			-
Other income (expense), net		26,440			(1,073	)
Total other income (expense)		111,629			(1,073	)
LOSS BEFORE PROVISION FOR INCOME TAX		(575,476	)		(1,004,299	)
PROVISION FOR INCOME TAX		-			825
NET LOSS BEFORE MINORITY INTEREST		(575,476	)		(1,005,124	)
MINORITY INTEREST		59,467			-
NET LOSS		(634,943	)		(1,005,124	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment		950,187			17,697
COMPREHENSIVE INCOME (LOSS)	$	315,244		$	(987,427	)
LOSS PER COMMON SHARE
Basic	$	(0.02	)	$	(0.05	)
Diluted	$	(0.02	)	$	(0.05	)
WEIGHTED AVERAGE SHARES OF COMMON STOCK
Basic		28,169,013			19,568,101
Diluted		28,169,013			19,568,101

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

4

EQUICAP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For Nine Months Ended
	March 31,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	( 634,943	)	$	( 1,005,124	)
Adjustments to reconcile net loss to net cash used by operating activities:
Non cash note conversion cost					897,131
Share-based compensation		81,592			17,987
Minority interest		59,467			-
Depreciation and amortization		73,313			-
Allowance for bad debts		212,391			(5,246	)
Non-cash payments of rent		3,750			3150
Changes in assets and liabilities:
Accounts receivable		54,140			121,518
Inventory		(501,710	)		59,395
Other receivables		2,957,982			-
Advance payments		(2,657,134	)		-
Prepaid expenses		(27,625	)		-
Trade note receivable		(256,563	)		-
Other deferred assets		(1,234	)		-
Accounts payable and accrued expenses		(201,770	)		143,431
Taxes payable		(293	)		-
Other payables		(406,868	)		7,346
Due to shareholders		-			8,466
Total Adjustments		(610,562	)		1,253,178
Net Cash Used By Operating Activities		(1,245,505	)		(248,054	)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment		(367,657	)		-
Additions to construction in progress		(1,630,161	)		-
Additions to intangible		(2,984	)		-
Acquisition of Shengte, net of cash from Shengte		(3,584,960	)		-
Net Cash Used By Investing Activities		(5,585,762	)		-
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from private placement		-			9,876,306
Proceeds from minority investment		-			2,600,000
Net Cash Provided By Financing Activities		-			12,476,306
EFFECT OF FOREIGN CURRENCY CONVERSION ON CASH		231,723			17,697
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(6,599,544	)		12,742,057
CASH AND CASH EQUIVALENTS -BEGINNING		7,848,812			129,798
CASH AND CASH EQUIVALENTS -ENDING	$	1,249,268		$	12,871,855
SUPPLEMENTAL INFORMATION:
CASH PAID FOR INCOME TAXES	$	-		$	-
CASH PAID FOR INTEREST	$	747		$	-

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

5

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND DESCRIPTION OF BUSINESS

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

BASIS OF PRESENTATION

The Company’s Consolidated Financial Statements include the accounts of its direct wholly-owned subsidiaries and its indirect proportionate share of subsidiaries owned by the wholly-owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with GAAP applicable to interim financial information and with the requirements of Form 10-QSB and Item 310 of Regulation S-B of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

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

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

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

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

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. All other intangible assets are amortized over their estimated useful lives. Goodwill and indefinite-lived intangible assets are subject to annual impairment testing using the guidance and criteria described in Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets”. This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. As of March 31, 2008, the Company concluded that there were no impairments on goodwill or indefinite-lived intangibles.

6

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 2 – INTERIM FINANCIAL STATEMENTS

These interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended June 30, 2007, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended June 30, 2007.

NOTE 3 – EARNINGS (LOSS) PER SHARE

The Company presents earnings (loss) per share on a basic and diluted basis. Basic earnings (loss) per share have been computed by dividing net earnings by the weighted average number of 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. (See Note 11).

	Three Months Ended March 31, 2008								Nine Months Ended March 31, 2008
	Net Income (Loss)			Shares		Per Share			Net Income (Loss)			Shares		Per Share
Loss from operations	$	(183,114	)		28,169,013	$	(0.01	)	$	(687,105	)		28,169,013	$	(0.02	)
Basic EPS	$	(140,428	)		28,169,013	$	( -	)	$	(634,943	)		28,169,013	$	(0.02	)
Effect of dilutive securities		-			-		-			-			-		-
Diluted EPS	$	(140,428	)		28,169,013	$	( -	)	$	(634,943	)		28,169,013	$	(0.02	)

	Three Months Ended March 31, 2007								Nine Months Ended March 31, 2007
	Net Income (Loss)			Shares		Per Share			Net Income (Loss)			Shares		Per Share
Loss from operations	$	(934,892	)		20,839,906	$	(0.05	)	$	(1,003,226	)		19,568,101	$	(0.05	)
Basic EPS	$	(936,790	)		20,839,906	$	(0.04	)	$	(1,005,124	)		19,568,101	$	(0.05	)
Effect of dilutive securities		-			-		-			-			-		-
Diluted EPS	$	(936,790	)		20,839,906	$	(0.04	)	$	(1,005,124	)		19,568,101	$	(0.05	)

NOTE 4 – INVENTORY

Inventory at March 31, 2008 consisted of the following:

Gears products	$	506,990
Transmission products		429,964
Others		160
Total	$	937,114

7

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 5 – ADVANCE PAYMENTS

Advance payments amounted to approximately $3.55 million as of March 31, 2008, which represent a deposit that Zhongchai placed with Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a corporation in China, to secure Zhongchai's exclusive right to acquire 100% interest of a project from Xinchai Holdings within twelve months starting Oct. 15, 2007. The project is located in Hangzhou, Zhejiang Province, China, for assembly of advanced diesel engines, engine components and related products. The project is currently in the process of obtaining land, approval, and final registration. Zhongchai will be entitled to a refund of the full deposit amount in case the project is not completed or Zhongchai decides not to pursue the transaction within the twelve-month period. The Company expects to enter into a definitive agreement after completion of due diligence and final establishment of the operations.

NOTE 6 – RENTAL EXPENSE

The Company's U.S. office site is located in the state of California. Rental expense for the three months ended March 31, 2008 and 2007 was $1,250 and $1,050, respectively. Rental expense for the nine months ended March 31, 2008 and 2007 was $3,750 and $3,150 respectively. The Company’s Chinese operations are located in Hangzhou, China, and the rental expense for three months ended March 31, 2008 and 2007 was $3,921 and $5,274, respectively. The rental expense for nine months ended March 31, 2008 and 2007 was $25,157 and $10,451, respectively.

NOTE 7 – SIGNIFICANT CUSTOMERS AND SUPPLIERS

For the auto parts segment, four major customers, BBB-OCA, Sankaku Auto Parts Co., Ltd, IAP and JNS TSUSHO Corporation, accounted for 69%, 14%, 9% and 8%, respectively, of the net revenue of auto parts in North America for the three months ended March 31, 2008. For the gear segment, one customer, Zhejiang Xinchai Stock Co., Ltd., accounted for 100% of the net revenue in China, for the three months ended March 31, 2008. These five customers accounted for 26%, 5%, 5%, 3% and 62%, respectively, of the Company’s consolidated revenue for the three months ended March 31, 2008. For the nine months ended March 31, 2008, three major customers, BBB-OCA, JNS TSUSHO Corporation and Ltd/Visteon, accounted for approximately 33%, 28% and 27% of the net revenue of auto parts in North America; and two customers, Zhejiang Xinchai Stock Co., Ltd. and Zhejiang Xinchai Power Co., Ltd., accounted for 89% and 11%, respectively, of the net revenue in China. These five customers accounted for 10%, 9%, 9%, 60% and 7%, respectively, of the Company’s consolidated revenue for the nine months ended March 31, 2008.

For the auto parts segment, three major suppliers, Zhejiang Boyu Industrial Co., LTD, Wuzi Susun Autoparts Co., Ltd and Fittswell (Hong Kong) Industries Co., Ltd provided 36%, 27% and 8%, respectively, of the Company's purchases of the auto parts in North America for the three months ended March 31, 2008. For the gear segment, three major suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and Xinchang Zhaofeng Machinery Co., Ltd. accounted for approximately 22%, 18% and 8%, of the total purchases in China for the three months ended March 31, 2008. These six suppliers accounted for 14%, 13%, 3%, 22%, 18% and 8%, respectively, of the Company’s consolidated purchases for the three months ended March 31, 2008. For the nine months ended March 31, 2008, three major suppliers, Zhejiang Yongkang Boyu, Fittswell (Hong Kong) Industries Co., Ltd and Wuxi Susun provided approximately 38%, 26% and 23%, respectively of the Company's purchases of the auto parts in North America; and three major suppliers, Zhejiang Yuyang Machinery Co., Ltd., Changzhou No. 2 Gears Co., Ltd., and Xinchang Zhaofeng Machinery Co., Ltd., accounted for approximately 34%, 17% and 7%, of the total purchases in China. These six suppliers accounted for 11%, 8%, 7%, 24%, 12% and 5%, respectively, of the Company’s consolidated purchases for the nine months ended March 31, 2008.

8

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 8 – DEFERRED COMPENSATION

As described in Note 11 (“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 9 – SEGMENT REPORTING

The Company’s reporting segments have been determined based on the geographic location of their operations and the nature of the products offered to customers. The North America/Auto Parts Segment, represented by the 100% owned subsidiary, IBC Automotive Products, Inc. headquartered in California, USA, focuses on sourcing automotive parts and products from China and distributing them in North America and other regions. The China/ Gear Segment, represented by the 75% owned subsidiary Zhejiang ZhongChai Machinery Co., Ltd. in Hangzhou, China, currently focuses on distribution of mid-sized diesel engines and engine related products, such as gears, for the industrial and agricultural equipment markets in China.

The accounting policies of the segments are the same as those described in Note 1 Summary of Significant Accounting Policies. Segment operating results evaluate earnings before corporate and unallocated shared expenses, amortization of intangible assets, gain or loss on sale of assets, net interest income, income tax benefits and minority interests. Intersegment and intergeographic sales, if any, are accounted for on an arm’s length pricing basis. There were no Intersegment sales for the three and nine months ended March 31, 2008 and 2007.

	Three months ended March 31,				Nine months ended March 31,
Segment revenues	2008		2007		2008		2007
North America/Auto Parts	$	369,515	$	491,981	$	788,942	$	1,206,077
China/ Gear	$	599,399	$	-	$	1,654,558	$	-
Corporate and Elimination	$	-	$	-			$	-
Consolidated	$	968,914	$	491,981	$	2,443,500	$	1,206,077

	Three months ended March 31,						Nine months ended March 31,
Segment operating earnings (loss)	2008			2007			2008			2007
North America/Auto Parts	$	( 4, 063	)	$	(934,892	)	$	(251,127	)	$	(1,003,226	)
China/ Gear	$	22,366		$	-		$	126,748		$	-
Corporate and Elimination	$	(201,417	)	$	-		$	(562,726	)	$	-
Consolidated	$	(183,114	)	$	(934,892	)	$	(687,105	)	$	(1,003,226	)

9

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 9 – SEGMENT REPORTING (continued)

	Three months ended March 31,				Nine months ended March 31,
Depreciation expense	2008		2007		2008		2007
North America/Auto Parts	$	-	$	-	$	-	$	-
China/ Gear	$	40,326	$	-	$	73,313	$	-
Corporate and Elimination	$	-	$	-	$	-	$	-
Consolidated	$	40,326	$	-	$	73,313	$	-

	As of March 31,
Segment identifiable assets	2008		2007
North America/Auto Parts	$	342,544	$	13,478,097
China/ Gear	$	12,996,254	$	-
Corporate and Elimination	$	801,768	$	-
Consolidated	$	14,140,566	$	13,478,097

NOTE 10 – STOCK AUTHORIZATION AND ISSUANCE

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

The Company has a registration payment arrangement with regard to the common stock issued in the private offering. The Company was required to file a registration statement within 45 days of closing and cause the registration statement to become effective on or prior to 150 days after the closing date. 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 any portion of a 30-day period of a Registration Default. 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. The Company paid $32,000 in respect of the penalty, to date, because the registration statement was not timely declared effective.

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.

10

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 11 – STOCK-BASED COMPENSATION

As of March 31, 2008, there are outstanding 366,550 options to employees (“Employee Options”) and 422,535 warrants (“Agent Warrants”) to the private placement agent. Both the Employee Options and Agent Warrants vest over three years and have a life of five years. For the three and nine months ended March 31, 2008, the Company recorded approximately $27,197 and $81,592, respectively, of stock-based compensation based on the fair value method of SFAS. N0. 123R using the following assumptions: Volatility of 34.94%, risk free interest rate of 4.63%, dividend yield of 0%, and expected life of 5 years. No estimate of forfeitures was made as the Company has a short history of granting options.

The fair value of the options and warrants was determined based on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock-based compensation was determined using the Black-Scholes model.

NOTE 12 – COMITTMENTS AND CONTINGENCIES

In connection with the Offering, for the benefit of the investors, eight of the former shareholders of Usunco, some of whom are the officers and directors of Equicap, have agreed to place into escrow an aggregate of 10,140,846 shares of common stock issued in the Share Exchange. The placing of shares by the former shareholders of Usunco into escrow was tantamount to a reverse stock split followed by the grant of a restricted stock award. If the consolidated financial statements of Equicap for the fiscal year ending June 30, 2007, prepared in accordance with United States generally accepted accounting principles, consistently applied, reflect either (i) less than $2,320,000 of after-tax net income or (ii) earnings before income tax provision and before minority interest of less than $3,200,000, then 3,042,254 shares of common stock in escrow will be distributed to the investors on a pro rata basis for no additional consideration. The Company did not satisfy the condition and these shares have been distributed. According to the Registration Rights Agreement, the Company filed a registration statement for such 3,042,254 shares distributed to the investors, and the registration statement was declared effective on December 21, 2007.

If either (i) the earnings per share reported in the Annual Report on Form 10-KSB of Equicap for the fiscal year ending June 30, 2008 is less than $0.343 on a fully diluted basis (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions), (ii) the earnings per share before income tax provision and before minority interest reported in the Annual Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008, is less than $0.446 on a fully diluted basis (as equitably adjusted for any stock splits, stock combinations, stock dividends or similar transactions), (iii) the after tax net income reported in the Annual Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008, is less than $10,000,000, or (iv) the earnings before income tax provision and before minority interest reported in the Annual Report on Form 10-KSB of the company for the fiscal year ending June 30, 2008, is less than $13,020,000, then 7,098,592 shares of common stock in escrow will be distributed to the investors on a pro rata basis for no additional consideration. Any shares not distributed to the investors will be released to the persons who placed them in escrow. Any make good shares issued to the investors will be subject to the registration rights under the Registration Rights Agreement.

11

EQUICAP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2008 AND 2007

(UNAUDITED)

NOTE 12 – COMITTMENTS AND CONTINGENCIES (continued)

According to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s), if the performance criteria are not met these shares will be released to the investors and treated as an expense for the amount of the market value of the shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based Compensation, if the performance criteria are met, the shares will be released back to the former shareholders of Usunco and treated as an expense for the amount of the market value of the shares as of the date of release. Based upon the market price of $1.00 per share of common stock as of June 30, 2007, the total expense recognized for the fiscal year of 2007 was $3,954,930. Based upon the current market price of $0.20 per share, the potential impact of the release of shares upon the financial statements is estimated to be approximately $1.4 million for the fiscal year of 2008. Such expense is treated as an unusual item since it is deemed to be unusual in nature but may not be infrequent in occurrence. This recognition of expense will not occur if the shares are forfeited or cancelled and are not released to either the investors or the former shareholders of Usunco.

NOTE 13 – SUBSEQUENT EVENTS

None.

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

Equicap, Inc. (“Equicap”) does business through its subsidiary, Usunco Automotive Limited (“Usunco”) which in turn operates through IBC Automotive Products, Inc. (“IBC”), its wholly-owned subsidiary established under the laws of the State of California (the “North America/Auto Parts Segment”), and through Zhejiang ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture established under the laws of the People’s Republic of China (the “PRC” or “China”) and Zhejiang Shengte Transmission Co., Ltd.(“Shengte”) a company established under the laws of the PRC and wholly owned by ZhongChai JV (the “China/Gear Segment”). Through its operating subsidiaries, the company is engaged in the manufacturing and distribution of industrial equipment and automotive parts and components, such as gears, transmissions, starters, alternators, and emission control devices that are marketed and sold primarily in China and North America.

Because of market conditions and operational difficulties relating to the sale of diesel engines in the PRC, the company has shifted its business focus away from the sale of diesel engines to that of industrial equipment and automotive parts and components.

Company Background

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

Share Exchange

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

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

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

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

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

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Conversion of Convertible Note of Equicap

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

Private Placement Offering

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

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

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

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The former principal shareholders of Equicap who have piggy-back rights also have a demand registration right after all the shares of the investors and vFinance have either been sold or may be sold without limitation under Rule 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.

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

Results of Operations

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

Revenue

Revenue increased by $476,933 or 97% to $968,914 for the three months ended March 31, 2008 compared with $491,981 for the three months ended March 31, 2007. Revenue for the three months ended March 31, 2008, consists of sales of automotive parts in North America and sales of gears and transmissions in China, for $369,515 and $599,399, respectively. All sales revenue for the three months ended March 31, 2007 were generated by its IBC subsidiary, from distribution of starters and alternators.

Cost of Sales and Gross Margin

Cost of sales was $786,371 for the three months ended March 31, 2008, increasing by $349,734 or 80%, from $436,637 for the three months ended March 31, 2007. The gross margin was approximately 19% for the three months ended March 31, 2008, compared to approximately 11% for the three months ended March 31, 2007. The improvement in overall gross margin for the quarter ended March 31, 2008, compared with same period last year, was because of the higher margin from manufacturing business by China/Gear Segment.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consisted primarily of labor costs and overhead costs for sales, marketing, finance, legal, human resources and general management. Such costs also include the expenses recognized for stock-based compensation pursuant to FAS 123(R).

SG&A expenses decreased by $624,579 to $365,657 in the three months ended March 31, 2008, from $990,236 in three months ended March 31, 2007. Included in SG&A for the three months ended March 31, 2007 was a non-cash expense of $897,131 recognized for conversion of the outstanding principal and accrued interest of convertible note for amount of approximately $100,000 by Fountainhead Capital Partners Limited into 702,132 shares of common stock of the Company at a 90% discount from the $1.42 per share price that the Company received for the sale of common stock in a private placement transaction closed concurrent with the conversion. Without taking into account the expense of the note conversion, SG&A increased comparatively for the current period over the same period in the prior fiscal year as a results of the costs related to being a public company, including professional services related to auditing, legal and other services, costs associated with the new recruitments and operating expenses in China, and non-cash expenses amounting to $27,197 recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R).

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Net Loss

Net loss reached $140,428 in three months ended March 31, 2008, compared with net loss of $936,790 in the three months ended March 31, 2007. The net loss was mainly attributed to the increase in general and administrative expenses (except the note conversion expense recognized as mention above), comprised of costs related to being a public company including professional services related to auditing, legal and other services, costs associated with the new recruitments and operating expenses in China, and non-cash expenses recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R).

Nine Months Ended March 31, 2008 Compared to Nine Months Ended March 31, 2007

Revenue

Revenue increased by $1,237,423 or 103% to $2,443,500 for the nine months ended March 31, 2008 compared with $1,206,077 for the nine months ended March 31, 2007. Revenue for the nine months ended March 31, 2008, consists of sales of automotive parts in North America and sales of gears and transmissions in China, for $788,942 and $1,654,558, respectively. All sales revenue for the nine months ended March 31, 2007 were generated by its IBC subsidiary from distribution of starters and alternators.

Cost of Sales and Gross Margin

Cost of sales was $1,928,981 for the nine months ended March 31, 2008, increasing by $828,266 or 75%, from $1,100,715 for the nine months ended March 31, 2007. The gross margin was approximately 21% for the nine months ended March 31, 2008, compared to approximately 9% for the nine months ended March 31, 2007. The improvement in overall gross margin for the nine months ended March 31, 2008, compared with same period last year, was because of the higher margin from manufacturing business by China/Gear Segment.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consisted primarily of labor costs and overhead costs for sales, marketing, finance, legal, human resources and general management. Such costs also include the expenses recognized for stock-based compensation pursuant to FAS 123(R).

SG&A expenses increased by $93,036 to $1,201,624 in the nine months ended March 31, 2008, from $1,108,588 in nine months ended March 31, 2007. Included in SG&A for the three months ended March 31, 2007 was a non-cash expense of $897,131 recognized for conversion of the outstanding principal and accrued interest of convertible note for amount of approximately $100,000 by Fountainhead Capital Partners Limited into 702,132 shares of common stock of the Company at a 90% discount from the $1.42 per share price that the Company received for the sale of common stock in a private placement transaction closed concurrent with the conversion. The increase in SG&A was mainly attributable to the increase in costs related to being a public company, including professional services related to auditing, legal and other services, costs associated with the new recruitments and operating expenses in China, a special provision of bad debt allowance for amount of $215,103 owing to management’s expectation of non-collection of amounts due from one particular customer of IBC, and non-cash expenses amounting to $81,592 recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R).

16

Net Loss

Net loss reached $634,943 in nine months ended March 31, 2008, compared with net loss of $1,005,124 in the nine months ended March 31, 2007. The net loss was mainly attributed to the increase in general and administrative expenses (except the note conversion expense recognized as mention above), comprised of costs related to being a public company including professional services related to auditing, legal and other services, costs associated with the new recruitments and operating expenses in China, a special bad debt allowance provision, and non-cash expenses recognized for stock based compensation related to stock options and warrants granted in the period pursuant to SFAS 123(R).

Potential Impact on Future Results from Make Good Arrangement

As elaborated in the section “Share Exchange and Private Placement”, 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, agreed to place into escrow an aggregate of 10,140,846 shares of common stock issued in the Share Exchange. If the consolidated financial statements of Equicap for the fiscal year ending June 30, 2008, prepared in accordance with United States generally accepted accounting principles, consistently applied, do not meet certain performance criteria, then 7,098,592 shares of common stock in escrow will be distributed to the investors on a pro rata basis for no additional consideration. Any shares not distributed to the investors will be released to the persons who placed them in escrow.

According to SAB 79, Accounting for Expenses or Liabilities by Principal Stockholder(s), if the performance criteria are not met these shares will be released to the investors and treated as an expense for the amount of the market value of the shares as of the date of release. Per SFAS No. 123R, Accounting for Stock-Based Compensation, if the performance criteria are met, the shares will be released back to the former shareholders of Usunco and treated as an expense for the amount of the market value of the shares as of the date of release. Therefore, whether or not such performance criteria are met, based upon the current market value of $0.20, the potential impact of the release of shares (either to the investors or back to the former Usunco shareholders) upon the financial statements is estimated to be approximately $1.4 million for fiscal year 2008. This recognition of expense will not occur if the shares are forfeited or cancelled and are not released to either the investors or the former shareholders of Usunco.

Liquidity and Capital Resources

As of March 31, 2008, Equicap had current assets equal to $8,100,882 which primarily were comprised of cash and cash equivalents of $ 1,249,268, inventory of $937,114 and net trade receivables and other receivables of $2,038,533. Equicap’s current liabilities as of March 31, 2008 were $1,126,575, which primarily were comprised of trade accounts payable, accrued expenses, taxes payable and other payables. At March 31, 2008, Equicap had working capital of $6,974,307. Equicap believes that it has sufficient operating capital for its current operations.

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

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

Subsequent to the fiscal year end of June 30, 2007, 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 and transmissions systems mainly used with diesel engines for industrial and agricultural machinery. We expect that future cash flows generated from the operation of gears business will be sufficient to cover Shengte’s working capital requirements.

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Also subsequent to the fiscal year end of the June 30, 2007 quarter, Equicap did not have the registration statement declared effective within the time period specified in the registration rights agreement for the March 2007 offering. As a result Equicap was obligated to pay the liquidated damage amount provided in the agreement to the investors which was an aggregate of $32,000. The maximum amount of liquidated damages is 10% of the amount paid for the common stock purchased by the investors.

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

From time to time since the Share Exchange, some of the private placement investors have sought to end their investment in the company through a repurchase. There have been discussions about the company liquidating assets or obtaining capital to orchestrate a buy back of the investors’ shares of common stock, at a price and on terms to be negotiated. Alternatively, there have been discussions about arranging a sale of the investors’ shares to other investors. The company has considered selling its interest in the ZhongChai JV and may explore the sale of some of its other assets. To date, the company and the investors do not have any definitive arrangements or any written agreements about any aspect of the foregoing discussions or considerations. Any transaction would have to be reviewed by the company and investors legal counsel, and would be subject to proper notice and documentation, depending on the nature of the transaction.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Principles of Consolidation

The consolidated financial statements include the accounts of the parent company and the subsidiaries. Inter-company accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

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

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Accounts Receivable

Trade accounts receivable are stated at the amount management expects to collect from balances outstanding at the end of the period.  Based on its assessment of the credit history with customers having outstanding balances and current relationships with them, management makes conclusions whether any realization of losses on balances outstanding at the end of the period will be deemed uncollectible based on the age of the receivables. For the North America/Auto Parts segment, the Company reserves 5% of accounts receivable balances that have been outstanding for greater than 90 days. For the China/Gear segment, the Company reserves 0.5% of accounts receivable balances that have been outstanding below three months, 5% of accounts receivable balances that have been outstanding between three months and six months, 20% of receivable balances that have been outstanding within one year, 50% of receivable balances that have been outstanding for between one year and two years, and 100% of receivable balances that have been outstanding more than two years.

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the weighted-average basis and includes all costs to acquire and other costs incurred in bringing the inventories to their present location and condition. We evaluate the net realizable value of our 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.

Revenue Recognition

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 return of products once sold to customers. Instead, the company provides a one-year limited warranty covering manufacturing defects and/or product functional failures. After evaluation and confirmation of customer complaints, the company either replaces the defective products or accepts returns by crediting the customer's account. Such replacements or returns as well as handling costs therefrom are passed through to the suppliers.

Advertising Costs

The company expenses the cost of advertising as incurred. Advertising costs for the three and nine months ended March 31, 2008 and 2007 were insignificant.

Income Taxes

Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect in the United States of America for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. No differences were noted between the book and tax bases of the Company’s assets and liabilities, respectively. Therefore, there are no deferred tax assets or liabilities for the three and nine months ended March 31, 2008. For the China/Gear segment, the Zhongchai JV is located in the PRC, and is therefore subject to central government and provincial and local income taxes within the PRC at the applicable tax rate on the taxable income as reported in the PRC statutory financial statements in accordance with relevant income tax laws. The normal tax rate is 25%.

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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.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.

Item 3A(T).Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

None

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.Defaults Upon Senior Securities.

None.

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

None.

Item 5.Other Information.

None.

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Item 6.Exhibits.

Exhibit	Description
31.1	Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2008.
31.2	Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-QSB for the quarter ended March 31, 2008.
32.1	Certification of the Company’s Principal Executive Officer and Principal Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 8, 2008	EQUICAP, INC.
	By:	/s/ Jason Lu
	Name: Jason Lu
	Title:  Chief Executive Officer
	By:	/s/ David Ming He
	Name: David Ming He
	Title:  Chief Financial Officer

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EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and Securities and Exchange Commission Release 34-46427

I, Jason Lu, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Equicap, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

c) disclosed in this report any change in registrant’s internal control over financial reporting the occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2008	/s/ Jason Lu
	Jason Lu
	Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

and Securities and Exchange Commission Release 34-46427

I, David Ming He, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Equicap, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

a) designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

c) disclosed in this report any change in registrant’s internal control over financial reporting the occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2008	/s/ David Ming He
	David Ming He
	Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Equicap, Inc. (the “Company”) on Form 10-QSB for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jason Lu, Chief Executive Officer and David Ming He, Chief Financial Officer, each certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jason Lu

Jason Lu

Chief Executive Officer

Principal Executive Officer

May 8, 2008

/s/ David Ming He

David Ming He

Chief Financial Officer

Principal Financial Officer

May 8, 2008