Cang Bao Tian Xia International Art Trade Center, Inc. - Quarter Report: 2010 March (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission file number: 000-31091

Equicap, Inc.

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

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

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

Issuer’s telephone number: (904) 418-9133

Not Applicable

(Former name, former address and former

fiscal year, if changed since last report)

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

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

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 27,613,019 shares of common stock, par value $.001 per share, outstanding as of May 10, 2010.

EQUICAP, INC.

- INDEX -

		Page
PART I – FINANCIAL INFORMATION:

Item 1. Financial Statements		1

	Unaudited Consolidated Balance Sheet as of March 31, 2010 and June 30, 2009	2

	Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended March 31, 2010 and 2009	3

	Unaudited Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and 2009	4

	Notes to Consolidated Financial Statements	5

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

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Item 4 Controls and Procedures

PART II – OTHER INFORMATION:

Item 6. Exhibits

Signatures

FORWARD-LOOKING STATEMENTS

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

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

EQUICAP, INC.

Consolidated Balance Sheets

	March 31,			June 30,
	2010			2009
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	539,914		$	3,990,767
Restricted cash		90,441			315,151
Accounts receivable, net of allowance for doubtful accounts of $18,189 and $7,732 at March 31, 2010 and June 30, 2009, respectively		2,426,475			1,540,402
Inventories		2,207,522			1,568,445
Notes receivable		1,058,565			448,655
Advance payments		5,329,020			2,988,235
Other current assets		597,275			115,266

Total current assets		12,249,212			10,966,921

Property and equipment, net		2,962,393			2,662,924

Goodwill		3,411,913			3,407,262

Other assets		708			65,575

Total assets	$	18,624,226		$	17,102,682

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	3,121,790		$	1,562,217
Short-term bank loans		1,422,990			2,197,500
Trade notes payable		90,441			315,151
Taxes payable		178,256			54,292
Other current liabilities		667,453			635,408
Total current liabilities		5,480,930			4,764,568

Total liabilities		5,480,930			4,764,568

Equity
Stockholders’ equity:
Common stock, $.001 par value, 500,000,000 shares authorized, 27,613,019 shares issued and outstanding at March 31, 2010 and June 30, 2009, respectively		27,613			27,613
Stock subscription receivable		(33,120	)		(33,120	)
Additional paid-in capital		16,484,097			16,484,097
Statutory reserves		124,460			124,460
Accumulated deficit		(8,158,417	)		(8,440,255	)
Accumulated other comprehensive income		1,431,995			1,415,474
Total stockholders’ equity		9,876,628			9,578,269

Noncontrolling interest		3,266,668			2,759,845

Total equity		13,143,296			12,338,114

Total liabilities and equity	$	18,624,226		$	17,102,682

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

EQUICAP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	March 31,						March 31,
	2010			2009			2010			2009

Sales	$	3,202,350		$	976,967		$	7,040,579		$	2,984,064

Cost of sales		2,454,953			770,546			5,481,480			2,316,530

Gross profit		747,397			206,421			1,559,099			667,534

Operating expenses
Selling, general and administrative		284,340			623,392			916,530			1,605,608

Income (loss) from operations		463,057			(416,971	)		642,569			(938,074	)

Other income (expenses):
Interest income (expenses), net		(29,095	)		4,003			(63,364	)		9,722
Other income, net		16,289			47,459			56,598			96,427
Total other income (expenses)		(12,806	)		51,462			(6,766	)		106,149

Income (loss) before provision for income taxes		450,251			(365,509	)		635,803			(831,925	)

Provision for income taxes		73,448			-			140,541			1,172

Net income (loss)		376,803			(365,509	)		495,262			(833,097	)

Less: Net income (loss) attributable to noncontrolling interest		112,942			(45,692	)		213,424			(16,041	)

Net income (loss) attributable to Equicap		263,861			(319,817	)		281,838			(817,056	)

Other comprehensive income (loss)
Foreign currency translation adjustment		398			(17,231	)		16,521			42,698

Comprehensive income (loss)	$	264,259		$	(337,048	)	$	298,359		$	(774,358	)

Earnings (loss) per common share:
Basic	$	0.01		$	(0.01	)	$	0.01		$	(0.03	)
Diluted	$	0.01		$	(0.01	)	$	0.01		$	(0.03	)

Weighted average number of common shares outstanding:
Basic		27,613,019			28,169,013			27,613,019			28,169,013
Diluted		27,613,019			28,169,013			27,613,019			28,169,013

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

EQUICAP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	281,838		$	(817,056	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Noncontrolling interest		213,424			(16,041	)
Depreciation and amortization		229,508			137,136
Loss on disposal of fixed assets		4,846			-
Provision for bad debts		10,442			87,971
Share-based payments		63,606			81,592
Non-cash payments of rent		-			3,750
Changes in assets and liabilities:
Accounts receivable		(894,050	)		(258,324	)
Inventories		(636,675	)		(267,824	)
Notes receivable – trade		(620,622	)		222,572
Advance payments		(136,150	)		3,640,626
Other current assets		(494,611	)		152,665
Accounts payable and accrued expenses		1,557,049			198,159
Trade notes payable		(225,048	)		190,927
Taxes payable		123,839			25,425
Other current liabilities		44,461			45,541
Total adjustments		(759,981	)		4,244,175

Net cash provided by (used in) operating activities		(478,143	)		3,427,119

Cash flows from investing activities:
Advance payments for the purchase of land use rights and building		(2,199,600	)		(102,515	)
Additions to property and equipment		(326,239	)		(343,972	)
Additions to construction in progress		(203,021	)		-
Collection on notes receivable – other		11,500			-

Net cash used in investing activities		(2,717,360	)		(446,487	)

Cash flows from financing activities:
Repayment for short-term bank loans		(777,192	)		-
Contribution from minority shareholders		293,280			-

Net cash used in financing activities		(483,912	)		-

Effect of foreign currency translation on cash		3,852			2,714

Net (decrease) increase in cash and cash equivalents and restricted cash		(3,675,563	)		2,983,346

Cash and cash equivalents and restricted cash – beginning		4,305,918			956,973

Cash and cash equivalents and restricted cash – ending	$	630,355		$	3,940,319

Supplemental schedule of non cash activities
Construction in progress reclassed to property and equipment	$	-		$	1,785,616

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

EQUICAP, INC.

Notes to Consolidated Financial Statements

March 31, 2010 and 2009

(Unaudited)

Note 1 – Organization and Nature of Business

Equicap, Inc. (“Equicap” or “the Company”), a Nevada corporation, is a manufacturer and distributor of gears and gearboxes, which are marketed and sold to customers in China.

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

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

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

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

On June 15, 2009, IBC was sold to certain of the management persons of IBC in exchange for the following: (i) the cancellation of an aggregate of 555,994 shares of common stock of the Company which those individuals owned, and (ii) the payment of $60,000 in installments pursuant to the terms of an unsecured promissory note, the final payment of which will be November 15, 2010. As part of the transaction, the Company cancelled $428,261 through the closing date, of inter-company debt which funds had been used in the business of IBC prior to the transaction.

On September 22, 2009, Xinchang Xian Lisheng Machinery Co., Ltd. (“Lisheng”) was incorporated by Zhongchai and two individual investors. Total registered capital of Lisheng is RMB 5 million, of which Zhongchai accounts for 60%. The Company plans to start production of die casting products in 2010 for use in gearboxes, diesel engines and other machinery products.

On December 16, 2009, Equicap and its wholly owned subsidiaries, Usunco and Zhongchai Holding (Hong Kong) Limited, a Hong Kong company (“Zhongchai Holding”), took action to approve transfer of the shares of Zhejiang Zhongchai Machinery Co., from Usunco to Zhongchai Holding. The transfer was completed on December 23, 2009. The purpose of the transfer was to take advantage of the tax treaty between the Peoples Republic of China and the Special Administrative Region of Hong Kong which reduces the withholding tax rate of the PRC on payments to entities outside of China. Usunco no longer has any assets after transferring all of them to Zhongchai Holding and therefore will be dissolved in the future. The consolidated financial statements will continue to account for Zhejiang Zhongchai Machinery Co., in the same manner as before the transfer of the ownership. Shareholder approval by the shareholders of Equicap was not required under Nevada law, as there was no sale of all or substantially all the assets of the company. The shareholder ownership and shareholder rights of Equicap remain the same as before the transaction.

Note 2 – Summary of Significant Accounting Policies

Basis of Presentation

The Company’s consolidated financial statements include the accounts of Equicap, Inc. and its wholly and majority owned subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

In preparing the accompanying unaudited consolidated financial statements, we evaluated the period from March 31, 2010 through the date the financial statements were issued, for material subsequent events requiring recognition or disclosure. No such events were identified for this period.

Interim Financial Statements

These interim financial statements should be read in conjunction with the Company’s audited financial statements for the years ended June 30, 2009 and 2008, as not all disclosures required by GAAP for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the years ended June 30, 2009 and 2008.

Recent Accounting Pronouncements

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009. The Company’s implementation of this guidance effective July 1, 2009 did not have a material effect on the Company’s condensed consolidated financial statements.

On July 1, 2009, the Company adopted the accounting and disclosure requirements of Statement of Financial Accounting Standard (“SFAS”) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51, which is now included with ASC Topic 810 Consolidation. This standard establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation. On a prospective basis, any changes in ownership will be accounted for as equity transactions with no gain or loss recognized on the transactions unless there is a change in control.

Goodwill and Other Intangible Assets

Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets deemed to have indefinite lives are not amortized. All other intangible assets are amortized over their estimated useful lives. Goodwill and intangible assets with indefinite lives are subject to annual impairment test using the guidance and criteria described in Statement of Financial Accounting Standard No. 142, (ASC 350) “Goodwill and Other Intangible Assets”. This test compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value.

Reclassification

Certain amounts as of March 31, 2009 were reclassified for presentation purposes.

Note 3 – Accounts Receivable

Trade accounts receivable are stated at original invoice amount less allowance for doubtful receivables based on management’s periodic review of aging of outstanding balances and customer credit history. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The balance of allowance for doubtful accounts amounted to $18,189 and $7,732 as of March 31, 2010 and June 30, 2009, respectively.

Note 4 – Inventories

Inventories at March 31, 2010 and June 30, 2009 consist of the following:

	March 31, 2010		June 30, 2009

Gears products	$	1,229,170	$	885,559
Gearbox products		976,957		680,317
Other		1,395		2,569

Total	$	2,207,522	$	1,568,445

Note 5 – Notes Receivable

Notes receivable at March 31, 2010 and June 30, 2009 consists of the following:

	March 31, 2010		June 30, 2009

Notes receivable-trade	$	1,012,565	$	391,155
Notes receivable-other		46,000		57,500

Total	$	1,058,565	$	448,655

Note 6 – Advance Payments

Advance payments amounted to approximately $5.3 million as of March 31, 2010, approximately $4.6 million of which represented an advance payment made by the Zhongchai JV to Zhejiang Xinchai Holdings Co., Ltd. ("Xinchai Holdings"), a corporation in China, for the purchase of land use rights and building for Zhongchai JV’s future expansion of its production capabilities. Zhongchai JV is currently leasing a portion of the land and building to be purchased. The total land area to be purchased is approximately 250,000 square feet. The total contract price for the land use rights, building and fixtures is approximately $4.6 million. The Company is currently in the process of transferring title.

Note 7 – Property and Equipment

Property and equipment at March 31, 2010 and June 30, 2009 consists of the following:

	March 31, 2010		June 30, 2009

Manufacturing equipment	$	3,252,649	$	2,923,420
Office equipment and furniture		50,402		56,597
Vehicles		62,317		62,039
Subtotal		3,365,368		3,042,056
Less: Accumulated depreciation		606,078		379,132
	$	2,759,290	$	2,662,924
Construction in progress		203,103		-

Total	$	2,962,393	$	2,662,924

Note 7 – Property and Equipment (continued)

Depreciation expense for the three months ended March 31, 2010 and 2009 was $81,083 and $47,880, and for the nine months ended March 31, 2010 and 2009 was $228,701 and $136,331, respectively.

Note 8 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

	March 31, 2010		June 30, 2009

Accounts payable	$	2,893,581	$	1,400,162
Accrued expenses		228,209		162,055

Total	$	3,121,790	$	1,562,217

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

Note 9 – Short Term Bank Loans

Short-term bank loans consist of the following:

	March 31,		June 30,
	2010		2009

On May 25, 2009, the Company obtained a loan from Agricultural Bank of China, which was re-paid on August 26, 2009. The annual interest was At the fixed interest rate of 4.374% and paid monthly. The loan was secured by a third party.	$	-	$	776,450

On June 15, 2009, the Company obtained a loan from Agricultural Bank of China, which is due on June 16, 2010. The interest is calculated using an annual fixed interest rate of 5.31% and paid monthly. The loan is secured by a third party.		1,422,990		1,421,050

Total short-term bank loans	$	1,422,990	$	2,197,500

Note 10 – Other Current Liabilities

Other current liabilities amounted to $667,453 and $635,408 as of March 31, 2010 and June 30, 2009, respectively, approximately $424,854 of which represents the last payment due to Xingchang Keyi Machinery Co., Ltd from Shengte acquisition in July 2007 for both of the above periods.

Note 11 – Risk Factors

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 12 – Concentrations of Credit Risk

Two customers, Zhejiang Xinchai Co., Ltd. and Lonking (Shanghai) Forklift Co., Ltd., accounted for 32% and 24%, respectively, of the Company’s sales for the three months ended March 31, 2010. The same two customers accounted for 40% and 23%, respectively, of the Company’s sales for the nine months ended March 31, 2010.

Note 12 – Concentrations of Credit Risk (continued)

One major supplier, Zhejiang Yuyang Machinery Co. accounted for approximately 16% of the Company’s total purchases for the three months ended March 31, 2010 and 20% for the nine months ended March 31, 2010.

Note 13 – Supplemental Disclosure of Cash Flow Information

	For the Nine Months Ended March 31,
	2010		2009

Cash paid for interest	$	76,107	$	191
Cash paid for income taxes	$	93,222	$	1,171

Note 14 – Earnings (Loss) Per Share

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

	For the Three Months Ended March 31,
	2010		2009

Net income (loss)	$	263,861	$	(319,817	)

Weighted average common shares		27,613,019		28,169,013
(denominator for basic loss per share)

Effect of dilutive securities:		-		-

Weighted average common shares
(denominator for diluted loss per share)		27,613,019		28,169,013

Basic net earnings (loss) per share	$	0.01	$	(0.01	)
Diluted net earnings (loss) per share	$	0.01	$	(0.01	)

	For the Nine Months Ended March 31,
	2010		2009

Net income (loss)	$	281,838	$	(817,056	)

Weighted average common shares		27,613,019		28,169,013
(denominator for basic loss per share)

Effect of dilutive securities:		-		-

Weighted average common shares
(denominator for diluted loss per share)		27,613,019		28,169,013

Basic net earnings (loss) per share	$	0.01	$	(0.03	)
Diluted net earnings (loss) per share	$	0.01	$	(0.03	)

Note 15 – Share-Based Payments

As of March 31, 2010, there were 366,550 outstanding options to employees (“Employee Options”) and 422,535 outstanding warrants to the private placement agent (“Agent Warrants”). Both the Employee Options and Agent Warrants vest over three years and have a life of five years. For the three and nine months ended March 31, 2010, the Company recorded approximately $9,211 and $63,606, respectively, of stock-based compensation based on the fair value method of SFAS. No. 123R (ASC 718). The fair value of each option and warrant granted is estimated on the measurement date using Black-Scholes pricing model using the following assumptions: volatility of 34.94%, risk free interest rate of 4.63%, dividend yield of 0%, and expected life of 5 years. No estimate of forfeitures was made as the Company has a short history of granting options and warrants.

Note 16 – Employee Welfare Plan

The Company has established an employee welfare plan in accordance with Chinese laws and regulations. Full-time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on a certain percentage of the employees’ salaries.

Note 17 – Legal Proceedings

On November 6, 2008, a group of the investors filed a law suit in federal court in New York against the Company, Usunco Automotive Ltd., Mr. Peter Wang and vFinance Investment, Inc. based on alleged violations of the Securities Exchange Act of 1934 and Rule 10b-5, fraud, fraudulent inducement, professional malpractice and negligent misrepresentation arising out of the private placement closed on March 7, 2007. The action was settled by an agreement dated July 31, 2009, which provided (i) for a third party, Ruihua International Limited ("Ruihua"), to purchase all the shares of common stock of the Company owned and held by the plaintiffs, (ii) upon the purchase of the shares, for the Company and Mr. Wang and each of the plaintiffs to exchange general mutual releases as to all matters arising concerning the plaintiffs' purchase and holding of the common shares of the Company, and (iii) for a stipulation to dismiss the action. The action was discontinued with prejudice by stipulation among all the parties which was ordered by the court on August 4, 2009.

In connection with the purchase by Ruihua of the shares sold to it as part of the settlement of the above described action, Ruihua also bought shares from another shareholder who was not a party to the action. As a result of the two share acquisitions, Ruihua acquired a total of 17,431,104 shares, currently representing 61.88% of the issued and outstanding shares of common stock of the Company. Ruihua does not have any registration rights with respect to the shares or other provisions related to control of the Company, such as the right to have specific representation on the board of directors or nominate potential directors for election, other than their rights as a shareholder under the certificate of incorporation and by laws of the Company and under the provisions of Nevada law and the United States securities laws.

NOTE 18 – Subsequent Events

None.

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

Equicap, Inc. (“Equicap”), a Nevada corporation, does business through its subsidiary, Zhongchai Holding (Hong Kong) Limited, a Hong Kong company (“Zhongchai Holding”), which in turn operates through Zhejiang ZhongChai Machinery Co., Ltd. (the “ZhongChai JV”), a 75%-owned joint venture established under the laws of the People’s Republic of China (the “PRC” or “China”), Zhejiang Shengte Transmission Co., Ltd. (“Shengte”) a company established under the laws of the PRC and wholly owned by ZhongChai JV, and Xinchang Xian Lisheng Machinery Co., Ltd. (“Lisheng”), a company established under the laws of the PRC and 60% owned by ZhongChai JV. Through its operating subsidiaries, Equicap is currently engaged in the manufacturing and sale of gears and gearboxes (transmissions) in China.

Results of Operations

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Sales

Sales increased by $2,225,383 or 228% to $3,202,350 for the three months ended March 31, 2010 compared to $976,967 for the three months ended March 31, 2009. Sales for the three months ended March 31, 2010 consisted solely of sales of gears and gearboxes in China, as a result of the Company’s sale of IBC, the North America / Auto Parts segment in June 2009. Sales for the three months ended March 31, 2009, consisted of sales of automotive parts in North America and sales of gears and gearboxes in China, for $241,374 and $735,593, respectively. The sales of gears and gearboxes for the period grew by approximately 335% compared to the sales of the same products in China for the comparable period in the prior fiscal year. The increase in gear and gearbox sales was attributable to the Company’s introduction of new gearbox products, expansion in production capacity and its continued marketing efforts to develop its customer base. Sales during the period were also beneficially affected by the recovery of the domestic market in China for gear and gearbox products as a result of Chinese government’s economic stimulus plan.

Cost of Sales and Gross Profit Margin

Cost of sales was $2,454,953 for the three months ended March 31, 2010, increasing by $1,684,407, or 219%, from $770,546 for the three months ended March 31, 2009. The gross profit margin was approximately 23% for the three months ended March 31, 2010, compared to approximately 20% (excluding auto parts business) for the three months ended March 31, 2009. The increase in gross profit margin in this quarter as compared to the same period in the prior fiscal year was attributable mainly to the decrease in gearbox unit cost and therefore the increase in gearbox margin after the expansion in gearbox production capacity and sales.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consisted primarily of labor costs and overhead costs for sales, marketing, finance, legal, human resources and general management. Such costs also include the expenses recognized for stock-based compensation pursuant to SFAS 123R (ASC 718).

SG&A expenses decreased by $339,052 to $284,340 in the three months ended March 31, 2010, from $623,392 in three months ended March 31, 2009. The decrease primarily was attributable to the exclusion of the expenses associated with IBC, reduction in rental expense for less office space leased, and reduction in some professional and consulting service expenses due to less capital market related services incurred in the period compared to the same period in the prior fiscal year.

Net Income (Loss)

Net income was $263,861 in three months ended March 31, 2010, compared to a net loss of ($319,817) in the three months ended March 31, 2009. The Company became profitable in the quarter mainly attributable to increased sales and gross profit and lower operating expenses.

Accounts Receivable

Accounts receivable was $2,426,475 after reduction of $18,189 for doubtful accounts at March 31, 2010, compared to accounts receivable of $1,540,402 after reduction of $7,732 for doubtful accounts at June 31, 2009. The increase in the amount of accounts receivable is mainly attributable to the increased operations of the Company during the period reported upon. The payment term for sold products usually is 60-90 days, and, to date, it has experienced that the accounts receivable are within the payment terms.

Note Receivable

Notes receivable was $1,058,565 at March 31, 2010, compared to $448,655 at June 31, 2009. The increase in the amount was from the increase sales of products. Of the total amount, $46,000 was an unpaid balance of promissory notes due from two individuals, and $1,012,565 was from product sales to customers using bank accepted forward notes.

Nine Months Ended March 31, 2010 Compared to Nine Months Ended March 31, 2009

Sales

Sales increased by $4,056,515 or 136% to $7,040,579 for the nine months ended March 31, 2010 compared to $2,984,064 for the nine months ended March 31, 2009. Sales for the nine months ended March 31, 2010 consisted solely of sales of gears and gearboxes in China, as a result of the Company’s sale of IBC, the North America / Auto Parts segment in June 2009. Sales for the nine months ended March 31, 2009, consisted of sales of automotive parts in North America and sales of gears and gearboxes in China, for $869,407 and $2,114 ,657, respectively. The sales of gears and gearboxes for the period grew by approximately 233% compared to the sales of the same products in China for same period in the prior fiscal year. The increase in gears and gearboxes sales was attributable to the Company’s introduction of new gearbox products, expansion in production capacity and its continued marketing efforts to develop its customer base. Sales during the period were also beneficially affected by the recovery of the domestic market in China for gear and gearbox products as a result of Chinese government’s economic stimulus plan.

Cost of Sales and Gross Profit Margin

Cost of sales was $5,481,480 for the nine months ended March 31, 2010, increasing by $3,164,950 or 137%, from $2,316,530 for the nine months ended March 31, 2009. The gross profit margin was approximately 22% for the nine months ended March 31, 2010, compared to approximately 24% (excluding auto parts business) for the nine months ended March 31, 2009. The decrease in gross profit margin in the period as compared to the same period in the prior fiscal year was attributable mainly to a general decrease in gear prices and the launch of new gearbox products, the margin of which is lower than for gears. The shift in product mix and development of new products has been implemented by the Company as a strategy to quickly penetrate the market for its products and build sales.

Selling, General and Administrative Expenses

SG&A expenses decreased by $689,078 to $916,530 in the nine months ended March 31, 2010, from $1,605,608 in nine months ended March 31, 2009. The decrease primarily was attributable to the exclusion of the expenses associated with IBC, reduction in rental expense for less office space leased, and reduction in some professional and consulting service expenses due to less capital market related services incurred in the period compared to the same period in the prior fiscal year.

Net Income (Loss)

Net income was $281,838 for the nine months ended March 31, 2010, compared to a net loss of ($817,056) for the nine months ended March 31, 2009. The Company became profitable for the period mainly attributable to increased revenue and gross profit and lower operating expenses.

Liquidity and Capital Resources

As of March 31, 2010, Equicap had current assets equal to $12,249,212, current liabilities equal to $5,480,930 and working capital of $6,768,282. Equicap believes that it has sufficient operating capital for its current operations.

Operating Activities

Net cash used in operating activities was approximately $0.48 million for the nine months ended March 31, 2010, as compared to $3.43 million net cash provided by operating activities for the same period in the prior fiscal year. The change was because Zhongchai was refunded approximately $3.4 million out of the total $5 million advance payment from Zhejiang Xinchai Holdings Co., Ltd. ( "Xinchai Holdings"), a corporation in China, in the nine months ended March 31, 2009. This amount was used to secure Zhongchai's exclusive right to acquire 100% interest of a project from Xinchai Holdings. Zhongchai, however, decided not to pursue the project, and Xinchai Holding agreed to refund the payment.

Investing Activities

Net cash used in investing activities was $2.72 million for the nine-month period ended March 31, 2010, increased from $0.45 million for the same period in fiscal year 2009. The increase was mainly due to $2.2 million advance payment made during the nine-month period ended March 31, 2010. The advance payment was made by the Zhongchai JV to Xinchai Holdings, for the purchase of land use rights and building for Zhongchai JV’s future expansion of its production capabilities.

Financing Activities

Net cash used in financing activities was $0.48 million for the nine-month period ended March 31, 2010. During this period, the Company repaid bank loan of $0.78 million. There was also $0.29 million capital contribution to Lisheng from minority shareholders.

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended June 30, 2009, for disclosures regarding Equicap Inc.’s critical accounting policies and estimates. The interim financial statements follow the same accounting policies and methods of computations as those for the year ended June 30, 2009. There was no new accounting policies and estimates during the period ended March 31, 2010 which affects the Company.

Recent Accounting Pronouncements

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009. Accordingly, the Company refers to Codification in respect to the appropriate accounting standards throughout this document as “ASC”. Implementation of the Codification did not have any impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The information is not required for smaller reporting companies.

Item 4. Controls and Procedures.

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

PART II — OTHER INFORMATION

Item 5. 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-Q for the quarter ended March 31, 2010.

31.2		Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2010.

32.1		Certification of the Company’s Principal Executive Officer and Principal Financial Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

SIGNATURES

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

Date: May 11, 2010	EQUICAP, INC.

	By:	/s/ Peter Wang
	Name: Peter Wang
	Title: President & Acting Chief Financial Officer