SOURCE: HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc.

November 09, 2009 16:01 ET

HQ Sustainable Maritime Reports Third Quarter Results

Gross Profit Margin up 17.3% From the First Nine Months of 2008

SEATTLE, WA--(Marketwire - November 9, 2009) - HQ Sustainable Maritime Industries, Inc. (NYSE Amex: HQS) ("HQS" or the "Company"), a leader in all natural integrated aquaculture and aquatic product processing, including fish byproduct and personal healthcare products, today announced its financial results for the third quarter ended September 30, 2009.

Third Quarter 2009 Results

For the quarter ended September 30, 2009, sales decreased by 1.4% to $22.2 million, compared to $22.4 million for the third quarter of 2008. The Aquaculture Product segment accounted for $14 million in sales, down 7% from $15.1 million reported for the same period last year. Sales from the Health and Bio-product segment were $8.1 million, up 10% from $7.3 million for the third quarter of 2008.

Gross profit for the third quarter of 2009 increased by 5% to $10 million, compared to gross profit of $9.5 million for the same period of 2008. Operating income for the third quarter decreased to $4.9 million, from $6.5 million in September 2008. The decrease experienced in the quarter was mainly the result of the provision for potential losses in the Company's receivables in its health and bio-product segment which had not materialized to date, as well as an increase in advertising and marketing expenses within the same segment. EBITDA for the quarter decreased by 27% to $5.2 million, from $7.1 million for the same period last year.

Net income for the third quarter was $4 million, or $0.268 cents per fully diluted share compared to net income of $5.6 million, or $0.427 cents per fully diluted share, for the third quarter of 2008. Net income during the current quarter was affected by increases in doubtful accounts of approximately $1,606,000 and marketing and advertising expenses by approximately $979,000 from the health and bio-product segment.

"Our Company continues to see significant demand for its biomass products, and to benefit from the manner in which we have balanced our portfolio of product offerings to reduce the impact of seasonality and price fluctuations. During the quarter, increased demand for our Marine Bio and Healthcare products resulted in much improved sales, and helped to mitigate the impact of the reduction in the selling price of tilapia in our aquatic products segment that we have seen this year. Increased vertical integration is also beginning to pay dividends, as we saw decreased raw material costs with respect to our fish and other indirect expenses during the quarter. This has resulted in a significant improvement in our profitability so far in 2009, and we hope to see this trend continued in future quarters," said Norbert Sporns, CEO of HQ Sustainable Maritime Industries, Inc.

Nine Month Financial Results

Revenues for the first nine months of 2009 were $49 million, up 6% from revenues of $46.2 million in the first nine months of 2008. Approximately 22% of the increase in sales revenue was a result of increased sales from the aquaculture product segment, and 78% of the increase was from sales from the health and bio-product segment. Gross profit margin reached $21.6 million, up 17.3% from gross profit of $18.4 million for the first nine months of 2008. The Company's gross profit ratio was 44% for the first nine months of 2009, compared to 39.8% for the first nine months of 2008. Operating income reached $8.7 million, up 17.6% from $7.4 million for the first nine months of 2008. Net income increased by 75% to $6.2 million, or $0.472 cents per fully diluted share, compared to net income of $3.6 million, or $0.291 cents per fully diluted share, for the same period a year earlier.

Financial Condition

As of September 30, 2009, cash and cash equivalents were $55.5 million, compared to $54.9 million at December 31, 2008. The Company had total assets of $120 million, up from $100.2 million at the end of the previous year. As of September 30, 2009, the Company had no long term debt.

Company Updates

--  The Company began production of extruded feed from its new feed mill,
    and revenues will flow through from the sale of feed to its cooperative
    farmers during the last quarter of 2009.
    
--  The Company's tilapia grow out operations, as well as its processing
    plant operations for tilapia in its wholly owned, Hainan-based subsidiary
    Hainan Quebec Ocean Fishing Co. Ltd., have been certified by Moody
    International Certification Ltd., as being in conformity with the GLOBALGAP
    Tilapia Standard recently launched in April 2009. HQS is the first company
    to be certified to this standard.
    

Use of Non-GAAP Financial Information

This press release includes certain financial information (EBITDA), which is not presented in accordance with GAAP. EBITDA was derived by taking earnings before financing costs, taxes, fair value change in derivative financial instruments, depreciation and amortization. The Company's management believes that this non-GAAP measure provides investors with a better understanding of the Company's historical results by focusing on its core business operations. Non-GAAP information is not meant to be considered in isolation or as a substitute for GAAP financials. The non-GAAP financial information that the Company provides also may differ from non-GAAP information provided by other companies. A table included at the end of the attached financial tables provides a reconciliation of the non-GAAP financial information to the nearest GAAP measure.

Conference Call

The company will host a conference call at 4:30 p.m. Eastern Time on November 9, 2009 to discuss its financial results for the third quarter of 2009. To participate in this live conference call, please call the following number five to ten minutes prior to the scheduled conference call time: (866) 394-1757. International callers should call (706) 643-3624. The Conference Passcode is 38267189. A replay of the conference call will be available from 5:15 p.m. Eastern Time on Monday, November 9 through Wednesday, December 9, 2009. To access the replay, please call (800) 642-1687. International callers should call (706) 645-9291. The Conference Passcode is 38267189.

To listen via the web, please go to http://www.hqfish.com/ approximately twenty minutes before the conference call is scheduled to begin in order to register as well as download and install any necessary audio software. The Webcast will be archived for 30 days.

About HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc., headquartered in the United States, is an integrated aquaculture and aquatic product processing company, with production facilities in Hainan, PRC. HQS also uses North American production facilities for its new line of meal products. HQS practices cooperative sustainable aquaculture, using nutraceutically enriched feeds and produces and markets its products. The company is dedicated to sustainable all natural methods giving its customers the purest products possible. The Company holds HACCP certification from the U.S. FDA and the EU Code assignment of quality, permitting its products to be sold in international markets. The Aquaculture Certification Council, Inc. (ACC) certified that tilapia processing standards met Best Aquaculture Practices, and the Chinese government gave organic certification to the Company's tilapia production, processing, labeling, marketing and management system. The Company is the first to be certified to GLOBALGAP Tilapia standards for its farms and processing. The Company owns a nutraceuticals and health products subsidiary, which is HACCP and GMP certified, and produces and sells products subject to stringent laboratory tests certified by the China Ministry of Health. The Company has recently completed a 100,000 Metric Tonne annual production extruded Feed Mill with state-of-the-art extruded feed production equipment. This feed is highly efficient and is sold to the market and used by HQ's cooperative farmers. In addition to headquarters in Seattle, HQ has operational offices in Wenchang, Hainan. The Company's website is: http://www.hqfish.com.

Safe Harbor Statement

Certain statements in this press release that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by the use of words such as "anticipate," "believe," "expect," "future," "may," "will," "would," "should," "plan," "projected," "intend," and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of HQ Sustainable Maritime Industries, Inc. (the Company) to be materially different from those expressed or implied by such forward-looking statements. The Company's future operating results are dependent upon many factors, including but not limited to the Company's ability to: (i) obtain sufficient capital or a strategic business arrangement to fund its expansion plans; (ii) build the management and human resources and infrastructure necessary to support the growth of its business; (iii) competitive factors and developments beyond the Company's control; and (iv) other risk factors discussed in the Company's periodic filings with the Securities and Exchange Commission, which are available for review at www.sec.gov under "Search for Company Filings."


        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
   CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


                             Three Months Ended       Nine Months Ended
                          ------------------------  ----------------------
                           September    September   September    September
                            30, 2009     30, 2008    30, 2009     30, 2008
                          (Unaudited)  (Unaudited) (Unaudited)  (Unaudited)
                          -----------  -----------  ----------  -----------
SALES                     $22,156,867  $22,470,184  49,007,445  $46,212,161
COST OF SALES              12,148,026   12,936,090  27,433,355   27,819,402
                          -----------  -----------  ----------  -----------
GROSS PROFIT               10,008,841    9,534,094  21,574,090   18,392,759
                          ===========  ===========  ==========  ===========
SELLING AND DISTRIBUTION
 EXPENSES                     417,076      557,763     961,378    1,111,871
MARKETING AND ADVERTISING   1,703,664      724,511   4,469,149    3,175,561
GENERAL AND
 ADMINISTRATIVE EXPENSES    1,432,869    1,466,174   5,062,834    4,862,649
DEPRECIATION AND
 AMORTIZATION                 281,044      554,741   1,048,335    1,257,004
DOUBTFUL/(RECOVERY OF)
 ACCOUNTS                   1,309,803     (296,655)  1,328,990      585,197
                          -----------  -----------  ----------  -----------
INCOME FROM OPERATIONS      4,864,385    6,527,560   8,703,404    7,400,477
                          ===========  ===========  ==========  ===========
 FINANCE COSTS                146,791       60,240     793,251    2,502,864
 FAIR VALUE CHANGE IN
  DERIVATIVE FINANCIAL
  INSTRUMENTS                (154,200)           -        75,798          -
 OTHER EXPENSES                     -            -           -        1,765
                          -----------  -----------  ----------  -----------
 INCOME BEFORE INCOME
  TAXES                     4,871,794    6,467,320   7,834,355    4,895,848
                          ===========  ===========  ==========  ===========
 INCOME TAXES
   Current                    824,360      852,638   1,586,831    1,304,047
   Deferred                      --              -        --              -
                          -----------  -----------  ----------  -----------
 NET INCOME ATTRIBUTABLE
  TO SHAREHOLDERS           4,047,434    5,614,682   6,247,524    3,591,801
                          ===========  ===========  ==========  ===========

OTHER COMPREHENSIVE
 INCOME
   Foreign currency
    translation income        (51,777)      37,053    (104,177)   4,359,375
                          -----------  -----------  ----------  -----------
COMPREHENSIVE INCOME      $ 3,995,657  $ 5,651,735  $6,143,347  $ 7,951,176
                          ===========  ===========  ==========  ===========

NET INCOME PER SHARE
   Basic                  $     0.297  $     0.466  $    0.491  $     0.303
                          -----------  -----------  ----------  -----------
   Diluted                $     0.268  $     0.427  $    0.472  $     0.291

WEIGHTED AVERAGE COMMON
 SHARES OUTSTANDING
   Basic                   13,639,455   12,052,075  12,716,956   11,844,792
                          -----------  -----------  ----------  -----------
   Diluted                 14,840,283   13,345,883  13,912,762   13,162,048




        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                  CONDENSED CONSOLIDATED BALANCE SHEETS


                                                September 30,  December 31,
                                                    2009          2008
                                                 (Unaudited)    (Audited)
                                                ------------- -------------
 ASSETS
   CURRENT ASSETS:
      Cash and cash equivalents                 $  55,543,309 $  54,920,548
      Trade receivables, net of provisions         40,379,485    27,689,410
      Inventories                                   1,409,199     1,041,628
      Prepayments                                     727,335       464,919
                                                ------------- -------------
   TOTAL CURRENT ASSETS                            98,059,328    84,116,505
                                                ============= =============

   PROPERTY, PLANT AND EQUIPMENT, NET               7,553,047     8,315,593
   CONSTRUCTION IN PROGRESS                        13,193,220     6,622,501
   INTANGIBLE ASSETS                                  987,969     1,112,904
   OTHER ASSETS
      Deferred expenses                                 1,895        18,770
                                                ------------- -------------
   TOTAL ASSETS                                 $ 119,795,459 $ 100,186,273
                                                ============= =============

                                                September 30,  December 31,
                                                    2009          2008
                                                 (Unaudited)    (Audited)
                                                ------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
   CURRENT LIABILITIES:
      Accounts payable and accrued expenses     $   7,299,756 $   5,787,514
      Taxes payable                                   845,132       823,382
      Due to directors                                500,626       698,429
      Derivative liabilities                        4,220,020             -
      Current portion of promissory notes           4,713,356     4,603,920
                                                ------------- -------------
   TOTAL CURRENT LIABILITIES                       17,578,890    11,913,245
                                                ============= =============

SHAREHOLDERS' EQUITY
      Preferred stock, $0.001 par value,
       10,000,000 shares authorized, 100,000
       shares issued and outstanding                      100           100
      Common stock, $0.001 par value,
       200,000,000 shares authorized,
       13,684,575 and 12,085,846 shares issued
       and outstanding as of September 30, 2009
       and December 31, 2008 respectively              13,685        12,086
      Additional paid-in capital                   71,226,843    61,572,410
      Accumulated other comprehensive income        9,511,779     9,615,956
      Retained earnings                            14,128,222    10,510,961
      Appropriation of retained earnings
       (reserves)                                   7,335,940     6,561,515
                                                ------------- -------------
   TOTAL SHAREHOLDERS' EQUITY                     102,216,569    88,273,028
                                                ============= =============

                                                ------------- -------------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $ 119,795,459 $ 100,186,273
                                                ============= =============



        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008


                                                 September     September
                                                 30, 2009      30, 2008
                                                (Unaudited)   (Unaudited)
                                                ------------  ------------
OPERATING ACTIVITIES
   Net income                                   $  6,247,524  $  3,591,801
   Non-cash items:
   Depreciation and amortization                   1,048,345     1,257,004
   Loss on disposal of fixed assets                        -         1,765
   Fair value change in derivative financial
    instruments                                      (75,798)            -
   Financial and other non cash services           1,115,823     2,981,411
   Change in non-cash working capital items:
        Inventories                                 (367,571)   (1,631,806)
        Trade receivables, net of provisions     (12,690,375)   (1,588,938)
        Prepayments                                 (262,416)     (167,126)
        Accounts payable and accrued expenses      1,512,242    (1,533,785)
        Taxes payable                                 21,751      (103,078)
                                                ------------  ------------
Cash flow generated from (used in) operating
 activities                                       (3,450,476)    2,807,248
                                                ============  ============

INVESTING ACTIVITIES
        Acquisition of property, plant and
         equipment                                  (163,842)   (1,286,623)
        Sales proceeds of disposal of fixed
         assets                                            -         2,375
        Construction in progress                  (6,570,719)   (2,195,874)
        Acquisition of intangible assets                   -             -
                                                ------------  ------------
Cash flow (used in) investing activities          (6,734,561)   (3,480,122)
                                                ============  ============

FINANCING ACTIVITIES
        Cash proceeds from issuance of common
         stock                                    10,774,720       137,536
        Due to directors                            (197,803)      440,714
                                                ------------  ------------
   Cash flow generated from financing
    activities                                    10,576,917       578,250
                                                ============  ============

                                                ------------  ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS              391,880       (94,624)
                                                ============  ============

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
 CASH EQUIVALENTS                                    230,881     3,096,966
                                                ------------  ------------
        Cash and cash equivalents, beginning of
         year                                     54,920,548    46,959,908
                                                ============  ============

                                                ------------  ------------
        Cash and cash equivalents, end of year  $ 55,543,309  $ 49,962,250
                                                ============  ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
   Interest paid
   Taxes paid                                   $  1,565,081  $  1,009,545

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
 AND FINANCING ACTIVITIES
   Common shares issued for services            $    461,624  $  4,425,432




         HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
       (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                       RECONCILIATION OF EBITDA TO GAAP



                           Three Months Ended         Nine Months Ended
                        ------------------------  -------------------------
                         September    September    September    September
                            30,          30,          30,          30,
                           2009         2008         2009         2008
                        -----------  ------------ ------------ ------------
Net Income/(Loss)
 Attributable to
 Shareholders           $ 4,047,434  $  5,614,682 $  6,247,524 $  3,591,801
   Income Tax               824,360       852,638    1,586,831    1,304,047
Fair Value Change in
 Derivative Financial
 Instruments               (154,200)                    75,798
   Finance Costs            146,791        60,240      793,251    2,502,864
Deprecation and
 Amortization               281,044       554,741    1,048,335    1,257,004
                        -----------  ------------ ------------ ------------
   EBITDA               $ 5,145,429  $  7,082,301 $  9,751,739 $  8,655,716
                        ===========  ============ ============ ============

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