SOURCE: HQ Sustainable Maritime Industries Inc.

May 15, 2007 18:37 ET

HQ Reports Record First Quarter Sales

Increase by 14% for Q1 2007 Sales Increased to More Than $7.8 Million

SEATTLE, WA -- (MARKET WIRE) -- May 15, 2007 -- HQ Sustainable Maritime Industries, Inc. (HQ) (OTCBB: HQSB), a leader in toxin-free integrated aquaculture and aquatic product processing, announced today financial results for the first quarter ended March 31 2007, as reported in its Form 10-Q filed with the Securities and Exchange Commission today.

Total sales of HQ products achieved record levels for the quarter, rising to $7,849,730 for the quarter ended March 31, 2007, compared to $6,885,340 for the same period in 2006. This represents an increase in sales of $964,390, or 14%, quarter to quarter. First quarter operations represent the lowest total sales (usually about 12% of the year) and do not reflect recently announced retail breakthrough sales.

Nutraceutical Sales are affected by the new Good Manufacturing Practices for Health Food (GMP) standards certification process being deployed in China. This upgrading process took 9 months and has been completed April 30th, 2007 and the plant has now received a "certificate of Good Manufacturing Practices for Health Food." This certificate is valid for 5 years. The plant production was affected during the upgrade process. During this transition period, buyers are reticent to purchase products from non-certified plants. With certification we expect growth in sales as well as interest in plants that have not been certified to have our plant manufacture their products. This will add to revenues downstream.

Aquaculture Sales in the first quarter is the coldest period of the year for aquaculture operations and higher operating costs for farmers, impacts negatively on sales and profitability. In addition the major New Year and Chinese New Year celebrations, totaling more than 15 lost production days, occur doing this quarter. Sales into Chinese New Year are delivered in the previous quarter.

Record Sales

That 14% increase originates mostly from the aquaculture segment, showing higher demand for our products. The loss from operations for that three months period increased from $71,866 in March 2006 to $241,675 in March 2007. Seasonality in the first quarter of each year continues to characterize our yearly results. Net loss in the first three months of 2007 was affected by finance costs of $1,268,205, an increase of $251,205 over the corresponding period of 2006. That increase was the result of having a full quarter of amortization of the future conversion of warrants added to the embedded conversion option on the convertible promissory notes which were issued in January and November 2006. Those amortization and non-cash financing costs must be recognized as such in accordance with FAS 123R and EITF 00-27.

Manufacturing and Selling of Marine Bio and Healthcare products

Jiahua Marine is engaged in the manufacturing and selling of Marine Bio and Healthcare products. During the three months ended March 31, 2007 and 2006, Jiahua Marine realized sales of $2,219,486 and $2,211,842 respectively, an increase of 0.3%. The gross profit ratio from this segment was 82% and 85% for the three months ended March 31, 2007 and 2006, respectively, due to a different mix of sales realized in 2007. Furthermore, the major expense of this segment continues to be advertising, corresponding to 56% and 50% of revenues for the three months ended March 31, 2007 and 2006, respectively. The net income contributed by this segment was $115,984 and $559,801 for the three months ended March 31, 2007 and 2006 respectively. The reduction in net income was caused by the combination of lower gross profit margin, higher marketing expenses and a sharp increase in provision for doubtful accounts of $212,062 encountered in 2007.

Norbert Sporns, CEO, HQ Sustainable Maritime, said, "We are extremely pleased with the prospects for growth in 2007. Our company is financially strong and growing. It is worth noting that our increased sales results began prior to the full rollout of our zero-toxin 'TiloveYa'™ brand and reflect a steadily growing recognition and demand for HQ's superior products."

Thus far in 2007, HQ:

--  Application accepted May 8th to list on the American Stock Exchange
    May 17th, 2007
    
--  In April began direct sales of its "TiloveYa"™ brand through the
    Internet via Sam's Club Online, part of the Wal-Mart chain, the world's
    largest retailer
--  In April began direct sales of its "TiloveYa"™ brand through the
    Internet "Ultimate Entrée," a leader in direct Internet marketing of
    superior seafood and meat products.
--  In April Began retail sales through Grocery Outlet a popular retail
    Food chain active in 9 Western States with almost 200 stores;
--  Agreed to work with the Beijing division of Newly Wed® Foods Inc.
    to introduce an exclusive innovative line of battered and breaded flavored
    "TiloveYa"™ fillet products to consumers.
--  Introduced seven new "TiloveYa"™ products at the International
    Boston Seafood Show and most recently at the European Seafood Show in
    Brussels, the largest Seafood Show in the World.
    

About HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc. is an integrated aquaculture and aquatic product processing company, with operations based in the environmentally pristine island province of Hainan, in the South China Sea. HQ practices cooperative sustainable aquaculture, using nutraceutically enriched feeds and conducting fish processing and sales. The company is dedicated to sustainable toxin-free 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 these international markets. It owns a nutraceuticals and health products company, which is HACCP certified, and produces and sells products subject to stringent laboratory tests certified by the China Ministry of Health. This GMP certified plant, produces nutraceuticals, which enrich feed used by HQ's cooperative aquaculture operations. In addition to headquarters in Seattle and operational offices based in Haikou, Hainan, HQ has offices in Hong Kong, Beijing, and Shanghai. (http://www.hqfish.com).

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

                                    (Unaudited)


                                                  Three Months Ended
                                            ------------------------------
                                            March 31, 2007  March 31, 2006
                                                              (Restated)

                                            --------------  --------------
SALES                                       $    7,849,730  $    6,885,340
COST OF SALES                                    5,259,284       4,353,455
                                            --------------  --------------
GROSS PROFIT                                     2,590,446       2,531,885
SELLING AND DISTRIBUTION EXPENSES                   98,613          69,168
MARKETING AND ADVERTISING                        1,244,086       1,112,735
GENERAL AND ADMINISTRATIVE EXPENSES                972,937       1,003,470
DEPRECIATION AND AMORTIZATION                      294,685         234,448
PROVISION FOR DOUBTFUL ACCOUNTS                    221,800         183,930
                                            --------------  --------------
LOSS FROM OPERATIONS                              (241,675)        (71,866)
FINANCE COSTS                                    1,268,205       1,017,000
OTHER (INCOME)/EXPENSES                             (9,197)         36,167
                                             -------------- --------------
LOSS BEFORE INCOME TAXES                        (1,500,683)     (1,125,033)
INCOME TAXES
   CURRENT                                          65,812          83,385
   DEFERRED                                             --          34,885
                                            --------------  --------------
NET LOSS ATTRIBUTABLE TO SHAREHOLDERS       $   (1,566,495) $   (1,243,303)
                                            --------------  --------------
NET INCOME PER SHARE
   BASIC AND DILUTED (AFTER REVERSE SPLIT)  $        (0.23) $        (0.21)
                                            --------------  --------------
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING
   BASIC AND DILUTED (AFTER REVERSE SPLIT)       6,676,826       5,840,167
                                            --------------  --------------


Contact Information

  • Contact:

    Norbert Sporns
    Chief Executive Officer
    HQ Sustainable Maritime Industries Inc.
    Toll free: 866-907-1757
    Fax: 206-621-0318
    Email Contact