SOURCE: HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc.

March 15, 2010 16:08 ET

HQ Sustainable Maritime Industries, Inc. Announces Fourth Quarter and Year-End 2009 Results

SEATTLE, WA--(Marketwire - March 15, 2010) - HQ Sustainable Maritime Industries, Inc. (NYSE Amex: HQS) ("HQS" or the "Company"), a leading producer of functional, sustainable Tilapia biomass, including fish and personal healthcare products, today reported financial results for the fourth quarter and full year ended December 31, 2009.

Fourth Quarter 2009 Results

For the fourth quarter of 2009, net sales increased 8.2% to $23.3 million, compared to $21.5 million for the fourth quarter of the prior year. The increase in net sales was primarily the result of a strong performance in the health and bio-product segment.

Aquaculture product segment net sales decreased 3.2% to $13.6 million, compared to $14.1 million in the fourth quarter of 2008. The aquaculture product segment net sales decrease is primarily related to a reduction in the average market price for the Company's range of products slightly offset by an increase in volume compared to the fourth quarter of 2008. Health and bio-product segment net sales increased 20% to $8.3 million in the fourth quarter of 2009, compared to $7.4 million in the same period last year. In addition, in December of 2009 the Company's new state-of-the-art feed mill began to generate revenue with net sales for the fourth quarter of 2009 of $1.3 million.

Gross profit for the fourth quarter of 2009 decreased 2% to $9.4 million, compared to $9.6 million in the fourth quarter of the prior year. The Company's gross profit margin decreased to 40.2% in the fourth quarter of 2009 versus 44.4% in the fourth quarter of 2008. The gross profit margin decrease is primarily related to decrease in tilapia prices in 2009 compared to 2008.

Operating income for the fourth quarter of 2009 decreased to $2.1 million, from $7.6 million in the same period of the prior year. The decrease experienced in the quarter was primarily the result of the provision for potential losses in the Company's receivables in its health and bio-product segment, as well as an increase in advertising and marketing expenses within the same segment. EBITDA for the fourth quarter of 2009 decreased to $1.7 million, compared to $7.8 million for the same period last year.

Net income for the fourth quarter of 2009 was $1.6 million, or $0.12 per diluted share compared to net income of $6.4 million, or $0.53 per diluted share in the fourth quarter of 2008. Net income during the fourth quarter of 2009 was affected by increases in doubtful accounts of approximately $2.9 million and an increase in marketing and advertising expenses by approximately $1.8 million from the health and bio-product segment.

"The Company successfully expanded its sales of high quality, health and bio-products made from Tilapia by-products, in response to a landmark shift in China food safety legislation passed in March of 2009, which caused the closure of several of China's health and food product manufacturing facilities. This unprecedented opportunity for our Company in China has resulted in a short term increase in receivables and higher marketing expenses in our health and bio-product segment," said Norbert Sporns, HQ Sustainable Maritime's President and Chief Executive Officer. "In 2010, we believe our efforts to reposition our Company behind higher margin product categories combined with increased operating efficiencies from our vertically integrated operations will enable us to realize an exceptional period of strong sales, margin expansion, and long-term profitable growth."

Full Year 2009 Results

For the full year of 2009, net sales increased 6.7% to $72.3 million compared to $67.7 million in the same period last year. The 2009 increase in net sales compared to 2008 is primarily the result of an increase in volume and average sales price originating from new products in the health and bio-product segment.

Aquaculture product segment net sales increased 0.3% to $45.5 million, compared to $45.4 million in the full year of 2008. In 2009, the value of the Company's tilapia sales were reduced mainly due to a reduction in the average market price of the Company's products slightly offset by increased volume compared to 2008. The Company's aquaculture net sales in 2009 and 2008 were realized from three sources including tilapia, shrimp and ocean caught fish. Health and bio-product segment net sales increased 14% to $25.5 million in the year 2009, compared to $22.4 million in the same period last year. The health and bio-product net sales increase is primarily related to an increase in volume from new product introductions.

Gross profit for the full year of 2009 increased 11.3% to $30.2 million, compared to $27.1 million in the full year of 2008. The Company's gross profit margin increased 170 basis points to 41.8% in the full year of 2009 versus 40.1% in the same period last year. The increase in gross profit margin is primarily due to margin expansion in both the aquaculture and bio-product segments.

Operating income for the full year of 2009 decreased to $11.1 million, from $15.0 million in the same period of the prior year. EBITDA for the full year decreased to $12.5 million, compared to $16.5 million for the same period last year.

Net income for the full year of 2009 was $8.1 million, or $0.60 per diluted share compared to net income of $10.0 million, or $0.79 per diluted share in 2008. Net income during the full year of 2009 was affected by increases in doubtful accounts of approximately $3.6 million and an increase in marketing and advertising expenses by approximately $3.1 million from the health and bio-product segment.

Balance Sheet

As of December 31, 2009, cash and cash equivalents were $37.0 million, compared to $54.9 million at December 31, 2008. The Company had total assets of $119.8 million, an increase of $19.6 million, compared to $100.2 million at the end of the previous year. As of December 31, 2009, the Company had no long term debt.

Company Updates

--  In December of 2009 the Company's new state-of-the-art feed mill began
    to generate revenue with net sales for the fourth quarter of 2009 of
    $1.3 million

--  The Company received ISO 9001 and 22000 certifications for both the
    seafood and feed mill plants in the fourth quarter of 2009.

    -  ISO 9001 is the internationally recognized standard for the quality
       management of businesses. It applies to the processes that create
       and control the products and services an organization supplies. It
       prescribes systematic control of activities to ensure that the needs
       and expectations of customers are met. It is designed and intended
       to apply to virtually any product or service, made by any process
       anywhere in the world.

     - ISO 22000 specifies requirements for a food safety management system
       where an organization in the food chain needs to demonstrate its
       ability to control food safety hazards in order to ensure that food
       is safe at the time of human consumption. It is applicable to all
       organizations, regardless of size, which are involved in any aspect
       of the food chain and want to implement systems that consistently
       provide safe products.

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, other expenses, 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. EDT on March 15, 2010 to discuss its financial results for the fourth quarter of 2009. The call will be broadcast live over the Internet hosted at the Investor Relations section of HQ Sustainable Maritime's website at http://www.hqfish.com/, and will be archived online through March 29, 2010. In addition, domestic participants may dial 877-407-9039 and international participants may dial 201-689-8470 to listen to the live broadcast.

A telephonic playback will be available from 7:30 p.m. EDT, March 11, 2010, through March 29, 2010. Domestic participants can dial 877-660-6853 and international participants can dial 201-612-7415 to hear the playback. The account number is 3055 and the pass code is 346479.

About HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc. is a leader in the production and marketing of functional, sustainable, biomass products focused on Tilapia aquaculture through vertically integrated operations. HQS practices cooperative farming of sustainable aquaculture, using all-natural enriched feeds. The Company produces and sells wholesale feed products as well as retail focused nutraceutical and health products including Omojo branded health products through direct and franchise sales in China. Additionally, the Company produces and sells Lillian's Healthy Gourmet Meals and other fish products in the United States. The Company conducts fish processing, production and sales with operations based in the island province of Hainan, in the South China Sea. The Company holds HACCP and GMP certification from the U.S. FDA and the EU Code assignment of quality, permitting its products to be sold in these international markets. It has also achieved the ISO 9001 quality management system standards certification and the ISO 22000 certification for quality in food safety. The Aquaculture Certification Council, Inc. certified that HQS tilapia farming and processing standards met Best Aquaculture Practices and Moody International Certification Ltd. The Company's certified co-op farming and processing are in conformity with the new Global G.A.P., the Global Partnership for Good Agriculture Practice, standards for Tilapia. The Chinese government gave organic certification to the Company's tilapia processing, production, labeling, marketing and management system. A new Feed Mill has been completed producing principally Tilapia feed and is capable of 100,000 MT annual production. 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)
        CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

                                                    2009          2008
                                                ------------  ------------
Sales                                           $ 72,292,011  $ 67,723,283
Cost of sales                                     42,096,207    40,594,188
                                                ------------  ------------
Gross profit                                      30,195,804    27,129,095
Selling and distribution expenses                  1,393,367     1,550,860
Marketing and advertising                          7,487,170     4,426,378
General and administrative expenses                6,768,467     6,205,993
Depreciation and amortization                        335,917       388,201
Doubtful accounts (Recovery)                       3,114,387      (491,223)
                                                ------------  ------------
Income from operations                            11,096,496    15,048,886
Finance costs                                      1,097,410     2,662,734
Fair value change in derivative financial
 instruments                                        (678,378)           --
  
Other expense (income)                               364,472      (567,876)
                                                ------------  ------------
Income before income taxes                        10,312,992    12,954,028
     Current                                       2,323,812     2,094,976
     Deferred                                       (110,951)      818,364
                                                ------------  ------------
Net income attributable to shareholders            8,100,131    10,040,688
OTHER COMPREHENSIVE INCOME
     Foreign currency translation income            (107,200)    5,025,896
                                                ------------  ------------
COMPREHENSIVE INCOME                            $  7,992,931  $ 15,066,584
                                                ============  ============

NET INCOME PER SHARE
                                                ------------  ------------
     Basic                                      $       0.62  $       0.84
                                                ============  ============
     Diluted                                    $       0.60  $       0.79
                                                ============  ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
                                                ------------  ------------
     Basic                                        13,154,320    11,905,739
                                                ============  ============
     Diluted                                      13,397,342    13,198,438
                                                ------------  ------------





        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                        CONSOLIDATED BALANCE SHEETS
              FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

                                                    2009          2008
                                                ------------- -------------
ASSETS
CURRENT ASSETS:
      Cash and cash equivalents                 $  36,957,303 $  54,920,548
      Trade receivables, net of provisions         58,186,055    27,689,410
      Inventories                                   2,204,931     1,041,628
      Prepayments                                   1,194,910       464,919
                                                ------------- -------------
TOTAL CURRENT ASSETS                               98,543,199    84,116,505
                                                ------------- -------------

PROPERTY, PLANT AND EQUIPMENT, NET                 20,150,568     8,315,593
CONSTRUCTION IN PROGRESS                               21,384     6,622,501
INTANGIBLE ASSETS                                     979,738     1,112,904
                                                ------------- -------------
                                                   21,151,690    16,050,998
OTHER ASSETS
      Deferred taxes                                 110,936             --

      Deferred expenses                                    --        18,770
                                                ------------- -------------
                                                     110,936         18,770
                                                ------------- -------------
TOTAL ASSETS                                    $ 119,805,825 $ 100,186,273
                                                ============= =============

                                                         2009          2008
                                                ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
      Accounts payable and accrued liabilities  $   6,770,470 $   5,787,514
      Taxes payable                                   566,054       823,382
      Due to directors                                     --       698,429
      Derivative liabilities                          445,694            --

      Current portion of promissory notes                  --     4,603,920
                                                ------------- -------------
TOTAL CURRENT LIABILITIES                           7,782,218    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,
       14,681,002 and 12,085,846 shares issued
       and outstanding as of December 31, 2009
       and December 31, 2008 respectively              14,681        12,086
      Additional paid-in capital                   79,274,452    61,572,410
      Accumulated other comprehensive income        9,508,756     9,615,956
      Retained earnings                            15,744,566    10,510,961
      Appropriation of retained earnings
       (reserves)                                   7,481,052     6,561,515
                                                ------------- -------------
TOTAL SHAREHOLDERS' EQUITY                        112,023,607    88,273,028

                                                ------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $ 119,805,825 $ 100,186,273
                                                ------------- -------------





        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


                                                    2009          2008
                                                ------------  ------------
OPERATING ACTIVITIES
Net Income                                      $  8,100,131  $ 10,040,688
Non-Cash Item
    Depreciation and amortization                  1,442,895     1,456,456
    Loss/(gain) on disposal of fixed assets          446,598      (491,253)
    Financial and other non cash services          1,327,330     3,032,822
    Deferred income taxes                           (110,953)      818,362
    Fair value change in derivative financial
     instruments                                    (678,378)
    Change in non-cash working capital items:
        Inventories                               (1,164,186)      (76,042)
        Trade receivables, net of provisions     (30,492,188)     (656,094)
        Prepayments                                 (747,028)      (44,576)
        Accounts payable and accrued expenses        964,546    (1,329,386)
        Taxes payable                               (270,815)     (166,708)
                                                ------------  ------------
Cash flow (used in)/generated from operating
 activities                                      (21,182,048)   12,584,269
                                                ------------  ------------

INVESTING ACTIVITIES
Acquisition of property, plant and
 equipment-net                                    (6,969,607)   (1,310,683)
Sale proceeds of disposal of fixed assets             22,165       495,449
Construction in progress                             (21,388)   (5,398,904)
                                                ------------  ------------
Cash flow used in investing activities            (6,968,830)   (6,214,138)

FINANCING ACTIVITIES
Cash proceeds from issuance of common stock       10,774,720       137,536
Due (to)/from directors                             (708,220)     (845,921)
                                                ------------  ------------
Cash flow (used in)/generated from financing
 activities                                       10,066,500      (708,385)
                                                ------------  ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS          (18,084,378)    5,661,746
                                                ------------  ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
 CASH EQUIVALENTS                                    121,133     2,298,894
Cash and cash equivalents, beginning of year      54,920,548    46,959,908
                                                ------------  ------------
Cash and cash equivalents, end of year          $ 36,957,303  $ 54,920,548
                                                ------------  ------------





        HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                    EBITDA  RECONCILATION TO NET INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


                                                   Twelve Months Ending
                                                --------------------------
                                                December 31,  December 31,
                                                    2009          2008

Net Income/(Loss) Attributable to Shareholders  $  8,100,131  $ 10,040,688
Income Tax                                         2,212,861     2,913,340
Finance Costs                                      1,097,410     2,662,734
Fair value change in derivative financial
 instruments                                        (678,378)           --

Other expense (income)                               364,472      (567,876)
Deprecation and Amortization                       1,442,895     1,456,456
                                                ------------  ------------
EBITDA                                          $ 12,539,391  $ 16,505,342
                                                ------------  ------------

Contact Information

  • CONTACTS:
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    Katie Turner
    Integrated Corporate Relations, Inc.
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