SOURCE: HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc.

November 09, 2010 07:28 ET

HQ Sustainable Maritime Industries, Inc. Announces Third Quarter 2010 Financial Results

Third Quarter Sales Increased 27% to $28.2 Million, Compared to $22.2 Million Last Year

Company Generated Third Quarter EBITDA of $8.0 Million, an Increase of 63%

Net Income Grew 70% to $6.9 Million, Compared to $4.0 Million Last Year

SEATTLE, WA--(Marketwire - November 9, 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 third quarter ended September 30, 2010.

Third Quarter 2010 Results
For the third quarter of 2010, sales increased 27% to $28.2 million, compared to $22.2 million for the third quarter of the prior year. The increase in sales was primarily the result of strength from the new feed products added in late 2009.

Aquaculture product segment sales decreased by 4% to $13.4 million, compared to $14.0 million in the third quarter of 2009. The aquaculture product segment sales decrease is primarily related to an overall volume reduction of shrimp and ocean caught fish products sold in third quarter of 2010 compared to the third quarter of 2009, slightly offset by an increase in tilapia sales.

Health and bio-product segment sales increased by 6% to $8.6 million in the third quarter of 2010, compared to $8.1 million in the same period last year. In addition, the Company's new feed mill generated sales of $6.2 million.

Gross profit for the third quarter of 2010 decreased 3% to $9.5 million, compared to $9.8 million in the third quarter of the prior year. The Company's gross profit ratio decreased to 34% in the third quarter of 2010 versus 44.0% in the third quarter of 2009. Although higher sales were recognized in the third quarter of 2010, the gross profit ratio decreased mostly due to a lower mix of segment gross profit from the feed products operations in the third quarter of 2010.

For the third quarter of 2010 operating income increased by $2.9 million or 60% to $7.8 million compared to $4.9 million in the same period of the prior year. The operating income increase experienced in the third quarter of 2010 was primarily due to the recovery of bad debt, as the aging of receivables improved compared to the prior year period, which was slightly offset by lower gross profit. In the third quarter of 2010, the Company realized a recovery of $2.0 million in doubtful accounts compared to the recognition of a potential loss of $1.3 million in doubtful accounts in the third quarter of 2009.

EBITDA for the third quarter of 2010 increased 63% or $3.1 million to $8.0 million, compared to $4.9 million for the same period last year.

Net income for the third quarter of 2010 increased by 70% or $2.8 million to $6.9 million, or $0.40 per diluted share calculated on 16.6 million diluted shares compared to net income of $4.0 million, or $0.27 per diluted share calculated on 14.8 million diluted shares in the third quarter of 2009. Although the overall gross profit was less in the third quarter of 2010, the bad debt recovery had the most significant positive impact on the current quarterly results.

"We are extremely pleased with our third quarter financial performance. Our management team continues to execute on our operational and strategic initiatives for growth," said Norbert Sporns, HQ Sustainable Maritime's President and Chief Executive Officer. "We believe we have laid the groundwork for future financial and operational successes through our vertically integrated approach to all-natural Tilapia aquaculture bio-mass product development and distribution. We are very optimistic about our outlook for the remainder of 2010 and more importantly fiscal 2011 as we focus on long-term profitable growth and strong cash flow generation."

Nine Month 2010 Results
For the first nine months of 2010, sales increased by 29% to $63.2 million compared to $49 million for the same period last year. The sales increase is primarily related to the growth in sales from the Company's new feed product segment. Gross profit decreased 2% to $20.4 million compared to gross profit of $20.8 million for the first nine months of 2009. Operating income increased by 36% to $11.9 million compared to $8.7 million for the first nine months of 2009. Net income increased by 55% to $9.7 million, or $0.58 per diluted share, compared to net income of $6.2 million, or $0.47 per diluted share for the same period last year.

Balance Sheet
As of September 30, 2010, cash and cash equivalents were $64.5 million, compared to $37 million at December 31, 2009. As of September 30, 2010 the Company had no long term debt, except derivative liabilities mostly related to the warrants issued in August 2010, and which are non-cash.

Company Updates

  • In October 2010, the Company expanded distribution of its Lillian's Healthy Gourmet meals, which are now available in 33 Whole Foods Market and 106 Food City locations, as part of the Company's retail supermarket chain rollout plan in North America. The Company will continue to work with its sales and marketing team to expand Lillian's Healthy Gourmet consumer brand awareness and long-term distribution relationships in North America in the coming months.

  • In September 2010, the Company opened its own subsidiary and health products retail store in Shanghai as part of its expanded direct outreach to the Chinese consumer. The Shanghai store is the first of several HQS health products retail stores that the Company plans to open in the Shanghai area, as well as additional store openings in other tier 1 cities.

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 and 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 conference call is scheduled to begin at 8:30 a.m. ET on November 9, 2010. 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 November 23, 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 11:30 a.m. ET, November 9, 2010, through November 23, 2010. Domestic participants may dial (877) 870-5176 and international participants may dial (858) 384-5517 to hear the playback. The passcode is 359589

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. The Feed Mill has been producing principally Tilapia feed since December of 2009 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)  
   
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME  
   
    Three Months Ended     Nine Months Ended  
    September 30, 2010     September 30, 2009     September 30, 2010     September 30, 2009  
                                 
SALES   $ 28,210,259     $ 22,156,867     $ 63,242,341     $ 49,007,445  
COST OF SALES     18,703,247       12,398,275       42,831,177       28,183,355  
GROSS PROFIT     9,507,012       9,758,592       20,411,164       20,824,090  
SELLING AND DISTRIBUTION EXPENSES     466,832       417,076       1,255,714       961,378  
MARKETING AND ADVERTISING     1,269,337       1,703,664       3,347,667       4,469,149  
GENERAL AND ADMINISTRATIVE EXPENSES     1,815,708       1,432,869       5,728,567       5,062,834  
DEPRECIATION AND AMORTIZATION     128,082       30,795       332,487       298,335  
(RECOVERY OF)/DOUBTFUL ACCOUNTS     (1,977,968 )     1,309,803       (2,103,630 )     1,328,990  
INCOME FROM OPERATIONS     7,805,021       4,864,385       11,850,359       8,703,404  
FINANCE COSTS     259,567       155,175       266,998       840,400  
FAIR VALUE CHANGE IN DERIVATIVE FINANCIAL INSTRUMENTS     (254,321 )     (154,200 )     (619,027 )     75,798  
OTHER INCOME     (60,505 )     (8,384 )     (98,319 )     (47,149 )
INCOME BEFORE INCOME TAXES     7,860,280       4,871,794       12,300,707       7,834,355  
INCOME TAXES                                
  CURRENT     993,614       824,360       2,601,108       1,586,831  
  DEFERRED     -       -       -       -  
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS     6,866,666       4,047,434       9,699,599       6,247,524  
OTHER COMPREHENSIVE INCOME                                
  FOREIGN CURRENCY TRANSLATION (LOSS)/GAIN     2,108,492       (51,777 )     2,391,070       (104,177 )
COMPREHENSIVE INCOME   $ 8,975,158     $ 3,995,657     $ 12,090,669     $ 6,143,347  
NET INCOME PER SHARE                                
  BASIC   $ 0.420     $ 0.297     $ 0.636     $ 0.491  
  DILUTED   $ 0.399     $ 0.268     $ 0.577     $ 0.472  
WEIGHTED AVERAGE COMMON SHARE OUTSTANDING                                
  BASIC     16,352,132       13,639,455       15,244,167       12,716,956  
  DILUTED     16,552,132       14,840,283       15,737,106       13,912,762  
 
 
 
 
 
HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
 
(INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
  September 30, 2010   December 31, 2009
  (Unaudited)   (Audited)
ASSETS          
CURRENT ASSETS:          
  Cash and cash equivalents $ 64,469,046   $ 36,957,303
  Trade receivables, net of provisions   52,052,376     58,186,055
  Inventories   2,187,885     2,204,931
  Prepaid expenses   2,712,784     1,194,910
TOTAL CURRENT ASSETS   121,422,091     98,543,199
PROPERTY, PLANT AND EQUIPMENT, NET   20,235,954     20,150,568
CONSTRUCTION IN PROGRESS   -     21,384
INTANGIBLE ASSETS   979,031     979,738
OTHER ASSETS          
  Deferred taxes   113,087     110,936
  Deferred expenses   236,821     -
    349,908     110,936
TOTAL ASSETS $ 142,986,984   $ 119,805,825
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
CURRENT LIABILITIES:          
  Accounts payable and accrued expenses $ 6,610,552   $ 6,770,470
  Tax payable   1,022,718     566,054
  Due to directors   830,570     -
  Derivative liabilities   -     445,694
TOTAL CURRENT LIABILITIES   8,463,840     7,782,218
LONG-TERM LIABILITIES          
  Derivative liabilities   2,238,845     -
TOTAL LIABILITIES   10,702,685     7,782,218
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, 17,884,001 and 14,681,002 shares issued and outstanding as of September 30, 2010 and December 31, 2009   17,884     14,681
  Additional paid-in capital   87,441,271     79,281,209
  Accumulated other comprehensive income   11,899,826     9,508,756
  Retained earnings   24,996,016     15,737,809
  Appropriation of retained earnings   7,929,202     7,481,052
TOTAL SHAREHOLDERS' EQUITY   132,284,299     112,023,607
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 142,986,984   $ 119,805,825
   
   
   
   
   
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, 2010 AND 2009  
   
    2010     2009  
OPERATING ACTIVITIES                
  Net income   $ 9,699,599     $ 6,247,524  
  Non-cash items:                
  Depreciation and amortization     1,404,021       1,048,345  
  Loss of disposal of fixed assets     33,708       -  
  Transfer from construction in progress     14,910       -  
  Fair value change in derivative financial instruments     (619,027 )     (75,798 )
  Financial and other non-cash services     -       1,115,823  
  Change in non–cash working capital items:                
    Inventories     17,047       (367,571 )
    Trade receivables, net of provisions     6,133,679       (12,690,375 )
    Prepaid expenses     (1,752,419 )     (262,416 )
    Accounts payables and accrued expenses     (159,915 )     1,512,242  
    Tax payable     456,664       21,750  
Cash flow generated from (used in) operating activities     15,228,267       (3,450,476 )
INVESTING ACTIVITIES                
  Acquisition of property, plant and equipment     (1,118,605 )     (163,842 )
  Sales proceeds of disposal of fixed assets     2,203       -  
  Construction in progress     6,679       (6,570,719 )
  Deferred expenses     (234,545 )     -  
Cash flow used in investing activities     (1,344,268 )     (6,734,561 )
FINANCING ACTIVITIES                
  Net cash proceeds from issuance of common stock     10,411,077       10,774,720  
  Due to directors     825,839       (197,803 )
Cash flow generated from financing activities     11,236,916       10,576,917  
NET CHANGE IN CASH AND CASH EQUIVALENTS     25,120,915       391,880  
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS     2,390,828       230,881  
Cash and cash equivalents, beginning of period   $ 36,957,303       54,920,548  
Cash and cash equivalents, end of period   $ 64,469,046     $ 55,543,309  
SUPPLEMENTARY CASH FLOWS DISCLOSURES                
  Interest paid   $ -     $ -  
  Taxes paid   $ 2,171,657     $ 1,565,081  
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES                
  Common shares issued for services   $ -     $ 461,624  
 
 
 
 
 
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
    30-Sep       30-Sep       30-Sep       30-Sep
    2010       2009       2010       2009
Net Income Attributable to Shareholders $ 6,866,666     $ 4,047,434     $ 9,699,599     $ 6,247,524
Income Tax   993,614       824,360       2,601,108       1,586,831
Fair Value Change in Derivative Financial Instruments   (254,321 )     (154,200 )     (619,027 )     75,798
Finance Costs   259,567       155,175       266,998       840,400
Deprecation and Amortization   128,082       30,795       332,487       298,335
  EBITDA   7,993,608       4,903,564       12,281,165       9,048,888

Contact Information

  • CONTACT:
    Investor Relations
    Katie Turner
    ICR, Inc.
    646-277-1228
    Email Contact