SOURCE: HQ Sustainable Maritime Industries, Inc.

May 13, 2008 21:21 ET

HQ Sustainable Maritime Reports Results for the First Quarter of 2008

SEATTLE, WA--(Marketwire - May 13, 2008) - HQ Sustainable Maritime Industries, Inc. (AMEX: HQS) ("HQS" or the "Company"), a vertically integrated aquatic product producer, processor and distributor of toxin free tilapia, and processor and distributor of marine-bio products with operations in the People's Republic of China ("PRC"), today announced its financial results for the quarter ended March 31, 2008.

First Quarter 2008 Highlights

--  Sales were $9.2 million, up 17.3% from the first quarter of 2007
--  Gross profit was $3.9 million, an increase of 50.5% from the first
    quarter of 2007
--  Gross profit margin was 42.3%, up from 33.0% in the first quarter of
    2007
--  Operating income was $724,077, compared to a loss of $241,675 in the
    first quarter of 2007
--  EBITDA was $1.1 million, up from $62,207 in the first quarter of 2007
--  Net loss to shareholders was $1.0 million compared to a loss of $1.6
    million in the first quarter of 2007
--  Received a large order for its new frozen block fillets and for frozen
    all natural tilapia fillets from a global seafood supplier to fast food and
    retail chains
    

First Quarter 2008 Results

"HQS was very fortunate not to have been more severely affected by the severe winter weather that China experienced at the end of 2007 and beginning of 2008. While tilapia producers in mainland China suffered large losses, the aquaculture production and processing part of our business was not harmed and led HQS to year on year sales growth. During what traditionally is a seasonally slow quarter, we expanded our aquatic product processing capabilities at our current facility while construction of our new feed mill and processing facility continued," said Mr. Norbert Sporns, President and CEO of HQ Sustainable Maritime Industries, Inc. "We continued to develop HQS into a vertically-integrated feed and aquaculture production, processing and distribution company, as well as a leading marine bio processing and distribution company. Our environmentally sustainable methods allow us to produce high quality products that we believe are gaining increasing attention from international consumers."

HQS' sales in the first quarter of 2008 were $9.2 million, representing an increase of 17.3% year-over-year when compared to the $7.8 million in sales in the first quarter of 2007. Revenue from the aquaculture segment was $6.5 million for the three months ended March 31, 2008, up 15.9% from the $5.6 million in revenues in the first quarter of 2007. Revenues from this segment improved because of increased direct sales. Revenue from the Company's marine bio segment was $2.7 million for the three months ended March 31, 2008, up 20.9% from the $2.2 million in revenues in the first quarter of 2007.

Gross profit in the first quarter of 2008 was $3.9 million, representing an increase of 50.5% year-over-year when compared to the $2.6 million gross profit in the first quarter of 2007. Gross profit margin was 42.3%, up from 33.0% reported in the first quarter of 2007. Gross profit margin for the aquaculture segment was 29.0% for the three months ended March 31, 2008, compared to 14.0% reported the first quarter of 2007. Improvement in gross profit margin was due to higher selling prices for tilapia products and increased sales volume. Gross profit margin for the Company's marine bio segment was 76.0% for the three months ended March 31, 2008, compared to 82.0% in the first quarter of 2007. Profit margin decreased in the first quarter of 2008 because of a different sales mix of lower margin products.

Operating income in the first quarter of 2008 was $724,077, compared to an operating loss of $241,675 in the first quarter of 2007.

EBITDA was $1.1 million in the first quarter of 2008, up from $62,207 in the first quarter of 2007.

Finance costs in the first quarter of 2008 were $1.6 million, which management believes will decrease throughout the remaining three quarters of 2008. Net loss available to shareholders in the first quarter of 2008 was $1.0 million, compared to a loss of $1.6 million in the first quarter of 2007.

The Company had significant foreign currency gains of $2.8 million in the first quarter of 2008, compared to foreign currency gains of $275,580 in the first quarter of 2007. These gains took place because of the continuing weakness of the U.S. Dollar compared to the Chinese Renminbi. There can be no assurances that these currency gains will continue or that the value of the Chinese Renminbi compared to the U.S. Dollar will not decrease.

Loss per diluted share in the first quarter of 2008 was $0.089, compared to a loss of $0.235 in the first quarter of 2007.

The weighted average number of diluted shares in the first quarter of 2008 was 11,572,458. The number of shares outstanding as of March 31, 2008 was 11,843,545.

Financial Condition

As of March 31, 2008, cash and cash equivalents totaled $44.7 million, down from $47.0 million as of December 31, 2007. The Company had current assets of $72.0 million, down from $73.4 million at the end of 2007. Current liabilities were $7.2 million as of March 31, 2008 and the Company's long term debt consisted of $3.8 million of convertible promissory notes outstanding, excluding the current portion. Shareholders' equity was $74.3 million as of March 31, 2008, an 8.0% increase from $68.8 million as of December 31, 2007. Cash used in operating activities was $2.0 million in the first quarter of 2008, primarily due to the payment of accounts payable and accrued expenses.

Outlook for 2008

A new feed mill is being constructed that management anticipates will begin production in the third quarter of 2008. Management believes the new feed mill will be able to produce 100,000 metric tons of feed a year.

Current tilapia and shrimp processing is being expanded from 20,000 metric tons (live weight) of annual production capability to 30,000 metric tons (live weight) of annual production capability. A new processing facility is being constructed that management expects will double processing capability to 60,000 metric tons (live weight) per year. The new processing facility is scheduled to be completed in the first half of 2009.

"We are an American growth company responding to a unique global opportunity to help build an environmentally sustainable alternative to open-ocean fishing. We forecast continuing strong growth in the aquaculture industry. HQS will continue to fulfill its vertical integration strategy, which will allow us greater control over high quality production, processing and distribution. Sales of our TILOVEYA brand tilapia products will continue to lead our growth, and we are developing new direct sales of tilapia products in North America and Europe. We are also developing additional high-value and high-quality nutraceutical and healthcare products from marine biomass that would otherwise be considered waste," said Mr. Sporns.

Recent Events

On January 1, 2008, a new PRC Enterprise Income Tax Law (EIT) became effective that provides that income derived from processing of fishery products and processing of agricultural products will be exempt from EIT taxes. Accordingly, the existing fish processing unit and the new feed mill (which is under construction) will both benefit from a "0%" tax rate in 2008 and thereafter. The income tax rate for the Company's marine bio processing subsidiary increased from 15% in 2007 to 18% in 2008, and will increase yearly until it reaches 25% in 2012.

In January 2008, the Company received Chinese government "Organic" certification for its tilapia production, processing, labeling, marketing and management system.

In February 2008, the Company participated in the "International Boston Seafood Show," and the Company's CEO was a panelist on "Improving the Safety of Farmed Seafood," part of the conference program.

March 31, 2008, the Company announced that it received a large order from a global seafood processing company for HQS new frozen block fillets and frozen toxin-free all natural tilapia fillets. This customer supplies major fast-food and retail chains with tilapia as a sustainable alternative to ocean harvested fish. The Company announced the order because it will have a material effect on the Company's finances, as well as a significant impact on the Company's production and processing of tilapia products. Industry practice is not to disclose the names of major customers.

In April 2008, the Company presented its line of products that meet Aquaculture Certification Council (ACC) Best Aquaculture Practices (BAP) for tilapia aquaculture operations at the European Seafood Exposition. At the show one of HQS' new products, "Italian Spice Flavored Tilapia Cakes" was judged as a finalist in the new product competition.

In April 2008, the Company presented its range of recently certified organic tilapia products at the "All Things Organic & US Food Export Showcase" in Chicago, Illinois.

In May 2008, the Company will debut its branded line of TILOVEYA frozen tilapia products at the National Restaurant Association Show in Chicago from May 17th to the 20th, featuring its line of organic and smoked 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, 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

HQ Sustainable Maritime Industries, Inc. management will host a conference call at 11:00 a.m. Pacific Time on Wednesday, May 14, 2008 to discuss financial results for the quarter ended March 31, 2008. The conference call will include Mr. Norbert Sporns, Chairman and Chief Executive Officer; and Mr. Jean-Pierre Dallaire, CFO. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (888) 481-7939. International callers should call (617) 847-8707. The Conference Passcode is 18408422. If you are unable to participate in the call at that time, replay of the conference call will be available from 11:00 a.m. Pacific Time on May 14 through Wednesday, May 28. To access the replay, please call (888) 286-8010. International callers should call (617) 801-6888. The Conference Pass Code is 49120138.

About HQ Sustainable Maritime Industries, Inc.

HQ Sustainable Maritime Industries, Inc. is a U.S. vertically integrated aquaculture and aquatic product producing, processing and distributing company with operations in the province of Hainan, in the South China Sea, the People's Republic of China. The Company is dedicated to environmentally sustainable toxin-free production and processing methods which give its customers the highest-quality products possible. The Company holds HACCP certification from the U.S. FDA and has an EU Code assignment of quality. The processing plant and the Company's operations were certified by the Aquaculture Certification Council (ACC) to meet Best Aquaculture practices (BAP) set by the Global Aquaculture Alliance (GAA). The Company's nutraceutical and healthcare products have passed stringent laboratory tests and are certified by the China Ministry of Health, and also are HACCP and PRC GMP certified. HQS' corporate headquarters is in Seattle. 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
                                              ----------------------------
                                                March 31       March 31
                                                  2008           2007
                                              -------------  -------------
Sales                                         $   9,210,490  $   7,849,730
   Cost of Sales                                  5,310,702      5,259,284
                                              -------------  -------------
   Gross Profit                                   3,899,788      2,590,446

   Selling and Distribution Expenses                229,176         98,613
   Marketing and Advertising                      1,164,518      1,244,086
   General and Administrative Expenses            1,452,800        972,937
   Depreciation and Amortization                    339,755        294,685
   (Recovery) / Provision for Doubtful              (10,538)       221,800
                                              -------------  -------------

   Income/(Loss) from Operations                    724,077       (241,675)
   Finance Costs                                  1,639,405      1,268,205
   Other Expenses / (Income)                          1,765         (9,197)
                                              -------------  -------------

   Loss Before Income Taxes                        (917,093)    (1,500,683)
   Income Taxes
      Current                                       112,350         65,812
      Deferred                                            -              -
                                              -------------  -------------

Net Loss Attributable to Shareholders         $  (1,029,443) $  (1,566,495)
                                              -------------  -------------


Other Comprehensive Income
   Foreign Currency Translation Gain (Loss)       2,763,843        275,580
                                              -------------  -------------

Comprehensive Income                          $   1,734,400  $  (1,290,915)
                                              =============  =============

   Net Loss Per Share
      Basic                                   $      (0.089) $      (0.235)
      Diluted (After Reverse Split)           $      (0.089) $      (0.235)
                                              =============  =============
Weighted Average Common Shares
      Basic                                      11,572,458      6,676,826
                                              =============  =============
      Diluted (After Reverse Split)              11,572,458      6,676,826
                                              =============  =============


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


                                                     Three Months Ended
                                                  -------------------------
                                                    March 31   December 31
                                                      2008         2007
                                                  ------------ ------------
ASSETS
Current Assets
   Cash and Cash Equivalents                      $ 44,721,983 $ 46,959,908
   Trade Receivables, Net of Provisions             25,415,374   25,234,502
   Inventories                                       1,468,991      877,716
   Prepayments                                         415,564      350,116
   Future Income Taxes                                  26,097       26,097
                                                  ------------ ------------

Total Current Assets                                72,048,009   73,448,339
                                                  ------------ ------------

Other Assets
   Deferred Taxes                                      910,278      873,865
   Deferred Expenses                                    35,645       84,317
                                                  ------------ ------------
                                                       945,923      958,182

Property, Plant and Equipment, Net                   7,879,389    7,716,615
Construction in Progress                             2,863,104      949,728
Intangible Assets                                    1,481,753    1,254,002
                                                  ------------ ------------

TOTAL ASSETS                                      $ 85,218,178 $ 84,326,866
                                                  ============ ============

LIABILITIES
Current Liabilities
   Accounts Payable and Accrued Expenses          $  5,445,561 $  8,935,928
   Tax Payable                                         114,691      956,289
   Due to Directors                                  1,151,934    1,544,350
   Current Portion of Promissory Notes                 475,284      461,284
                                                  ------------ ------------

Total Current Liabilities                            7,187,470   11,897,851

Other Liabilities
   Convertible Promissory Notes, Net of Discount     3,772,173    3,653,352
                                                  ------------ ------------

                                                  ------------ ------------
TOTAL LIABILITIES                                 $ 10,959,643 $ 15,551,203

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, 11,843,545 and 11,511,317
    Shares Issued and Outstanding as of March 31,
    2008 and December 31, 2007 Respectively             11,511       11,511
   Additional Paid-In Capital                       60,935,343   57,142,204
   Accumulated Other Comprehensive Income            7,353,903    4,590,060
   Retained Earnings                                 1,167,624    2,373,825
   Appropriation of Retained Earnings                4,790,054    4,657,963
                                                  ------------ ------------

TOTAL SHAREHOLDERS' EQUITY                        $ 74,258,535 $ 68,775,663

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $ 85,218,178 $ 84,326,866
                                                  ============ ============


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


                                                    Three Months Ended
                                                --------------------------
                                                  March 31      March 31
                                                    2008          2007
                                                ------------  ------------
OPERATING ACTIVITIES
   Net Loss                                     $ (1,029,443) $ (1,566,495)

   Non-Cash Items:
      Depreciation and Amortization                  339,755       294,685
      Loss on Disposal of Fixed Assets                 1,765             -
   Financial and Other Non-Cash Services           1,908,580     1,188,505

   Change in Non-Cash Working Capital Items:
      Inventories                                   (591,275)      141,928
      Trade Receivables, Net of Provisions          (180,872)      230,541
      Prepayments                                    (65,448)     (197,681)
      Accounts Payable and Accrued Expenses       (1,541,200)     (253,468)
      Taxes (Recoverable)                           (841,598)     (109,036)
                                                ------------  ------------

Cash Flow Used in Operating Activities            (1,999,736)     (271,021)
                                                ------------  ------------

INVESTING ACTIVITIES
   Acquisition of Property, Plant and Equipment     (142,307)      (39,457)
   Sales Proceeds from Disposal of Fixed Assets        2,375             -
   Additions to Construction in Progress          (1,917,782)     (299,441)
   Acquisition of Intangible Assets                  (76,958)            -
                                                ------------  ------------

Cash Flow Used in Investing Activities            (2,134,672)     (338,898)
                                                ------------  ------------

FINANCING ACTIVITIES
   Cash Proceeds from Issuance of Common Stock       137,536       120,000
   Due (to) / From Directors                        (392,416)     (131,597)
   Receipts / (repayment) From Related Parties             -        67,603
   Bank Loan Repayments                                    -       (52,750)
   Deferred Expenses                                       -       137,270
                                                ------------  ------------

Cash Flow (used in) / Generated From Financing
 Activities                                         (254,880)      140,526
                                                ------------  ------------

Net Change in Cash and Cash Equivalents           (4,389,288)     (469,393)
Effect of Exchange Rate Changes on Cash and
 Cash Equivalents                                  2,151,363       252,177
Cash and Cash Equivalents, Beginning of Period    46,959,908    11,389,375
                                                ------------  ------------

Cash and Cash Equivalents, End of Period        $ 44,721,983  $ 11,172,159
                                                ============  ============

Supplementary Cash Flows Disclosures
   Interest Paid                                $          -  $     17,593
                                                ============  ============

   Taxes Paid                                   $    975,806  $    176,820
                                                ============  ============

Supplementary Disclosure of Non-Cash Investing
 and Financing Activities
   Common Shares Issued for Services            $  3,673,349  $          -
                                                ============  ============


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


                                                    Three Months Ended
                                                --------------------------
                                                  March 31      March 31
                                                    2008          2007
                                                ------------  ------------
Net Loss Attributable to Shareholders           $ (1,029,443) $ (1,566,495)
Income Taxes                                         112,350        65,812
Finance Costs                                      1,639,405     1,268,205
Depreciation and Amortization                        339,755       294,685
                                                ------------  ------------
EBITDA                                          $  1,062,067  $     62,207

Contact Information