SOURCE: HQ Sustainable Maritime Industries Inc.

HQ  Sustainable Maritime Industries Inc.

August 10, 2009 16:01 ET

HQ Sustainable Maritime Reports Second Quarter Results

EBITDA up 525% to $3.2 Million From $512,000 in Q2 2008

SEATTLE, WA--(Marketwire - August 10, 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 personal healthcare products, today announced its financial results for the second quarter ended June 30, 2009.

Second Quarter 2009 Results

For the quarter ended June 30, 2009, sales increased by 10% to $16 million, compared to $14.5 million for the second quarter of 2008. The Aquaculture Product segment accounted for $10.5 million in sales, up 9% from $9.6 million reported for the same period last year. Sales from the Health and Bio-product segment were $5.5 million, up 12% from $4.9 million for the second quarter of 2008.

Gross profit for the second quarter of 2009 increased by 37% to $6.8 million, compared to gross profit of $5 million for the same period of 2008.

Operating income for the second quarter increased to $2.8 million, from $148,840 in June 2008. The sharp increase experienced in 2009 was mainly the result of increased sales from both segments with related gross profit ratio of 43%, in comparison to a 34% gross profit ratio in 2008. EBITDA for the quarter increased 525% to $3.2 million, from $512,000 for the same period last year.

Net income for the second quarter was $1,084,736, or $0.086 cents per fully diluted share compared to a net loss of $993,438, or $0.083 cents per fully diluted share, for the second quarter of 2008.

During the first and second quarters of 2009, HQS implemented a change in accounting treatment of the fair value of its outstanding warrants and embedded conversion features of its promissory notes, resulting in a significant change in the value of these items as recognized on its income statement.

"The second quarter once again saw strong top line growth across our business segments, and though our net income was adversely affected by new accounting rules, we believe that this revenue growth demonstrates the significant leverage that our business model continues to hold. Highlights for the second quarter also included very favorable increases in our gross profit margins. Fueling this leverage and our continued vertical integration was the recent completion of our feed mill. This addition renders our feed the most efficient feed available in China to Tilapia farmers, reducing feed cost for farmers while guaranteeing for consumers quality at a very high level," said Norbert Sporns, CEO of HQ Sustainable Maritime Industries, Inc.

Mr. Sporns concluded, "Another highlight of the quarter was the successful analyst day in early June. Representatives from both the sell side and the buy side toured our facilities in Hainan, China and observed, in person, the lengths that we go to in order to ensure the highest quality global production standards. Participants were also able to assess the depth of our management team, and to view presentations on our operations. We are very proud of the operational infrastructure we have built and of the quality of the team we have put in place. We look forward to building upon this momentum and to the continued execution of our growth objectives."

For the three months ended June 30, 2009, finance costs substantially decreased to $166,780 from $803,219 for the three month period ended June 30, 2008. In 2008 the Company recognized a one-time settlement of approximately $699,000 in relation with financial fees payable to one of our financial service suppliers.

Six Month Financial Results

Revenues for the first six months of 2009 were $26.8 million, up 13% from revenues of $23.7 million in the first six months of 2008. Approximately 54% of the increase in sales revenue was a result of increased sales for the aquaculture product segment. Gross profit margin reached $11.6 million, up 30% from gross profit of $8.9 million for the first six months of 2008. Gross margin was 43% in 2009, compared to 37% for the first six months of 2008. Operating income was $3.8 million, up 340% from $872,917 for the first six months of 2008. Net income was $2.2 million, or $0.176 cents per fully diluted share, compared to a loss of $2.0 million, or $0.172 cents per fully diluted share, for the same period a year earlier.

Financial Condition

As of June 30, 2009, cash and cash equivalents were $63.1 million, compared to $54.9 million at December 31, 2008 as a result of an increase in cash from the recent common stock offering of which the company netted about $10.9 million added to an increase in cash from operations, and reduced by investments in the new feed mill. The Company had total assets of $114.3 million, up from $100.2 million at the end of the previous year. As of June 30, 2009, the Company had no long term debt.

Company Updates

--  The Company recently entered into negotiations to acquire an adjacent
    piece of property to its current processing plant, which will allow it to
    begin the construction of the new processing plant.
--  The Company also is in negotiations to acquire a piece of land in
    Wenchang, North of our processing facility for the construction of our new
    Tilapia Genetics development and Fry-breeding facility and expects to
    commence construction later this year.
--  The Company completed construction of its new feed mill, and it has
    obtained its final permits from the government to begin production of high
    quality extruded feed.
--  The Company successfully hosted its first analyst day on June 9-10,
    2009.
--  The Company successfully completed pond certification to Best
    Aquaculture Practices as determined by the Aquaculture Certification
    Council making it the only Hainan aquaculture company certified "Two Star."
    

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

The company will host a conference call at 4:30 p.m. Eastern Time on August 10, 2009 to discuss its financial results for the second 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 21955322. A replay of the conference call will be available from 5:15 p.m. Eastern Time on Monday, August 10 through Thursday, September 10, 2009. To access the replay, please call (800) 642-1687. International callers should call (706) 645-9291. The Conference Passcode is 21955322.

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 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           Six Months Ended
                    --------------------------  --------------------------
                      June 30,      June 30,      June 30,      June 30,
                        2009          2008          2009          2008
                    ------------  ------------  ------------  ------------
 Sales              $ 16,009,757  $ 14,531,487  $ 26,850,578  $ 23,741,977
 Cost of sales         9,197,821     9,572,610    15,285,329    14,883,312
                    ------------  ------------  ------------  ------------
 Gross profit          6,811,936     4,958,877    11,565,249     8,858,665
 Selling and
  distribution
  expenses               290,150       324,932       544,302       554,108
 Marketing and
  advertising          1,338,860     1,286,532     2,765,485     2,451,050
 General and
  administrative
  expenses             2,023,593     1,943,675     3,629,965     3,396,475
 Depreciation and
  amortization           340,180       362,508       767,291       702,263
 (Recovery
  of)/doubtful
  accounts               (12,379)      892,390        19,187       881,852
                    ------------  ------------  ------------  ------------
 Income from
  operations           2,831,532       148,840     3,839,019       872,917
 Finance costs           166,780       803,219       685,225     2,442,624
 Fair Value Change
  in Derivative
  Financial
  Instruments          1,055,869             -       229,998             -
 Other income            (11,754)            -       (38,765)        1,765
                    ------------  ------------  ------------  ------------
 Income before
  income taxes         1,620,637      (654,379)    2,962,561    (1,571,472)
 Income taxes
   Current               535,901       339,059       762,470       451,409
   Deferred                    -             -             -             -
                    ------------  ------------  ------------  ------------
 Net income
  attributable to
  shareholders         1,084,736      (993,438)    2,200,091    (2,022,881)
OTHER COMPREHENSIVE
 INCOME
   Foreign currency
    translation
    income               158,346     1,632,587       (52,400)    4,396,430
                    ------------  ------------  ------------  ------------
 COMPREHENSIVE
  INCOME            $  1,243,082  $    639,149  $  2,147,691  $  2,373,549
                    ============  ============  ============  ============
 NET INCOME PER
  SHARE
   Basic            $      0.088  $     (0.083) $      0.180  $     (0.172)
                    ------------  ------------  ------------  ------------
   Diluted          $      0.086  $     (0.083) $      0.176  $     (0.172)
                    ------------  ------------  ------------  ------------
 WEIGHTED AVERAGE
  COMMON SHARES
  OUTSTANDING
   Basic              12,357,334    11,908,183    12,248,272    11,740,012
                    ------------  ------------  ------------  ------------
   Diluted            12,613,361    11,908,183    12,491,289    11,740,012
                    ============  ============  ============  ============




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


                                          June 30, 2009   December 31, 2008
                                           (Unaudited)        (Audited)
                                        ----------------- -----------------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents             $      63,089,398 $      54,920,548
  Trade receivables, net of provisions         28,265,727        27,689,410
  Inventories                                   1,389,704         1,041,628
  Prepayments                                     752,715           464,919
                                        ----------------- -----------------
TOTAL CURRENT ASSETS                           93,497,544        84,116,505
                                        ----------------- -----------------
  PROPERTY, PLANT AND EQUIPMENT, NET            7,759,864         8,315,593
  CONSTRUCTION IN PROGRESS                     11,998,235         6,622,501
  INTANGIBLE ASSETS                               991,980         1,112,904
OTHER ASSETS
  Deferred expenses                                 7,520            18,770
                                        ----------------- -----------------
TOTAL ASSETS                            $     114,255,143 $     100,186,273
                                        ================= =================



                                          June 30, 2009   December 31, 2008
                                           (Unaudited)        (Audited)
                                        ----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued
   liabilities                          $       6,360,531 $       5,787,514
  Taxes payable                                   556,455           823,382
  Due to directors                                240,573           698,429
  Derivative liabilities                        4,583,020
  Current portion of promissory notes           4,841,562         4,603,920
                                        ----------------- -----------------
TOTAL CURRENT LIABILITIES                      16,582,141        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,
   13,601,407 and 12,085,846 shares
   issued and outstanding as of
   June 30, 2009 and December 31,
   2008 respectively                               13,601            12,086
  Additional paid-in capital                   70,682,086        61,572,410
  Accumulated other comprehensive income        9,563,555         9,615,956
  Retained earnings                            10,399,196        10,510,961
  Appropriation of retained earnings
   (reserves)                                   7,014,464         6,561,515
                                        ----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY                     97,673,002        88,273,028
                                        ----------------- -----------------

TOTAL LIABILITIES AND SHAREHOLDERS'
 EQUITY                                 $     114,255,143 $     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


                                                 Six Months Ended
                                        ----------------------------------
                                          June 30, 2009     June 30, 2008
                                          (Unaudited)       (Unaudited)
                                        ----------------  ----------------
OPERATING ACTIVITIES
Net income                              $      2,200,091  $     (2,022,881)
Non-cash items:
  Depreciation and amortization                  767,291           702,263
  Loss on disposal of fixed assets                     -             1,765
  Fair Value change in derivative
   financial information                         229,998                 -
  Financial and other non cash services          910,125         2,735,109
  Change in non-cash working capital
   items:
    Inventories                                 (348,076)       (1,681,529)
    Trade receivables, net of provisions        (576,317)       (3,843,826)
    Prepayments                                 (287,797)         (174,980)
    Accounts payable and accrued
     expenses                                    573,016           247,550
    Taxes payable                               (266,927)         (613,343)
                                        ----------------  ----------------
Cash flow generated from operating
 activities                                    3,201,404        (4,649,872)
                                        ----------------  ----------------
INVESTING ACTIVITIES
  Acquisition of property, plant and
   equipment-net                                (100,868)       (1,423,812)
  Sale proceeds of disposal of fixed
   assets                                              -             2,375
  Construction in progress                    (5,385,961)       (1,535,563)
                                        ----------------  ----------------
Cash flow used in investing activities        (5,486,829)       (2,957,000)
                                        ----------------  ----------------
FINANCING ACTIVITIES
Cash proceeds from issuance of common
 stock                                        10,850,679           137,536
(Due to) directors                              (433,604)         (400,696)
                                        ----------------  ----------------
Cash flow (used in)/generated from
 financing activities                         10,417,075          (263,160)
                                        ----------------  ----------------
NET CHANGE IN CASH AND CASH EQUIVALENTS        8,131,650        (7,870,032)
                                        ----------------  ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
 AND CASH EQUIVALENTS                             37,200         3,772,667
Cash and cash equivalents, beginning of
 year                                         54,920,548        46,959,908
                                        ----------------  ----------------
Cash and cash equivalents, end of year  $     63,089,398  $     42,862,543
                                        ================  ================
SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                        -                 -
                                        ================  ================
  Taxes paid                            $      1,220,068  $      1,064,752
                                        ================  ================
SUPPLEMENTARY DISCLOSURE OF NON-CASH
 INVESTING AND FINANCING ACTIVITIES
                                        ================  ================
Common shares issued for services       $        295,784  $      4,375,432
                                        ================  ================




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


                        Three Months Ended           Six Months Ended
                    --------------------------  --------------------------
                      June 30,      June 30,      June 30,      June 30,
                        2009          2008          2009          2008
                    ------------- ------------  ------------- ------------
Net Income/(Loss)
 Attributable to
 Shareholders       $   1,084,736 $   (993,438) $   2,200,091 $ (2,022,881)
Income Tax                535,901      339,059        762,470      451,409
Fair Value Change
 in Derivative
 Financial
 Instruments            1,055,869            -        229,998            -
Finance Costs             166,780      803,219        685,225    2,442,624
Deprecation and
 Amortization             340,180      362,508        767,291      702,263
                    ------------- ------------  ------------- ------------
    EBITDA              3,183,466      511,348      4,645,075    1,573,415
                    ============= ============  ============= ============

Contact Information

  • Jeffrey Goldberger
    KCSA Strategic Communications
    212-896-1249
    Email Contact

    Yemi Rose
    KCSA Strategic Communications
    212-896-1233
    Email Contact