HQ Sustainable

SEATTLE, WA--Nov 10, 2008 -- HQ Sustainable Maritime Industries, Inc. (AMEX: HQS) ("HQS" or the "Company"), a vertically integrated aquaculture producer, processor and distributor of toxin free and organic 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 September 30, 2008.

 

 

For the quarter ended September 30, 2008, sales increased 42% to $22.5 million, compared to $15.8 million in the third quarter of 2007. On a sequential basis, sales increased 55% from $14.5 million in the second quarter of 2008. The Company’s Aquaculture Production and Processing segment accounted for $15.1 million in sales for the three months ended September 30, 2008, up 47% from $10.3 million reported for the same period last year. Sales from the Company’s Marine Bio and Healthcare segment were $7.4 million for the third quarter of 2008, up 34% from $5.5 million in the third quarter of 2007.

 

The gross profit for the third quarter of 2008 increased 23% to $9.5 million, compared to the same period of 2007. On a sequential basis, gross profit increased 92% from $4.9 million in the second quarter of 2008 and the gross profit ratio increased from 34% in the second quarter of 2008 to 42% in the current quarter. While gross profit increased in the third quarter of 2008, the overall gross profit ratio decreased to 42% in the current quarter, compared to 49% for the three month period ended in September 30, 2007.  The reduction in the gross profit ratio for the current three months period ended in September 2008 compared to the same period of 2007 was primarily due to increased manufacturing costs in the aquatic product segment combined with a different sales mix in the healthcare products segment.

 

“I am very pleased with our performance during the third quarter, which represents the best third quarter in the Company’s history. Our success is a direct result of the expanded capacity of our aquaculture plant, which has increased from 20,000 metric tons live weight flow through to 30,000 metric tons, and the significant progress we have made in establishing solid relationships in the fast food industry during the quarter. We intend to double our current production capacity by the end of the next calendar year, and are confident that doing so will help us to take advantage of what we see as a strong growth opportunity for the production of ready-to-eat meal products with tilapia as the main protein component,” said Norbert Sporns, CEO of HQ Sustainable Maritime Industries, Inc.

 

“The current turbulence in the global financial markets, while not necessarily good for consumer based companies, provides us with an opportunity to separate ourselves from our competitors. Unlike many companies that are currently reducing their marketing budget, we are expanding our branding efforts and pushing into new regions. In essence, the Company is poised to benefit from the current recessionary conditions. Our Tilapia products offer consumers an affordable, high quality alternative to low-quality, fast food, and more expensive and less convenient family style restaurants. HQ Sustainable offers an appealing middle ground during the current downturn,” continued Mr. Sporns

 

Operating Income for the quarter increased to $6.5 million in third quarter 2008 from $5.2 million in third quarter of 2007, mostly due to an increase of sales and related gross profit. EBITDA was $7.1 million in the third quarter of 2008, up from $5.5 million in the third quarter of 2007. Finance costs decreased to $60 thousand from $897 thousand for the three months ended September 30, 2008 as compared to the corresponding period of the previous year. The decrease is due to the phasing out of non-cash costs related to warrants amortization costs and embedded conversion option of promissory notes issued in 2006.

Net income in the third quarter of 2008 was $5.6 million or $0.43 per diluted share, compared to net income of $3.5 million or $0.38 per diluted share in the third quarter of 2007. The Company had minimal foreign currency gain in the third quarter of 2008, compared to a foreign currency gain of $713 thousand in the third quarter of 2007. This minimal foreign currency gain was due to the stable currency exchange rate between the USD and CNY during the third quarter of 2008 versus the declining value of the USD in the third quarter of 2007.

 

 

For the nine-months period ended September 30, 2008, sales reached $46.2 million, up 24% from sales of $37.2 million in the first nine months of 2007. Approximately 73% of the increase in sales came from increased sales for the aquaculture product segment. Gross profit was $18.4 million for the first nine months of 2008, compared to $16.9 million for the first nine months of 2007. The gross profit ratio for the first nine months of 2008 was 40%, down from 45% for the same period of 2007. The reduction in the gross profit ratio for the nine months period ended in September 2008 was primarily due to increased manufacturing costs in the aquatic product segment combined to a different sales mix in the healthcare products segment.

 

Net income increased to $3.6 million or $0.29 per diluted share, compared to $2.7 million, or $0.34 per diluted share in the corresponding period of 2007, mostly due to a combination of increased gross profit and reduction of finance costs, offset by increased overhead expenses. The weighted average number of shares increased to 13.2 million for the first nine months of 2008 versus 8.8 million weighted average number of shares for the corresponding nine month period of 2007.

 

 

Cash and cash equivalents increased by $3 million or 6%, to $50 million at September 30, 2008, from $46.9 million at December 31, 2007. The Company had current assets of $79.8 million, up from $73.4 million at the end of 2007. Current liabilities are $8.7 million as of September 30, 2008. As of September 30, 2008, the Company's net long-term debt $4.0 million consists of convertible promissory notes issued in 2006 and maturing in November 2009. Shareholders' equity was $81.2 million as of September 30, 2008, an 18% increase from $68.8 million at the end of December 2007.

 

 

The Company executed on a number of previously stated goals during the third quarter. Sales increased substantially on a sequential basis, and the Company made significant strides in making a complete shift to direct sales. This shift is a result of the strategy to move a majority of sales directly to the customer, as opposed to working through third party purveyors.  

 

Construction of the new feed mill, which experienced additional weather-related delays in the third quarter, is currently on course to be completed in the first quarter of 2009. Once complete, this mill will supply both the Company’s cooperative farmers, as well as other regional farmers. 

 

The Company recently retained KCSA Strategic Communications in an effort to deliver on the promise to educate investors and expand the Company’s shareholder base.

 

Two important executive staffing additions were made during the quarter. Bryan Gent was appointed Vice President of Product Development and will oversee the Company’s rollout of ready-to-eat meals in club stores in the US and Canada. In addition, Eugene Hill was appointed Vice President of Finance.

 

 

 

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.

 

 

HQ Sustainable Maritime Industries, Inc. management will host a conference call at 4:30 p.m. Eastern Time on Monday, November 10, 2008 to discuss financial results for the quarter ended September 30, 2008. The conference call will include Mr. Norbert Sporns, Director 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: (866) 394 - 1757. International callers should call (706) 643 - 3624. The Conference Passcode is 71994434. If you are unable to participate in the call at that time, replay of the conference call will be available from 5:45 p.m. Eastern Time on November 10 through Wednesday, December 10. To access the replay, please call (800) 642-1687. International callers should call (706) 645-9291. The Conference Pass Code is 71994434.

 

 

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. HQS practices co-operative 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. 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 company, which is HACCP and GMP 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 HQS' cooperative aquaculture operations. In addition to headquarters in Seattle, HQ has operational offices in Wenchang, Hainan. The Company's website is: 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."

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA