HQ Sustainable

SEATTLE, WA--Mar 12, 2009 -- HQ Sustainable Maritime Industries, Inc. (AMEX: HQS) ("HQS" or the "Company"), a leader in toxin-free integrated aquaculture and aquatic product processing including fish byproduct personal healthcare products, today announced its financial results for the fourth quarter and year ended December 31, 2008.

 

 

For the quarter ended December 31, 2008, sales increased by 22% to $21.5 million, compared to $17.7 million in the fourth quarter of 2007. The Aquaculture Product segment accounted for $14.1 million in sales, up 23% from $11.5 million reported for the same period last year. Sales from the Health and Bio-product segment were $7.4 million, up 20% from $6.2 million in the fourth quarter of 2007.

 

The gross profit for the fourth quarter increased by 13% to $9.8 million, compared to $8.6 million for the same period of 2007. The overall gross profit ratio decreased to 46%, compared to 49% for the three month period ended in December 31, 2007.

 

"In the face of a recession that has touched almost every sector of the global economy, I am very pleased with our results for both the fourth quarter and full year 2008. Our business has proven resilient in a tough operating environment, but more importantly, has proven that it can continue to grow. We produce a high quality protein product with sustainable demand drivers, such as an increasing population and a drastically reduced supply of ocean caught fish. During the year, we increased capacity in order to satisfy increased demand and ensure that we take advantage of potential opportunities. I also believe that our management performed exceptionally well, making decisions that we expect to positively affect long-term shareholder value," said Norbert Sporns, CEO of HQ Sustainable Maritime Industries, Inc.

 

Mr. Sporns continued, "We are confident that we have only begun to scratch the surface of our true potential. In 2009, we will continue to grow and improve our operations, as well as seek out and correct areas of inefficiency. While the global financial crisis is disconcerting, it has opened the door to potential acquisition opportunities and has spotlighted the importance of healthy affordable food such as Tilapia. As we continue our vertical integration, we will evaluate and act upon additional near- term opportunities, which include direct pond ownership, and expansion of the footprint of our processing plants."

 

Operating income for the quarter increased to $7.6 million from $4.8 million for the fourth quarter of 2007, mostly due to an increase of sales and related gross profit. EBITDA for the quarter was $8.4 million, up from $5.1 million in the same period last year. For the three months ended December 31, 2008, finance costs decreased to $160,000 from $2.1 million in the corresponding period last year. The decrease was due to the phasing out of non-cash costs related to warrants amortization costs and the embedded conversion option of promissory notes issued in 2006.

 

Net income for the fourth quarter was $6.4 million, compared to net income of $1.8 million for the fourth quarter of 2007.

 

For the year ended December 31, 2008, sales increased 23% to $67.7 million, from $54.9 million in fiscal 2007. Approximately 71.5% of the improvement was attributed to increased sales within the 'aquaculture product' segment. For the year, gross profit was $28.2 million, compared to $25.5 million for fiscal 2007. The gross profit ratio for 2008 was 42%, down from 46% for fiscal 2007.

 

Net income for the year increased to $10.0 million or $0.79 per diluted share, compared to $4.5 million, or $0.54 per diluted share in fiscal 2007, mostly due to a combination of increased gross profit in the Company's aquaculture segment and reduced finance costs, offset by increased overhead expenses. The weighted average number of shares increased to 13,198,438 for 2008, versus 8,989,469 for the same period last year.

 

 

Cash and cash equivalents increased by $7.9 million or 17%, to $54.9 million at December 31, 2008. The Company had current assets of $84.1 million, up from $73.4 million at the end of the previous year. As of December 31, 2008, current liabilities were $11.9 million, of which, $4.6 million is the current portion of the convertible promissory notes issued in 2006 and maturing in November 2009. As of December 31, 2008, the Company had no long term debt. Shareholders' equity was $88.3 million as of December 31, 2008, an increase of 28% from $68.8 million at the end of December 2007.

 

 

 

 

 

 

 

 

 

 

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 Thursday, March 12, 2009 to discuss financial results for the fourth quarter and year ended December 31, 2008. The conference call will include Mr. Norbert Sporns, Director and Chief Executive Officer; and Mr. Jean-Pierre Dallaire, CFO. 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 87861445. A replay of the conference call will be available from 5:15 p.m. Eastern Time on Thursday, March 12 through Sunday, April 12, 2009. To access the replay, please call (800) 642-1687. International callers should call (706) 645-9291. The Conference Passcode is 87861445.

 

HQ Sustainable Maritime Industries, Inc., headquartered in the United States, is an integrated aquaculture and aquatic product processing company, with production facilities in the island province of Hainan, in the South China Sea. HQS practices cooperative 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."

 

HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
       (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
    CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007


                                                    2008          2007
                                                ------------  ------------
Sales                                          $ 67,723,283  $ 54,970,211
Cost of sales                                    39,525,933    29,426,918
                                                ------------  ------------
Gross profit                                     28,197,350    25,543,293
Selling and distribution expenses                 1,550,860       841,263
Marketing and advertising                         4,426,378     5,162,299
General and administrative expenses               6,205,993     4,800,361
Depreciation and amortization                     1,456,456     1,217,284
(Recovery of)/doubtful accounts                    (491,223)      672,086
                                                ------------  ------------
Income from operations                           15,048,886    12,850,000
Finance costs                                     2,662,734     5,857,117
Other income                                       (567,876)      (42,491)
                                                ------------  ------------
Income before income taxes                       12,954,028     7,035,374
Income taxes
     Current                                       2,094,976     2,548,812
     Deferred                                        818,364             -
                                                ------------  ------------
Net income attributable to shareholders          10,040,688     4,486,562
OTHER COMPREHENSIVE INCOME
     Foreign currency translation income           5,025,896     2,977,694
                                                ------------  ------------
COMPREHENSIVE INCOME                           $ 15,066,584  $  7,464,256
                                                ============  ============
NET INCOME PER SHARE
     Basic                                      $      0.843  $      0.587
                                                ============  ============
     Diluted                                    $      0.785  $      0.543
                                                ============  ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
     Basic                                        11,905,739     7,635,124
                                                ============  ============
     Diluted                                      13,198,438     8,989,469
                                                ============  ============



         HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
       (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
         CONDENSED CONSOLIDATED BALANCE SHEETS FOR THE YEARS ENDED
                        DECEMBER 31, 2008 AND 2007


                                                    2008          2007
                                                ------------- -------------
ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                   $  54,920,548 $  46,959,908
    Trade receivables, net of provisions           27,689,410    25,234,502
    Inventories                                     1,041,628       877,716
    Prepayments                                       464,919       350,116
    Future income taxes                                     -        26,097
                                                ------------- -------------
TOTAL CURRENT ASSETS                               84,116,505    73,448,339
                                                ------------- -------------
    PROPERTY, PLANT AND EQUIPMENT, NET              8,315,593     7,716,615
    CONSTRUCTION IN PROGRESS                        6,622,501       949,728
    INTANGIBLE ASSETS                               1,112,904     1,254,002
                                                ------------- -------------
                                                   16,050,998     9,920,345
OTHER ASSETS
    Deferred taxes                                          -       873,865
    Deferred expenses                                  18,770        84,317
                                                ------------- -------------
                                                       18,770       958,182
                                                ------------- -------------
TOTAL ASSETS                                    $ 100,186,273 $  84,326,866
                                                ============= =============




                                                    2008          2007
                                                ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable and accrued liabilities    $   5,787,514 $   8,935,928
    Taxes payable                                     823,382       956,289
    Due to directors                                  698,429     1,544,350
    Current portion of promissory notes             4,603,920       461,284
                                                ------------- -------------
TOTAL CURRENT LIABILITIES                          11,913,245    11,897,851

OTHER LIABILITIES
    Convertible promissory notes, net of
     discount                                               -     3,653,352
                                                ------------- -------------

TOTAL LIABILITIES                                  11,913,245    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, 12,085,846 and
     11,511,317 shares issued and outstanding
     as of December 31, 2008 and December 31,
     2007 respectively                                 12,086        11,511
    Additional paid-in capital                     61,572,410    57,142,204
    Accumulated other comprehensive income          9,615,956     4,590,060
    Retained earnings                              10,510,961     2,373,825
    Appropriation of retained earnings
     (reserves)                                     6,561,515     4,657,963
                                                ------------- -------------
TOTAL SHAREHOLDERS' EQUITY                         88,273,028    68,775,663
                                                ------------- -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $ 100,186,273 $  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 FOR THE YEARS ENDED
                       DECEMBER 31, 2008 AND 2007


                                                    2008          2007
                                                ------------  ------------
OPERATING ACTIVITIES
Net income                                      $ 10,040,688  $  4,486,562
Non-cash items:
    Depreciation and amortization                  1,456,456     1,217,284
    (Gain)/loss on disposal of fixed assets         (491,253)       53,603
    Write off of fixed assets                              -        41,637
    Financial and other non cash services          3,032,822     5,164,795
    Deferred Income Taxes                            818,362             -
    Change in non-cash working capital items:
        Inventories                                  (76,042)     (168,858)
        Trade receivables, net of provisions        (656,094)   (7,276,981)
        Prepayments                                  (44,576)       34,577
        Accounts payable and accrued expenses     (1,329,388)    5,113,418
        Taxes payable                               (166,708)      624,860
                                                ------------  ------------
Cash flow generated from operating activities     12,584,267     9,290,897
                                                ------------  ------------
INVESTING ACTIVITIES
    Acquisition of property, plant and
     equipment-net                                (1,310,683)     (745,546)
    Sale proceeds of disposal of fixed assets        495,449             -
    Construction in progress                      (5,398,904)     (634,905)
                                                ------------  ------------
Cash flow used in investing activities            (6,214,138)   (1,380,451)
                                                ------------  ------------
FINANCING ACTIVITIES
Cash proceeds from issuance of common stock          137,536    28,570,475
(Due to) directors                                  (845,921)     (153,915)
Repayment to related parties                               -      (198,553)
Bank loan payments                                         -    (1,255,203)
                                                ------------  ------------
Cash flow (used in)/generated from financing
activities                                         (708,385)   26,962,804
                                                ------------  ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS            5,661,744    34,873,250
                                                ------------  ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS                                  2,298,894       697,283
Cash and cash equivalents, beginning of year      46,959,908    11,389,375
                                                ------------  ------------
Cash and cash equivalents, end of year            54,920,546    46,959,908
                                                ============  ============
SUPPLEMENTARY CASH FLOWS DISCLOSURES
    Interest paid                                          -             -
                                                ============  ============
     Taxes paid                                    2,263,701     1,155,429
                                                ============  ============
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
                                                ============  ============
     Common shares issued for services             4,425,432       173,000
                                                ============  ============
     Reclassification of Construction in
      Progress to Land Use Rights                          -       964,002
                                                ============  ============




         HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
      (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
           EBITDA FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007


                        Three Months Ended          Twelve Months Ended
                     --------------------------  --------------------------
                     December 31,  December 31,  December 31,  December 31,
                         2008          2007          2008          2007
                     ------------  ------------  ------------  ------------
Net Income/(Loss)
Attributable to
Shareholders        $  6,448,887  $  1,767,176  $ 10,040,688  $  4,486,562
Income Tax              1,609,293       924,428     2,913,340     2,548,812
Finance Costs             159,870     2,146,063     2,662,734     5,857,117
Depreciation and
Amortization             199,452       275,902     1,456,456     1,217,284
                     ------------  ------------  ------------  ------------
EBITDA                  8,417,502     5,113,569    17,073,218    14,109,775
                     ------------  ------------  ------------  ------------