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

SEATTLE, WA–(Marketwire – 11/09/10) – HQ Sustainable Maritime Industries, Inc. (AMEX:HQSNews) (“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    September    September    September
                           30, 2010     30, 2009     30, 2010     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,   December 31,
                                                     2010           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
                           ==========   ==========   ==========   ==========
Tuesday, November 9th, 2010 Uncategorized
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