updated 5/10/2010 4:08:18 PM ET 2010-05-10T20:08:18

HQ Sustainable Maritime Industries, Inc. (NYSE Amex: HQS) ("HQS" or the "Company"), a leading producer of functional, sustainable Tilapia biomass, including fish and personal healthcare products, today reported financial results for the first quarter ended March 31, 2010.

First Quarter 2010 Results
For the first quarter of 2010, sales increased 33% to $14.4 million, compared to $10.8 million for the first quarter of the prior year. The increase in sales was primarily the result of strength across each segment including aquaculture products, health and bio-products, as well as the new feed products added in late 2009.

Aquaculture product segment sales increased 6% to $7.7 million, compared to $7.3 million in the first quarter of 2009. The aquaculture product segment sales increase is primarily related to an increase in volume and the price of processed ocean caught fish. Aquaculture product segment sales were partially offset by fluctuations in the market price of tilapia fillets, resulting in a 16.2% decrease in the average selling price of tilapia in the first quarter of 2010 compared to the first quarter in the prior year.(1)

Health and bio-product segment sales increased 2% to $3.6 million in the first quarter of 2010, compared to $3.5 million in the same period last year. In addition, the Company's new state-of-the-art feed mill generated sales of $3.1 million. This compares to sales of $1.3 million in the fourth quarter of 2009, which was the first time the feed product segment began to generate revenue.

Gross profit for the first quarter of 2010 decreased 3% to $4.4 million, compared to $4.5 million in the first quarter of the prior year. The Company's gross profit margin decreased to 30.5% in the first quarter of 2010 versus 41.5% in the first quarter of 2009. The gross profit margin decrease is primarily related to a the lower gross profit margin in the feed product segment as compared to the gross profit margin in the aquaculture and health and bio-product segments. It is expected that the gross profit margin from the feed product segment will improve in the coming periods as the increased volumes processed will support the fixed costs more favorably.

For the first quarter of 2010, operating income increased 61% to $1.6 million from $1.0 million in the same period of the prior year. The increase experienced in the quarter was primarily due to the net recovery of the Company's doubtful accounts in its health and bio-product segment as well as a decrease in advertising and marketing expenses within the same segment. EBITDA for the first quarter of 2010 increased 42% to $2.1 million, compared to $1.5 million for the same period last year.

Net income for the first quarter of 2010 was $1.5 million, or $0.09 per diluted share compared to net income of $1.1 million, or $0.09 per diluted share in the first quarter of 2009. Net income during the first quarter of 2010 was positively impacted by the net recovery in doubtful accounts of approximately $0.7 million and a decrease in marketing and advertising expenses by approximately $0.4 million from the health and bio-product segment.

"We are pleased to report a strong improvement in our sales and profitability. In the first quarter, we successfully recovered more than 80% of our doubtful accounts. The provisions for doubtful accounts were made in prior quarters as a result of a planned, strategic investment in our health and bio-product segment, in order to capture greater market share," said Norbert Sporns, HQ Sustainable Maritime's President and Chief Executive Officer. "We continue to focus on being leaders in the value added use of Tilapia fillet and Tilapia by-products. We are building strong international partnerships across each of our product segments through the credibility and efficacy of our products and brands. These partnerships give us great confidence in our business model and our long-term growth opportunities."

Balance Sheet
As of March 31, 2010, cash and cash equivalents were $37.8 million, compared to $37 million at December 31, 2009. The Company had total assets of $120.6 million, an increase of $22 million, compared to $98.7 million at the end of the previous year. As of March 31, 2010 the Company had no long term debt.

Company Updates

  • In March 2010 the Company announced that the China Healthcare Association has acknowledged the Company's health products and brand as amongst the best in China at its Third Healthcare Forum. Six of the Company's products were selected as being amongst the top ten healthcare products in China. The Company's Healthcare brand Omojo was also recognized as being in the top twelve healthcare product brands in China. The awards are presented every two years and entitle the Company to acknowledge the award on its product packaging for the two year period from 2010 to 2012.
  • In April 2010 the Company launched a new franchise store concept at the 12th China Franchise Convention and Exhibition in Beijing. The Company was awarded a franchise license in March of 2010. The franchise launch follows successful tests of the Omojo franchise store concept and caters to the significant growth of China's consumer market. The Company's franchisees will be distributors of the Company's Omojo branded health and personal care 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, 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 8:00 a.m. EDT on May 11, 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 May 25, 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 11:00 a.m. EDT, May 11, 2010, through May 25, 2010. Domestic participants may dial 877-660-6853 and international participants may dial 201-612-7415 to hear the playback. The account number is 3055 and the passcode is 350051.

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. A new Feed Mill has been completed producing principally Tilapia feed 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."

(1) Source: Urner Barry Seafood Prices

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