Published: August 09, 2010
HQ Sustainable Maritime Industries, Inc. Announces Second Quarter 2010 Financial Results
Second Quarter Sales Increased 29% to $20.7 Million, Compared to $16 Million Last Year
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 second quarter ended
June 30, 2010.
Second Quarter 2010 Results
For the second quarter of 2010, sales increased 29% to $20.7 million,
compared to $16 million for the second 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 increased 1% to $10.6 million, compared
to $10.5 million in the second quarter of 2009. The aquaculture product
segment sales increase is primarily related to an overall volume reduction
of 7% of fish products sold in the second quarter of 2010 compared to the
second quarter of 2009, offset by average price increases the second
quarter of 2010, compared to the same period last year.
Health and bio-product segment sales increased 6% to $5.8 million in the
second quarter of 2010, compared to $5.5 million in the same period last
year. In addition, the Company's feed mill generated sales of $4.3 million.
This compares to sales of $3.1 million in the first quarter of 2010, as
well as 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 second quarter of 2010 decreased 1% to $6.5 million,
compared to $6.6 million in the second quarter of the prior year. The
Company's gross profit ratio decreased to 32% in the second quarter of 2010
versus 41% in the second quarter of 2009. The gross profit ratio decrease
is primarily related to the health and bio-products and the feed products
segments. The decrease in the health and bio-products gross profit ratio is
due to an increase in average packaging costs related to the new OMOJO
brand. In the feed product segment, we expect that the gross profit ratio
will continue to improve in the coming periods as the volumes processed
increases to support the fixed costs more favorably.
For the second quarter of 2010, operating income decreased to $2.4 million
from $2.8 million in the same period of the prior year. The decrease
experienced in the quarter was primarily due to the provision for doubtful
accounts in the aquaculture product segment as compared to the prior year
to adjust to the extended collection period. EBITDA for the second quarter
of 2010 decreased to $2.9 million, compared to $3.1 million for the same
period last year.
Net income for the second quarter of 2010 was $1.3 million, or $0.07 per
diluted share calculated on 14.9 million diluted shares compared to net
income of $1.1 million, or $0.09 per diluted share calculated on 12.6
million diluted shares in the second quarter of 2009. In addition, net
income for the second quarter of 2010 includes a one-time charge of
$730,000, or $0.05 per diluted share, related to non-deductible marketing
expenses in the second quarter of 2009, which resulted in additional income
taxes in the health and bio-product segment this quarter. Excluding the
one-time charge, the Company reported adjusted net income of $2.1 million
or $0.12 per diluted share. Net income during the second quarter of 2010
was positively impacted by the fair value change in derivative financial
instruments for an amount of $227,000 related to the outstanding warrants.
All of our notes have been converted as of December 31, 2009. We will
continue to evaluate quarterly this fair value change in the future until
expiration of the warrants.
"We are pleased to report strong revenue growth for the second quarter.
Operationally our results improved sequentially and we are optimistic about
our future growth in each of our three primary product segments," said
Norbert Sporns, HQ Sustainable Maritime's President and Chief Executive
Officer. "We are laying the foundation to deliver long-term value to our
shareholders. We continue to focus on execution, including increased sales
of our diversified products, increased margin expansion, and vertical
integration in the production of our all-natural Tilapia aquaculture
bio-mass which will further reduce the costs of production and increase
long-term profitable growth and cash flow generation."
Six Month 2010 Results
For the first six months of 2010 sales increased 30% to $35 million
compared to $26.9 million for the same period last year. The sales increase
is primarily related to the increase in sales from the Company's feed
product segment added in late 2009. Gross profit decreased 1% to $10.9
million compared to gross profit of $11.1 million for the first six months
of 2009. Operating income increased 5.4% to $4.0 million compared to $3.8
million for the first six months of 2009. Net income increased 29% to $2.8
million, or $0.17 per diluted share, compared to net income of $2.2
million, or $0.18 per diluted share, for the same period last year.
Balance Sheet
As of June 30, 2010, cash and cash equivalents were $43.8 million, compared
to $37 million at December 31, 2009. As of June 30, 2010 the Company had
no long term debt.
Company Updates
-- In June 2010, the Company announced that Lillian's Healthy Gourmet
meals are available on Amazon.com. The Company currently offers six gourmet
seafood meals, including Lillian's Healthy Gourmet Sweet Chili Citrus and
Orange Miso Tilapia meals, as well as Lillian's Healthy Gourmet Gluten-Free
Spicy Green Curry and Roasted Tomato Tilapia meals. The Company will
introduce four new tilapia meals, including Lemon Ginger, Orange Rosemary,
Bacon Carbonara, and Cajun style. Lillian's Healthy Gourmet meals will also
feature marinated tilapia fillets in Moroccan, Singapore, Thai, and
Southwest flavors. The complete Lillian's Healthy Gourmet line will include
16 seafood meals on Amazon.com.
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 9:00 a.m. EDT on August 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 August 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 12:00 p.m. EDT, August 9,
2010, through August 23, 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 354801.
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 its 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. 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. 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,
2010 2009 2010 2009
------------ ------------ ------------ ------------
Sales $ 20,656,174 $ 16,009,757 $ 35,032,082 $ 26,850,578
Cost of sales 14,130,062 9,447,275 24,127,930 15,785,079
------------ ------------ ------------ ------------
Gross profit 6,526,112 6,562,482 10,904,152 11,065,499
Selling and
distribution
expenses 426,798 290,150 788,882 544,302
Marketing and
advertising 1,100,349 1,338,860 2,078,330 2,765,486
General and
administrative
expenses 1,924,045 2,023,593 3,912,860 3,629,965
Depreciation and
amortization 108,072 90,726 204,404 267,540
(Recovery
of)/doubtful
accounts 546,551 (12,379) (125,662) 19,187
------------ ------------ ------------ ------------
Income from
operations 2,420,297 2,831,532 4,045,338 3,839,019
Finance
(income)/costs (23,998) 166,780 (23,460) 685,225
Fair Value Change
in Derivative
Financial
Instruments (226,751) 1,055,869 (364,706) 229,998
Other income (2,133) (11,754) (6,924) (38,765)
------------ ------------ ------------ ------------
Income/(loss)
before income
taxes 2,673,179 1,620,637 4,440,428 2,962,561
Income taxes
Current 1,343,440 535,901 1,607,494 762,470
Deferred - - - -
------------ ------------ ------------ ------------
Net income
attributable to
shareholders 1,329,739 1,084,736 2,832,934 2,200,091
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation
income 274,061 158,346 282,578 (52,400)
------------ ------------ ------------ ------------
COMPREHENSIVE
INCOME $ 1,603,800 $ 1,243,082 $ 3,115,512 $ 2,147,691
============ ============ ============ ============
NET INCOME PER
SHARE
Basic $ 0.091 $ 0.088 $ 0.193 $ 0.180
------------ ------------ ------------ ------------
Diluted $ 0.074 $ 0.086 $ 0.166 $ 0.176
------------ ------------ ------------ ------------
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
Basic 14,681,002 12,357,334 14,681,002 12,248,272
------------ ------------ ------------ ------------
Diluted 14,883,267 12,613,361 14,893,193 12,491,289
============ ============ ============ ============
HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
(INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2010 December 31, 2009
(Unaudited) (Audited)
----------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,839,971 $ 36,957,303
Trade receivables, net of
provisions (Note 6) 51,735,680 58,186,055
Inventories (Note 7) 2,792,630 2,204,931
Prepaid expenses 1,810,485 1,194,910
Future income taxes - -
----------------- -----------------
TOTAL CURRENT ASSETS 100,178,766 98,543,199
----------------- -----------------
PROPERTY, PLANT AND EQUIPMENT, NET 20,164,864 20,150,568
CONSTRUCTION IN PROGRESS - 21,384
INTANGIBLE ASSETS 969,605 979,738
----------------- -----------------
21,134,469 21,151,690
OTHER ASSETS
Deferred taxes (Note 9) 111,252 110,936
Deferred expenses (Note 10) 279,573 0
----------------- -----------------
390,825 110,936
----------------- -----------------
TOTAL ASSETS $ 121,704,060 $ 119,805,825
================= =================
June 30, 2010 December 31, 2009
(Unaudited) (Audited)
----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ 5,244,161 $ 6,770,470
Taxes payable 632,096 566,054
Due to directors 552,799 -
Derivative liabilities (Note 12) 80,988 445,694
- -
----------------- -----------------
TOTAL CURRENT LIABILITIES 6,510,044 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,
14,681,002 shares issued and
outstanding as of June 30, 2010
and December 31, 2009 14,681 14,681
Additional paid-in capital 79,329,349 79,281,209
Accumulated other comprehensive
income 9,791,334 9,508,756
Retained earnings 18,418,397 15,737,809
Appropriation of retained earnings
(reserves) 7,640,155 7,481,052
----------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 115,194,016 112,023,607
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 121,704,060 $ 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
Six Months Ended
--------------------------
June 30, June 30,
2010 2009
(Unaudited) (Unaudited)
------------ ------------
OPERATING ACTIVITIES
Net income $ 2,832,934 $ 2,200,091
Non-cash items:
Depreciation and amortization 910,166 767,291
Transfer from construction in progress 14,790 -
Fair Value change in derivative financial
information (364,706) 229,998
Financial and other non cash services - 910,125
Change in non-cash working capital items:
Inventories (646,066) (348,076)
Trade receivables, net of provisions 6,613,613 (576,317)
Prepayments (878,649) (287,797)
Accounts payable and accrued expenses (1,558,545) 573,016
Taxes payable 78,355 (266,927)
------------ ------------
Cash flow generated from operating activities 7,001,892 3,201,404
------------ ------------
INVESTING ACTIVITIES
Acquisition of property, plant and
equipment-net (854,324) (100,868)
Sale proceeds of disposal of fixed assets - -
Construction in progress 6,625 (5,385,961)
------------ ------------
Cash flow used in investing activities (847,699) (5,486,829)
------------ ------------
FINANCING ACTIVITIES
Cash proceeds from issuance of common stock - 10,850,679
(Due to) directors 548,106 (433,604)
------------ ------------
Cash flow (used in)/generated from financing
activities 548,106 10,417,075
------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,702,299 8,131,650
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 180,369 37,200
Cash and cash equivalents, beginning of year 36,957,303 54,920,548
------------ ------------
Cash and cash equivalents, end of year $ 43,839,971 $ 63,089,398
============ ============
SUPPLEMENTARY CASH FLOWS DISCLOSURES
Interest paid - -
============ ============
Taxes paid $ 1,543,525 $ 1,220,068
============ ============
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
============ ============
Common shares issued for services $ - $ 295,784
============ ============
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,
2010 2009 2010 2009
----------- ------------ ----------- ------------
Net Income/(Loss)
Attributable to
Shareholders $ 1,329,739 $ 1,084,736 $ 2,832,934 $ 2,200,091
Income Tax 1,343,440 535,901 1,607,494 762,470
Fair Value Change in
Derivative Financial
Instruments (226,751) 1,055,869 (364,706) 229,998
Finance Costs (23,998) 166,780 (23,460) 685,225
Deprecation and
Amortization 461,004 340,180 910,166 767,291
----------- ------------ ----------- ------------
EBITDA 2,883,434 3,183,466 4,962,428 4,645,075
=========== ============ =========== ============
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