SEATTLE, WA--(Marketwire - August 10, 2009) - HQ Sustainable Maritime Industries, Inc. (NYSE Amex: HQS) ("HQS" or the "Company"), a leader in all natural integrated aquaculture and aquatic product processing, including fish byproduct personal healthcare products, today announced its financial results for the second quarter ended June 30, 2009.
Second Quarter 2009 Results
For the quarter ended June 30, 2009, sales increased by 10% to $16 million, compared to $14.5 million for the second quarter of 2008. The Aquaculture Product segment accounted for $10.5 million in sales, up 9% from $9.6 million reported for the same period last year. Sales from the Health and Bio-product segment were $5.5 million, up 12% from $4.9 million for the second quarter of 2008.
Gross profit for the second quarter of 2009 increased by 37% to $6.8 million, compared to gross profit of $5 million for the same period of 2008.
Operating income for the second quarter increased to $2.8 million, from $148,840 in June 2008. The sharp increase experienced in 2009 was mainly the result of increased sales from both segments with related gross profit ratio of 43%, in comparison to a 34% gross profit ratio in 2008. EBITDA for the quarter increased 525% to $3.2 million, from $512,000 for the same period last year.
Net income for the second quarter was $1,084,736, or $0.086 cents per fully diluted share compared to a net loss of $993,438, or $0.083 cents per fully diluted share, for the second quarter of 2008.
During the first and second quarters of 2009, HQS implemented a change in accounting treatment of the fair value of its outstanding warrants and embedded conversion features of its promissory notes, resulting in a significant change in the value of these items as recognized on its income statement.
"The second quarter once again saw strong top line growth across our business segments, and though our net income was adversely affected by new accounting rules, we believe that this revenue growth demonstrates the significant leverage that our business model continues to hold. Highlights for the second quarter also included very favorable increases in our gross profit margins. Fueling this leverage and our continued vertical integration was the recent completion of our feed mill. This addition renders our feed the most efficient feed available in China to Tilapia farmers, reducing feed cost for farmers while guaranteeing for consumers quality at a very high level," said Norbert Sporns, CEO of HQ Sustainable Maritime Industries, Inc.
Mr. Sporns concluded, "Another highlight of the quarter was the successful analyst day in early June. Representatives from both the sell side and the buy side toured our facilities in Hainan, China and observed, in person, the lengths that we go to in order to ensure the highest quality global production standards. Participants were also able to assess the depth of our management team, and to view presentations on our operations. We are very proud of the operational infrastructure we have built and of the quality of the team we have put in place. We look forward to building upon this momentum and to the continued execution of our growth objectives."
For the three months ended June 30, 2009, finance costs substantially decreased to $166,780 from $803,219 for the three month period ended June 30, 2008. In 2008 the Company recognized a one-time settlement of approximately $699,000 in relation with financial fees payable to one of our financial service suppliers.
Six Month Financial Results
Revenues for the first six months of 2009 were $26.8 million, up 13% from revenues of $23.7 million in the first six months of 2008. Approximately 54% of the increase in sales revenue was a result of increased sales for the aquaculture product segment. Gross profit margin reached $11.6 million, up 30% from gross profit of $8.9 million for the first six months of 2008. Gross margin was 43% in 2009, compared to 37% for the first six months of 2008. Operating income was $3.8 million, up 340% from $872,917 for the first six months of 2008. Net income was $2.2 million, or $0.176 cents per fully diluted share, compared to a loss of $2.0 million, or $0.172 cents per fully diluted share, for the same period a year earlier.
Financial Condition
As of June 30, 2009, cash and cash equivalents were $63.1 million, compared to $54.9 million at December 31, 2008 as a result of an increase in cash from the recent common stock offering of which the company netted about $10.9 million added to an increase in cash from operations, and reduced by investments in the new feed mill. The Company had total assets of $114.3 million, up from $100.2 million at the end of the previous year. As of June 30, 2009, the Company had no long term debt.
Company Updates
-- The Company recently entered into negotiations to acquire an adjacent piece of property to its current processing plant, which will allow it to begin the construction of the new processing plant. -- The Company also is in negotiations to acquire a piece of land in Wenchang, North of our processing facility for the construction of our new Tilapia Genetics development and Fry-breeding facility and expects to commence construction later this year. -- The Company completed construction of its new feed mill, and it has obtained its final permits from the government to begin production of high quality extruded feed. -- The Company successfully hosted its first analyst day on June 9-10, 2009. -- The Company successfully completed pond certification to Best Aquaculture Practices as determined by the Aquaculture Certification Council making it the only Hainan aquaculture company certified "Two Star."
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, 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 company will host a conference call at 4:30 p.m. Eastern Time on August 10, 2009 to discuss its financial results for the second quarter of 2009. 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 21955322. A replay of the conference call will be available from 5:15 p.m. Eastern Time on Monday, August 10 through Thursday, September 10, 2009. To access the replay, please call (800) 642-1687. International callers should call (706) 645-9291. The Conference Passcode is 21955322.
To listen via the web, please go to http://www.hqfish.com/ approximately twenty minutes before the conference call is scheduled to begin in order to register as well as download and install any necessary audio software. The Webcast will be archived for 30 days.
About HQ Sustainable Maritime Industries, Inc.
HQ Sustainable Maritime Industries, Inc., headquartered in the United States, is an integrated aquaculture and aquatic product processing company, with production facilities in Hainan, PRC. HQS also uses North American production facilities for its new line of meal products. HQS practices cooperative sustainable aquaculture, using nutraceutically enriched feeds and produces and markets its products. The company is dedicated to sustainable all natural 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 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 subsidiary, which is HACCP and GMP certified, and produces and sells products subject to stringent laboratory tests certified by the China Ministry of Health. The Company has recently completed a 100,000 Metric Tonne annual production extruded Feed Mill with state-of-the-art extruded feed production equipment. This feed is highly efficient and is sold to the market and used by HQ's cooperative farmers. 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 Six Months Ended -------------------------- -------------------------- June 30, June 30, June 30, June 30, 2009 2008 2009 2008 ------------ ------------ ------------ ------------ Sales $ 16,009,757 $ 14,531,487 $ 26,850,578 $ 23,741,977 Cost of sales 9,197,821 9,572,610 15,285,329 14,883,312 ------------ ------------ ------------ ------------ Gross profit 6,811,936 4,958,877 11,565,249 8,858,665 Selling and distribution expenses 290,150 324,932 544,302 554,108 Marketing and advertising 1,338,860 1,286,532 2,765,485 2,451,050 General and administrative expenses 2,023,593 1,943,675 3,629,965 3,396,475 Depreciation and amortization 340,180 362,508 767,291 702,263 (Recovery of)/doubtful accounts (12,379) 892,390 19,187 881,852 ------------ ------------ ------------ ------------ Income from operations 2,831,532 148,840 3,839,019 872,917 Finance costs 166,780 803,219 685,225 2,442,624 Fair Value Change in Derivative Financial Instruments 1,055,869 - 229,998 - Other income (11,754) - (38,765) 1,765 ------------ ------------ ------------ ------------ Income before income taxes 1,620,637 (654,379) 2,962,561 (1,571,472) Income taxes Current 535,901 339,059 762,470 451,409 Deferred - - - - ------------ ------------ ------------ ------------ Net income attributable to shareholders 1,084,736 (993,438) 2,200,091 (2,022,881) OTHER COMPREHENSIVE INCOME Foreign currency translation income 158,346 1,632,587 (52,400) 4,396,430 ------------ ------------ ------------ ------------ COMPREHENSIVE INCOME $ 1,243,082 $ 639,149 $ 2,147,691 $ 2,373,549 ============ ============ ============ ============ NET INCOME PER SHARE Basic $ 0.088 $ (0.083) $ 0.180 $ (0.172) ------------ ------------ ------------ ------------ Diluted $ 0.086 $ (0.083) $ 0.176 $ (0.172) ------------ ------------ ------------ ------------ WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 12,357,334 11,908,183 12,248,272 11,740,012 ------------ ------------ ------------ ------------ Diluted 12,613,361 11,908,183 12,491,289 11,740,012 ============ ============ ============ ============ HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY) CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2009 December 31, 2008 (Unaudited) (Audited) ----------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 63,089,398 $ 54,920,548 Trade receivables, net of provisions 28,265,727 27,689,410 Inventories 1,389,704 1,041,628 Prepayments 752,715 464,919 ----------------- ----------------- TOTAL CURRENT ASSETS 93,497,544 84,116,505 ----------------- ----------------- PROPERTY, PLANT AND EQUIPMENT, NET 7,759,864 8,315,593 CONSTRUCTION IN PROGRESS 11,998,235 6,622,501 INTANGIBLE ASSETS 991,980 1,112,904 OTHER ASSETS Deferred expenses 7,520 18,770 ----------------- ----------------- TOTAL ASSETS $ 114,255,143 $ 100,186,273 ================= ================= June 30, 2009 December 31, 2008 (Unaudited) (Audited) ----------------- ----------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued liabilities $ 6,360,531 $ 5,787,514 Taxes payable 556,455 823,382 Due to directors 240,573 698,429 Derivative liabilities 4,583,020 Current portion of promissory notes 4,841,562 4,603,920 ----------------- ----------------- TOTAL CURRENT LIABILITIES 16,582,141 11,913,245 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, 13,601,407 and 12,085,846 shares issued and outstanding as of June 30, 2009 and December 31, 2008 respectively 13,601 12,086 Additional paid-in capital 70,682,086 61,572,410 Accumulated other comprehensive income 9,563,555 9,615,956 Retained earnings 10,399,196 10,510,961 Appropriation of retained earnings (reserves) 7,014,464 6,561,515 ----------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 97,673,002 88,273,028 ----------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 114,255,143 $ 100,186,273 ================= ================= 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, 2009 June 30, 2008 (Unaudited) (Unaudited) ---------------- ---------------- OPERATING ACTIVITIES Net income $ 2,200,091 $ (2,022,881) Non-cash items: Depreciation and amortization 767,291 702,263 Loss on disposal of fixed assets - 1,765 Fair Value change in derivative financial information 229,998 - Financial and other non cash services 910,125 2,735,109 Change in non-cash working capital items: Inventories (348,076) (1,681,529) Trade receivables, net of provisions (576,317) (3,843,826) Prepayments (287,797) (174,980) Accounts payable and accrued expenses 573,016 247,550 Taxes payable (266,927) (613,343) ---------------- ---------------- Cash flow generated from operating activities 3,201,404 (4,649,872) ---------------- ---------------- INVESTING ACTIVITIES Acquisition of property, plant and equipment-net (100,868) (1,423,812) Sale proceeds of disposal of fixed assets - 2,375 Construction in progress (5,385,961) (1,535,563) ---------------- ---------------- Cash flow used in investing activities (5,486,829) (2,957,000) ---------------- ---------------- FINANCING ACTIVITIES Cash proceeds from issuance of common stock 10,850,679 137,536 (Due to) directors (433,604) (400,696) ---------------- ---------------- Cash flow (used in)/generated from financing activities 10,417,075 (263,160) ---------------- ---------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 8,131,650 (7,870,032) ---------------- ---------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 37,200 3,772,667 Cash and cash equivalents, beginning of year 54,920,548 46,959,908 ---------------- ---------------- Cash and cash equivalents, end of year $ 63,089,398 $ 42,862,543 ================ ================ SUPPLEMENTARY CASH FLOWS DISCLOSURES Interest paid - - ================ ================ Taxes paid $ 1,220,068 $ 1,064,752 ================ ================ SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES ================ ================ Common shares issued for services $ 295,784 $ 4,375,432 ================ ================ 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, 2009 2008 2009 2008 ------------- ------------ ------------- ------------ Net Income/(Loss) Attributable to Shareholders $ 1,084,736 $ (993,438) $ 2,200,091 $ (2,022,881) Income Tax 535,901 339,059 762,470 451,409 Fair Value Change in Derivative Financial Instruments 1,055,869 - 229,998 - Finance Costs 166,780 803,219 685,225 2,442,624 Deprecation and Amortization 340,180 362,508 767,291 702,263 ------------- ------------ ------------- ------------ EBITDA 3,183,466 511,348 4,645,075 1,573,415 ============= ============ ============= ============
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