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HQ Sustainable Marine Industries Inc has positive quarter
HQ Sustainable Maritime Industries Inc . is an integrated aquaculture and aquatic product processing company with operations based in the environmentally pristine island province of Hainan in China\'s South Sea.
HQ\'s activities include using renewable ocean resources practicing cooperative sustainable aquaculture and conducting fish processing and sales. Its variety of farmed and ocean-harvested products -- ranging from tilapia and shrimp to squid and red snapper -- are sold around the world.Bringing state-of-the-art technologies to the fishing and aquaculture industries HQ is China\'s leading producer of quality tilapia fish exports to the U.S. commanding 10 percent of this market.
HQ is principally engaged in harvesting processing sales and marketing of farm-bred and ocean harvested products.The company also has freezing storage facilities and aquatic products processing bases in Hainan. HQ Sustainable Maritime Industries Inc has a market cap of $125.5 million; its shares were traded at around $9.35 with a P/E ratio of 18 and P/S ratio of 1.9.
Highlight of Business Operations:
Total sales for the three months period ended June 30, 2009 increased by 10%, from $14,531,487 for the three months period ended June 30, 2008 to $16,009,757 for the three months period ended June 30, 2009. The gross profit for the three months period ended June 30, 2009 increased by 37% to $6,811,936 when compared to the corresponding period of 2008. That increase in the gross profit in 2009 was the result of higher sales from both segments in the current quarter when compared to the corresponding quarter of 2008. The overall gross profit ratio improved in the current three months of 2009 to 43% from 34% in the same period of 2008, coming from both segments.
Income from operations for the three months period ended June 30, 2009 increased by $2,682,692 when compared to the same period of 2008 mostly as a result of improved gross profit realized during the current period. Net income for the three months period ended June 30, 2009 increased by $2,078,174 mostly due to increased activity and related gross profit from both segments, added to a reduction in financing costs in the amount of $636,439 in 2009, and offset by a loss in fair value of derivative financial instruments amounting to $1,055,869, also in the first three months of 2009. For the three months period ended June 30, 2008, financing costs were materially affected by the result of a final settlement amounting to approximately $699,000 from the American Arbitration Association in relation with financial fees payable to one of our financial service suppliers.
Total sales for the six months period ended June 30, 2009 increased by 13%, from $23,741,977 in 2008 to $26,850,578 in 2009.
Approximately 54% of the increase in sales originates from the aquaculture product segment and 46% from the health and bio-product segment. Gross profit for the six months period ended June 30, 2009 increased by 30% to $11,565,249 when compared to the same period of 2008. The gross profit ratio for the six months period ended June 30 increased from 37% in 2008 to 43% in 2009. That improvement in the gross profit ratio in the first six months of 2009 compared to the corresponding 2008 period originates mostly from the aquatic product segment which saw a substantial increase the gross profit ratio (26% in 2009 compared to 20% in 2008). Income from operations for the current six months period of 2009 increased from $872,917 in June 2008 to $3,839,019 in June 2009.
That improvement in income from operations experienced in 2009 was mostly the result of increased sales and related gross profit from both segments. Net income increased from a net loss of $2,022,881 in the six months period ended June 30, 2008 to a net income of $2,200,091 in the corresponding period of 2009. The increased net income of 2009 was the result of increased income from operations as described above, coupled with a substantial reduction of finance costs. In the first six months of 2008, finance costs were affected by penalties for late filing of the registration statement of the underlying shares related to those convertible notes issued in November 2006 (approximately $1,621,000), added to the result of a final settlement amounting to approximately $699,000 from the American Arbitration Association in relation with financial fees payable to one of our financial service suppliers.
Our other manufacturing subsidiary, Jihua Marine, is engaged in the manufacturing and selling of Marine Bio and Health-care products.
During the six months period ended June 30, 2009 and 2008, Jiahua Marine realized sales of $9,039,859 and $7,612,445 respectively, an increase of $1,427,414 or 19%. The gross profit ratio from this segment went from 74% in the six months period ended June 2008 compared to 77% in the corresponding period of 2009.
That improvement in the gross profit ratio experienced in 2009 is due to different sales mix in 2009 compared to 2008, including the effect of new products marketed in 2009. The major expense of this segment continues to be marketing and advertising, corresponding to 31% and 32% of revenues for the six months ended June 30, 2009 and 2008 respectively. The net income contributed by this segment was $2,608,375 and $1,298,401 for the six months period ended June 30, 2009 and 2008 respectively, an improvement of 101%. The increase in net income was mostly due to the combination of improved sales and related gross profit in 2009 added to a reduced provision for doubtful accounts of approximately $633,945 to adjust to an improved aging of our receivables.
Income from operations. Income from operations for the six months period ending June 2009 increased from $872,917 in 2008 to $3,839,019 in the corresponding period of 2008, an increase of $2,966,102. That increase in 2009 is the result of an improvement of approximately $2,707,000 in gross profit contribution from both segments added to the reduced bad debt (approximately $863,000), and offset mostly by increased marketing and advertising expenses (approximately $314,000) and general and administrative expenses (approximately $233,000).
Finance costs. Finance costs substantially decreased to $685,225 from $2,442,624 for the six months period ended June 30, 2009 when compared to the corresponding period of the prior year, a reduction of $1,757,399. In the first six months of 2008, finance costs were affected by penalties for late filing of the registration statement of the underlying shares related to those convertible notes issued in November 2006 (approximately $1,621,000), added to the result of a final settlement amounting to approximately $699,000 from the American Arbitration Association in relation with financial fees payable to one of our financial service suppliers. Such one time costs did not occur in 2009. In 2008 as in 2009, financing costs also included recognition of the carrying interests on the promissory notes issued in November 2006 added to the continued combination of amortization of the future conversion of warrants (non–cash) attributed to investors on those November 2006 notes of $5,000,000, added to the amortization of the embedded conversion option (non–cash) related to the same notes. Those non-cash financing costs were recognized in accordance with FAS 123R and EITF 00-27. Such amortization will be repeated, on a pro-rata basis, until maturity of the underlying notes in November 2009. Finally, in the first six months of 2009, in order to avoid the costs in time and expenses of an arbitration proceeding, the Company reduced the exercise price of certain warrants convertible into shares of the Company’s $0.001 par value Common Stock to a conversion price of $5.00 per share, provided such warrants were immediately exercised; that transaction generated a loss of approximately $365,000 in the first quarter of 2009.
Total assets increased by $14,068,870, or 14%, to $114,255,143 at June 30, 2009, compared to $100,186,273 as of December 31, 2008. Shareholders’ equity increased by $9,399,974 or 10.7%, to $97,673,002 at June 30, 2009, from $88,273,028 as of December 31, 2008.
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