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HQ Sustainable Sees Gross Profit Soar

CHINA - HQ Sustainable Maritime Industries, Inc. saw sales reach $9.2 million in the first quarter of the year, up 17.3 per cent from the first quarter of 2007.

Gross profit rose by more than 50 per cent top $3.9 million and gross profit margin was 42.3 per cent, up from 33 per cent in the first quarter of 2007.

Improvement in gross profit margin was due to higher selling prices for tilapia products and increased sales volume. Gross profit margin for the Company's marine bio segment was 76 per cent for the three months ended March 31, 2008, compared to 82 per cent in the first quarter of 2007. Profit margin decreased in the first quarter of 2008 because of a different sales mix of lower margin products.

The vertically integrated aquatic product producer, processor and distributor of toxin free tilapia, and processor and distributor of marine-bio products with operations in the Peoples Republic of China saw EBITDA at $1.1 million, up from $62,207 in the first quarter of 2007.

"HQS was very fortunate not to have been more severely affected by the severe winter weather that China experienced at the end of 2007 and beginning of 2008. While tilapia producers in mainland China suffered large losses, the aquaculture production and processing part of our business was not harmed and led HQS to year on year sales growth. During what traditionally is a seasonally slow quarter, we expanded our aquatic product processing capabilities at our current facility while construction of our new feed mill and processing facility continued," said Mr. Norbert Sporns, President and CEO of HQ Sustainable Maritime Industries, Inc.

"We continued to develop HQS into a vertically-integrated feed and aquaculture production, processing and distribution company, as well as a leading marine bio processing and distribution company. Our environmentally sustainable methods allow us to produce high quality products that we believe are gaining increasing attention from international consumers."

Finance costs in the first quarter of 2008 were $1.6 million, which management believes will decrease throughout the remaining three quarters of 2008. Net loss available to shareholders in the first quarter of 2008 was $1.0 million, compared to a loss of $1.6 million in the first quarter of 2007.

The Company had significant foreign currency gains of $2.8 million in the first quarter of 2008, compared to foreign currency gains of $275,580 in the first quarter of 2007. These gains took place because of the continuing weakness of the US Dollar compared to the Chinese Renminbi. There can be no assurances that these currency gains will continue or that the value of the Chinese Renminbi compared to the US Dollar will not decrease.

A new feed mill is being constructed that management anticipates will begin production in the third quarter of 2008. Management believes the new feed mill will be able to produce 100,000 metric tons of feed a year.

Current tilapia and shrimp processing is being expanded from 20,000 metric tons (live weight) of annual production capability to 30,000 metric tons (live weight) of annual production capability. A new processing facility is being constructed that management expects will double processing capability to 60,000 metric tons (live weight) per year. The new processing facility is scheduled to be completed in the first half of 2009.

"We are an American growth company responding to a unique global opportunity to help build an environmentally sustainable alternative to open-ocean fishing. We forecast continuing strong growth in the aquaculture industry. HQS will continue to fulfill its vertical integration strategy, which will allow us greater control over high quality production, processing and distribution. Sales of our TILOVEYA brand tilapia products will continue to lead our growth, and we are developing new direct sales of tilapia products in North America and Europe. We are also developing additional high-value and high-quality nutraceutical and healthcare products from marine biomass that would otherwise be considered waste," said Mr. Sporns.

Ellen Hardy

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