HQ Secures Organic Tilapia Supply: Capacity to Double

100 tonnes/pa feedmill to produce organic floating feeds as part of company's bid to becoming world's #1 organic tilapia producer
August 9, 2006

HQ Sustainable Maritime Industries, Inc. announced today it has signed a conditional agreement with the Government of Tayang Town, Qionghai City, Hainan Province, to partner with cooperative farms operating an additional 10,000 mu capable of producing some 20,000 tons of tilapia live weight.

This will double to 3,294 acres the farming capacity available to HQ. The agreement is conditional on the completion of financing for the construction of a new feedmill and processing plant in the immediate vicinity of the farms. Everything produced will meet organic standards as defined by Naturland, whose standards are currently adopted by the FDA.

Qionghai is about 40 minutes from HQ's current cooperative farms in Wenchang and is in close proximity to one of the best fresh water reservoirs in Hainan. All of the farms are in one township and thus in immediate proximity to each other, a factor required for organic certification.

The total project cost will be approximately US$30 million. Management believes that, as a result of this agreement, HQ will be the world's largest producer of organic tilapia. HQ management expects, through its current TiLoveYa® marketing and branding campaign, to see strong growth and increasing consumer awareness of the importance of toxin-free aquaculture products that achieve organic standards.

These cooperative farms have accepted terms and conditions which management believes are much more beneficial for HQ than the current cooperative agreements. Each farm will have to acquire feed from HQ's mill to meet the Company's strict organic standards, and to accept company feed financing to access HQ's new processing plant in this township. The arrangement reduces the risks for the farmer and, in management's belief, provides HQ a much greater percentage of profits from feed to processing than is currently possible. These certified organic farms will not be allowed to sell their production to other processors unless HQ is unable to buy their production.

The new processing plant will have 6 production lines with value-added capabilities allowing HQ to make fish sticks and fish patties as well as fillets and whole round products, as currently is the case.

The new feedmill will produce organic floating feed, which is the most efficient feed for such farming operations. There is no floating or organic feed production in Hainan currently. Production will satisfy not only HQ's expanded demand for its combined aquaculture farms in Wenchang and Qionghai. It will also provide feed for such other aquaculture operations in Hainan as shrimp and other farmed species. The plant will manufacture some 100,000 tons annually of feed and will source organic non-GMO corn and soya from China and abroad.

Regarding the agreement, Norbert Sporns commented, "Such agreements are possible for our organization because of the leadership role HQ plays in developing Hainan's aquaculture industry to global standards. We are a 'Dragon Head' company designated by the Government of China as an industry leader. This status is possible through the pioneering work of our Honorary Chairman Mr. Wang Fusheng, to whom all of us are indeed grateful."

HQ Sustainable Maritime Industries, Inc. is an integrated aquaculture and aquatic product processing company, with operations based in Hainan, in the South China Sea. HQ practices cooperative sustainable aquaculture, using nutraceutically enriched feeds and conducting fish processing and sales. The company is dedicated to sustainable zero-toxin 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 these international markets. It has recently acquired a nutraceuticals and health products company, which is HACCP certified, and produces and sells products subject to stringent laboratory tests certified by the China Ministry of Health. This plant produces nutraceuticals, which enrich feed used by HQ's cooperative aquaculture operations. In addition to headquarters in Seattle and operational offices based in Haikou, Hainan, HQ has offices in Hong Kong, Beijing, and Shanghai.

(mu = 1,647 acres)