U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ----------------
                                   FORM 10-QSB
                                 ----------------


(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005


                                       OR

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

                        Commission file number: 000-18980


                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
           ==========================================================
                 (Name of small business issuer in its charter)

           Delaware                          3550                   62-1407522
  (State or jurisdiction of        (Primary Std. Industrial        (IRS Employer
Incorporation or organization)    Classification Code Number)        ID Number)

    Wall Street Center, 14 Wall Street, 20th Floor, New York, New York 10005
                               Tel. (212) 618-1712
           ==========================================================
          (Address and telephone number of principal executive offices)

         Securities registered under Section 12(b) of the Exchange Act:
                                      None

         Securities registered under Section 12(g) of the Exchange Act:
                    Common Stock, $0.001 par value per share
                                (Title of Class)



Check whether the issuer:  (i) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|

As of June 30, 2005,  there were 100,261,523  shares of the registrant's  common
stock outstanding.


<PAGE>

                        --------------------------------
                                TABLE OF CONTENTS
                        --------------------------------
                                                                    Page Numbers

PART I - FINANCIAL INFORMATION

Item  1. Financial Statements.
          o    Condensed Consolidated Balance Sheets                      2-3
          o    Condensed Consolidated Statements of Income                4
          o    Condensed Consolidated Statements of Cash Flows            5
          o    Notes to Condensed Consolidated Financial Statements       6-10
Item  2. Management Discussions & Analysis of Financial Condition and
            Results of Operations.                                        11-17
Item 3.  Controls and Procedures                                          17

PART II - OTHER INFORMATION

Item  1. Legal Proceedings                                                18
Item  2. Unregistered Sales of Equity Securities and Use of Proceeds      18
Item  3. Defaults Upon Senior Securities                                  18
Item  4. Submission of Matters to a Vote of  Security Holders             18
Item  5  Other Information                                                18
Item  6. Exhibits                                                         18






<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
                     (INCORPORATED IN THE STATE OF DELAWARE
                             WITH LIMITED LIABILITY)

                      CONDENSED CONSOLIDATED BALANCE SHEETS


                                     ASSETS



                                                 June 30, 2005     December 31, 2004
                                                  (unaudited)         (unaudited)
                                               -----------------   -----------------
<S>                                            <C>                 <C>
CURRENT ASSETS
  Cash and cash equivalents                    $       4,353,245   $       4,551,505
  Trade receivables, net of provision                  6,937,921           5,406,172
  Inventory                                              342,298             228,564
  Prepayments                                              1,932               1,932
  Due from related parties, net of provision             469,947             388,506
  Advance to employees                                   219,677              27,918
  Tax recoverable                                         81,602              81,602
                                               -----------------   -----------------
  TOTAL CURRENT ASSETS                                12,406,622          10,686,199
                                               -----------------   -----------------

OTHER ASSETS
  Deferred taxes                                       1,175,703           1,209,790
                                               -----------------   -----------------

PROPERTY, PLANT AND EQUIPMENT, NET                     8,548,631           9,029,673
                                               -----------------   -----------------

VESSELS HELD FOR SALE                                       --                  --
                                               -----------------   -----------------

TOTAL ASSETS                                   $      22,130,956   $      20,925,662
                                               =================   =================
</TABLE>














The  accompanying  notes  are in  integral  part of the  consolidated  financial
statements.

                                       2
<PAGE>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
                     (INCORPORATED IN THE STATE OF DELAWARE
                             WITH LIMITED LIABILITY)

                      CONDENSED CONSOLIDATED BALANCE SHEETS


                      LIABILITIES AND SHAREHOLDERS' EQUITY



                                           June 30, 2005      December 31, 2004
                                            (unaudited)          (unaudited)
                                         -----------------    -----------------
CURRENT LIABILITIES
  Accounts payable and accrued expenses  $       3,579,030    $       4,204,630
  Bank loans                                     4,457,831            4,457,831
  Tax payable                                      130,198                 --
  Due to related parties                           536,160               86,994
  Due to directors                                 199,145              209,361
  Convertible notes                                255,422              255,422
                                         -----------------    -----------------
  TOTAL CURRENT LIABILITIES                      9,157,786            9,214,238
                                         -----------------    -----------------

OTHER LIABILITIES
  Promissory note                                  100,000              100,000
                                         -----------------    -----------------

TOTAL LIABILITIES                                9,257,786            9,314,238
                                         -----------------    -----------------


SHAREHOLDERS' EQUITY
  Share capital                                    100,261               95,055
  Additional paid-in capital                    13,713,424           13,099,205
  Reserves                                       1,326,467            1,146,316
  Accumulated losses                            (2,266,982)          (2,729,152)
                                         -----------------    -----------------

TOTAL SHAREHOLDERS' EQUITY                      12,873,170           11,611,424
                                         -----------------    -----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                 $      22,130,956    $      20,925,662
                                         =================    =================










The  accompanying  notes  are in  integral  part of the  consolidated  financial
statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
                     (INCORPORATED IN THE STATE OF DELAWARE
                             WITH LIMITED LIABILITY)

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (unaudited)


                                           Three Months Ended                Six Months Ended
                                    June 30, 2005    June 30, 2004    June 30, 2005    June 30, 2004
                                    -------------    -------------    -------------    -------------
<S>                                 <C>              <C>              <C>              <C>

SALES                               $   6,515,755    $     460,919    $   9,532,641    $     702,292

COST OF SALES                           3,720,157          534,533        5,019,323          748,362
                                    -------------    -------------    -------------    -------------

GROSS PROFIT/(LOSS)                     2,795,598          (73,614)       4,513,318          (46,070)

SELLING AND DISTRIBUTION EXPENSES          65,778           61,602          106,386           96,201

ADVERTISING                               830,183             --          1,831,002             --

GENERAL AND ADMINISTRATIVE
   EXPENSES                               530,114        1,036,543        1,157,055        1,370,004

DEPRECIATION                              240,769           79,313          481,041          158,678

PROVISION FOR DOUBTFUL ACCOUNTS              --            238,581           38,352        1,523,331
                                    -------------    -------------    -------------    -------------

PROFIT /(LOSS) FROM OPERATIONS          1,128,754       (1,489,653)         899,482       (3,194,284)

FINANCE COSTS                              90,274           43,625          181,982           43,625

OTHER INCOME                             (208,402)        (236,641)        (208,985)        (253,669)

OTHER EXPENSES                             52,170           54,518          119,879          183,095
                                    -------------    -------------    -------------    -------------

PROFIT/(LOSS) BEFORE INCOME TAXES       1,194,712       (1,351,155)         806,606       (3,167,335)

INCOME TAXES
  CURRENT                                  97,379             --            130,198             --

  DEFERRED                                 17,043           11,362           34,086           34,087
                                    -------------    -------------    -------------    -------------

NET PROFIT/(LOSS) BEFORE MINORITY
   INTEREST                             1,080,290       (1,362,517)         642,322       (3,201,422)

MINORITY INTEREST                            --             69,581             --            337,944
                                    -------------    -------------    -------------    -------------

NET PROFIT/(LOSS) ATTRIBUTABLE TO
   SHAREHOLDERS                     $   1,080,290    $  (1,292,936)   $     642,322    $  (2,863,478)
                                    =============    =============    =============    =============

NET PROFIT/(LOSS) PER SHARE BASIC
   AND DILUTED                      $        0.01    $       (0.02)   $        0.01    $       (0.09)
                                    =============    =============    =============    =============

WEIGHTED AVERAGE COMMON SHARE
   OUTSTANDING                         99,320,179       64,128,752       97,766,208       32,076,876
                                    =============    =============    =============    =============
</TABLE>



The  accompanying  notes  are in  integral  part of the  consolidated  financial
statements.


                                       4
<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
                     (INCORPORATED IN THE STATE OF DELAWARE
                             WITH LIMITED LIABILITY)

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
                                   (unaudited)

                                                                     2005            2004
                                                                 ------------    ------------
<S>                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income/(loss)                                              $    642,322    $ (3,201,422)
  Adjustments to reconcile net income to net cash provided
     by operating activities:

  Depreciation                                                        481,041         158,678
  (Increase)/decrease in assets:
     Inventory                                                       (113,733)         45,954
     Trade receivables, net of provisions                          (1,531,749)      2,591,121
     Prepayment                                                          --            11,901
     Advance to employee                                             (191,760)           --
     Deferred taxes                                                    34,087          34,087
  Increase/(decrease) in liabilities:
     Accounts payable and accrued expenses                           (625,600)        501,131
     Deposit received from customers                                     --           (24,448)
     Taxes payable                                                    130,198            --
                                                                 ------------    ------------
Net cash from by operating activities                              (1,175,194)        117,002
                                                                 ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment                           --        (1,060,752)
                                                                 ------------    ------------
Net cash from by investing activities                                    --        (1,060,752)
                                                                 ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock                                          619,425       2,943,310
  Payment to directors                                                (10,217)        (42,752)
  Receive from/(payment to) related parties                           367,726        (471,720)
  Repayment of bank loans                                                --        (6,265,061)
                                                                 ------------    ------------
Net cash from by financing activities                                 976,934      (3,836,223)
                                                                 ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                              (198,260)     (4,779,973)

  Cash and cash equivalents, beginning of period                    4,551,505      11,037,780
                                                                 ------------    ------------

  Cash and cash equivalents, end of period                       $  4,353,245    $  6,257,807
                                                                 ============    ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                                  $    158,982    $    132,153
                                                                 ============    ============

  Taxes paid                                                     $       --      $       --
                                                                 ============    ============

SUPPLEMENTARY DISCLOSURE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES
  Note payable in connection with acquisition of Jiahua Marine   $    100,000    $    100,000
                                                                 ============    ============
</TABLE>



The accompanying notes are in integral part of the financial statements.

                                       5
<PAGE>

                     HQ SUSTAINABLE MARTIME INDUSTRIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    UNAUDITED
                                  JUNE 30, 2005
-------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

The unaudited  condensed  consolidated  financial  statements of HQ  Sustainable
Maritime  Industries,  Inc.,  or HQSM,  have been  prepared in  accordance  with
generally accepted accounting  principles for interim financial  information and
pursuant to the  requirements  for  reporting  on Form 10-QSB and Item 310(b) of
Regulation  S-B.  Accordingly,  they  do not  include  all the  information  and
footnotes required by accounting  principles generally accepted in United States
of America for complete financial statements. However, such information reflects
all adjustments (consisting solely of normal recurring adjustments),  which are,
in the opinion of management,  necessary for a fair statement of results for the
interim  periods.   Results  shown  for  interim  periods  are  not  necessarily
indicative  of the results to be obtained for a full fiscal year.  The condensed
consolidated  balance sheet information as of December 31, 2004 was derived from
the audited  consolidated  financial statements included in the Company's Annual
Report  Form  10-KSB.  These  interim  financial  statements  should  be read in
conjunction with that report.

NOTE 2 - NATURE OF COMPANY



HQ Sustainable Maritime Industries,  Inc. ("HQSM") was initially incorporated as
Sharon Capital  Corporation,  or Sharon, on September 21, 1989 under the laws of
the State of Nevada. Sharon was a "blind pool/blank check" corporation organized
for the purpose of  purchasing,  merging  with or acquiring a business or assets
from another company.  In July 1990,  Sharon was changed to PEI, Inc., which was
subsequently  changed to Process Equipment,  Inc. in November 1990. On March 17,
2004, Process  Equipment,  Inc., Process Equipment  Acquisition  Corporation,  a
Nevada corporation and wholly-owned  subsidiary of Process  Equipment,  Inc., or
PEAC,  and Jade Profit  Investment  Limited,  or Jade, a British  Virgin Islands
limited  liability  corporation,  entered into an agreement  and plan of merger.
Pursuant to that agreement,  Process  Equipment,  Inc.,  through PEAC,  acquired
Jade, and 84.42% ownership in Jade's  subsidiary Hainan Quebec Ocean Fishing Co.
Ltd, a People's Republic of China, limited liability corporation, which we refer
to as HQOF.  As a result of that  transaction,  HQOF  became our main  operating
subsidiary.  In April of  2004,  pursuant  to the  above  agreement  and plan of
merger, the board of directors of Process Equipment,  Inc. and a majority of the
stockholders  approved a name change and change of  domicile of that  company to
Delaware via a merger with the newly formed  wholly-owned  Delaware  subsidiary,
HQSM. The name change, change of domicile and merger became effective on May 19,
2004,  with HQSM being the surviving  entity in the merger and acquiring all the
assets and  liabilities of Process  Equipment,  Inc. On August 17, 2004, we have
entered into a Purchase  Agreement with Sino-Sult  Canada  (S.S.C.)  Limited,  a
Canadian  limited  liability  corporation  ("SSC"),  whereby we acquired Sealink
Wealth Limited  ("Sealink"),  SSC's wholly owned subsidiary  incorporated in the
British Virgin Islands.  That purchase agreement has been filed as an exhibit to
our  current  report on Form 8K filed with the  Commission  on August 18,  2004.
Sealink is the sole owner of Hainan  Jiahua  Marine  Bio-Products  Co.  Ltd.,  a
limited liability company existing in China ("Jiahua Marine") which is primarily
engaged  in the  production  and sales of  marine  bio-products  and  healthcare
products in the PRC, as  described in more detail in the above  current  report.
Also as previously disclosed,  in the same current report, SSC is owned by three
of our current directors and executive officers who are also, together, indirect
beneficial owners of the majority of our capital stock.



                                       6
<PAGE>

Further, as previously  disclosed in the above current report,  effective August
17,  2004,  HQSM  caused  Jade  Profit  Investment  Limited,   its  wholly-owned
subsidiary,  to acquire the minority  equity  interest equal to 15.58% that Jade
did not  already  own in  HQOF,  HQSM's  principal  operating  subsidiary.  This
purchase was effected by Jade  pursuant to the Purchase  Agreement,  dated as of
August 17, 2004, between Jade and Hainan Fuyuan Investment Company Limited,  the
holder of the minority  equity interest of HQOF being acquired by Jade. Jade has
previously obtained all requisite  governmental approvals in the PRC in order to
consummate this transaction.

The Group is  principally  engaged  in the  vertically  integrated  business  of
aquaculture through  co-operative  supply agreements,  ocean product harvesting,
and processing and sales of farm-bred and ocean harvested aquatic products.  The
principal  products of HQOF are  cross-bred  hybrid of tilapia and  white-legged
shrimp exporting,  directly and indirectly,  to the United States, Canada, Japan
and European countries. The major market is for export.

The Group has also engaged in the  production  and sales of marine  bio-products
and  healthcare  products in the PRC. The  principal  products of Hainan  Jiahua
Marine  Bio-Product  Company Limited (100% hold subsidiary of Sealink) are Shark
Cartilage Capsule,  Shark Liver Oil and Shark Liver (Soft gel). The major market
is domestic in the PRC.

NOTE 3 - USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amounts of revenue and expenses during the reporting period. Actual
results when ultimately realized could differ from those estimates.

NOTE 4 - EARNINGS PER SHARE

Basic  earnings  per share are computed by dividing  income  available to common
shareholders by the weighted-average  number of common shares outstanding during
the period.  Diluted  earnings per share are computed  similar to basic earnings
per share  except that the  denominator  is  increased  to include the number of
additional  common  shares  that would have been  outstanding  if the  potential
common shares had been issued and if the additional common shares were dilutive.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments including cash and cash equivalents,
receivables,  accounts payable and accrued expenses and debt, approximates their
fair  value  at June 30,  2005  and  December  31,  2004  due to the  relatively
short-term nature of these instruments.

NOTE 6 - FOREIGN CURRENCY CONVERSION

The  Company's  financial  information  is  presented  in US  dollars.  People's
Republic of China currency (Renminbi dollars) has been converted into US dollars
at the exchange rate of 8.3 to 1.



                                       7
<PAGE>

NOTE 7 - INCOME TAXES

Taxes are calculated in accordance  with taxation rates  currently  effective in
the PRC.  The Company  accounts  for income  taxes using the  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized as income in the
period that includes the enactment  date. A valuation  allowance is provided for
the amount of deferred tax assets that,  based on  available  evidence,  are not
expected to be realized.

The Company's subsidiaries  registered in the PRC are subject to state and local
income taxes within the PRC at the applicable tax rates on the taxable income as
reported in their PRC statutory  financial  statements  in  accordance  with the
relevant  income tax laws applicable to foreign  enterprises.  Jiahua Marine was
subject to a tax rate of 7.5% during this quarter.  Jiahua Marine is entitled to
a two-year tax holiday from 2002 commencing with the first  profit-making  year.
HQOF did not have any assessable profits for the six months ended June 30, 2005.

The  reconciliation  of the  effective  income  tax rate of the  Company  to the
statutory income tax rate in the PRC for this quarter is as follows:

        Statutory tax rate                             15.0%
        Tax holidays and concessions                   (7.5%)
                                                  ----------
        Effective tax rate                              7.5%
                                                  ==========

Income taxes are calculated on a separate  entity basis.  Currently  there is no
tax benefit or burden recorded for the United States.



                                       8
<PAGE>
<TABLE>
<CAPTION>

NOTE 8 - SEGMENTS

No geographical  segment  analysis is provided for the six months ended June 30,
2005 and 2004,  as less than 10% of  consolidated  revenues and less than 10% of
consolidated  income from  operations is  attributable to the segment other than
the Mainland China.

Business segment for the three months ended June 30, 2005

                                       Aquaculture     Health and      Unallocated
                                         Product       Bio-product        Items        Consolidation
                                      -------------   -------------   -------------    -------------
<S>                                   <C>             <C>            <C>              <C>

Sales to external customers               4,064,815       2,450,940            --          6,515,755
                                      ==============================================================

General and administrative expenses          98,984          16,705         414,425          530,114
Depreciation                                163,824          75,310           1,635          240,769
Selling expenses                             48,582          17,196            --             65,778
Advertising                                    --           830,183            --            830,183
Finance costs                                58,706          30,810             758           90,274
Profit before taxation                      319,327       1,296,891        (421,506)       1,194,712
Taxation                                     17,043          97,379            --            114,422
Profit for the period                       302,284       1,199,512        (421,506)       1,080,290
                                      ==============================================================

Segment assets                           13,304,542       8,318,610         507,804       22,130,956
                                      ==============================================================

Segment liabilities                       5,562,967       2,303,695       1,391,124        9,257,786
                                      ==============================================================


Business segment for the six months ended June 30, 2005


                                       Aquaculture     Health and      Unallocated
                                         Product       Bio-product        Items        Consolidation
                                      -------------   -------------   -------------    -------------

Sales to external customers               5,157,310       4,375,331            --          9,532,641
                                      ==============================================================

General and administrative expenses         246,666          52,783         857,606        1,157,055
Depreciation                                327,648         150,621           2,772          481,041
Selling expenses                             69,117          37,269            --            106,386
Advertising                                    --         1,831,002            --          1,831,002
Finance costs                               116,484          62,030           3,468          181,982
Profit/(Loss) before taxation               (59,599)      1,734,477        (868,272)         806,606
Taxation                                     34,086         130,198            --            164,284
Profit/(Loss) for the period                (93,685)      1,604,279        (868,272)         642,322
                                      ==============================================================

Segment assets                           13,304,542       8,318,610         507,804       22,130,956
                                      ==============================================================

Segment liabilities                       5,562,967       2,303,695       1,391,124        9,257,786
                                      ==============================================================
</TABLE>


No  business  segment is provided  for the six months  ended June 30, 2004 as no
revenues and income from operations is  attributable  to business  segment other
than the vertically  integrated  business of aquaculture  through processing and
sales of farm-bred and ocean harvested aquatic products.




                                       9
<PAGE>
<TABLE>
<CAPTION>

NOTE 9 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On August 17, 2004,  HQSM and Sealink,  as the parent and management  company of
Jiahua Marine, consummated a Purchase Agreement whereby HQSM acquired all of the
issued and outstanding capital stock of Sealink at consideration payable by HQSM
in the following  manner:  $8,888,655 in the form of 12,698,078 shares of HQSM's
common stock,  $0.001 par value per share,  up to but not exceeding 19.9% of the
outstanding  shares of HQSM's  common stock,  on a  fully-diluted  basis,  to be
delivered to SSC at closing, and (ii) the remaining balance of $11,111,345 to be
payable in the form of a convertible promissory note (the "Note") issued by HQSM
to SSC.  This  Note is  included  as  Exhibit  B to the  Nutraceutical  Purchase
Agreement.  The Note  will  accrue  interest  at the rate of 5% per annum and is
convertible  into: (1) one hundred thousand US Dollars  (US$100,000) for 100,000
shares of HQSM's Series A preferred  stock,  $0.001 par value per share, (2) the
remaining  principal amount of the Note equal to  US$11,011,345  into 15,730,493
shares of HQSM's common stock.  The Note is convertible  only upon completion of
an audit of HQSM's  acquisition of Sealink and Jiahua  Marine,  performed to the
satisfaction  of HQSM and  receipt of all  necessary  shareholder  consents  and
approvals. The $11,011,045 portion of the Note was converted in November, 2004.

The Purchase Agreement is being accounted for as a  recapitalization  of Sealink
whereby the historical  financial  information of Sealink becomes the historical
financial information of the Registrant.

The accompanying  Unaudited Pro Forma Condensed Consolidated Statement of Income
for the  quarter  ended  June  30,  2004,  has  been  prepared  to  reflect  the
acquisition as if it had occurred as of January 1, 2004.

The  accompanying pro forma  information is presented for illustrative  purposes
only and is not necessarily  indicative of the financial  position or results of
operations which would actually have been reported had the merger been in effect
during the periods presented, or which may be reported in the future.

                                             Three months ended   Six months ended
                                                June 30, 2004      June 30, 2004
                                                -------------      -------------
<S>                                             <C>                <C>
                                                 USD (`000)          USD (`000)
Sales                                                 3,100                5,266
Loss from operations                                    904                2,083
Net loss attributable to shareholder                    890                1,966
                                                ================================

Weighted average outstanding number of shares    69,770,366           69,770,366
     as at December 31, 2004

Earning (loss) per share                              (0.01)               (0.03)
</TABLE>








                                       10
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following is  management's  discussion  and analysis of certain  significant
factors which have affected our financial  position and operating results during
the periods included in the accompanying  consolidated financial statements,  as
well as information relating to the plans of our current management. This report
includes   forward-looking   statements.   Generally,   the  words   "believes,"
"anticipates,"   "may,"  "will,"  "should,"  "expect,"   "intend,"   "estimate,"
"continue,"  and  similar  expressions  or the  negative  thereof or  comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties,  including the matters set forth
in this report or other  reports or  documents we file with the  Securities  and
Exchange  Commission  from time to time,  which  could cause  actual  results or
outcomes to differ materially from those projected. Undue reliance should not be
placed  on these  forward-looking  statements  which  speak  only as of the date
hereof. We undertake no obligation to update these forward-looking statements.

The following  discussion and analysis  should be read in  conjunction  with our
consolidated  financial  statements  and the  related  notes  thereto  and other
financial information contained elsewhere in this Form 10-QSB.

GENERAL OVERVIEW
----------------

The following Management's  Discussion and Analysis ("MD&A") is intended to help
the reader understand our Group. MD&A is provided as a supplement to, and should
be read in conjunction with, our financial statements and the accompanying notes
("Notes").

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
-----------------------------------------------------

You  should  read  the  following  discussion  of our  financial  condition  and
operations in conjunction  with the  consolidated  financial  statements and the
related notes included elsewhere in this quarterly report. This quarterly report
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These include  statements about our expectations,
beliefs,  intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate,"  "expect," "intend," "plan," "will," "we believe,"
"our  company  believes,"   "management  believes"  and  similar  language.  The
forward-looking statements are based on our current expectations and are subject
to certain risks,  uncertainties  and assumptions,  including our ability to (1)
obtain  sufficient  capital  or a  strategic  business  arrangement  to fund our
expansion  plans;  (2) build the management and human  resources  infrastructure
necessary to support the growth of our  business;  (3)  competitive  factors and
developments beyond our control; and (4) those other risk factors, uncertainties
and  assumptions  that  are set  forth  in the  discussion  under  the  headings
captioned   "Business,"  "Risk  Factors,"  and   "Management's   Discussion  and
Analysis".  Our actual results may differ materially from results anticipated in
these  forward-looking  statements.  We base the  forward-looking  statements on
information  currently available to us, and we assume no obligation to update or
revise them, whether as a result of new information, future events or otherwise.
In addition,  our historical financial performance is not necessarily indicative
of the  results  that may be  expected  in the future  and we believe  that such
comparisons cannot be relied upon as indicators of future performance.



                                       11
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

The Company  prepares its consolidated  financial  statements in accordance with
accounting  principles  generally accepted in the United States of America.  The
preparation  of these  financial  statements  requires the use of estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period.  Management  periodically  evaluates the  estimates and judgments  made.
Management  bases its estimates and  judgments on historical  experience  and on
various  factors that are  believed to be  reasonable  under the  circumstances.
Actual  results  may  differ  from  these  estimates  as a result  of  different
assumptions or conditions.

The following critical accounting policies affect the more significant judgments
and estimates used in the  preparation of the Company's  consolidated  financial
statements.

Inventories
-----------

Inventories  are stated at the lower of cost or net  realizable  value.  Cost is
calculated  on the  moving-average  basis and  includes all costs to acquire and
other costs incurred in bringing the  inventories to their present  location and
condition.  The Company evaluates the net realizable value of its inventories on
a  regular  basis and  records  a  provision  for loss to  reduce  the  computed
moving-average cost if it exceeds the net realizable value.

Income Taxes
------------

Taxes are calculated in accordance with taxation principles  currently effective
in the PRC. The Company  accounts for income taxes using the  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and  liabilities  of a change in tax rates is recognized as income in the
period that includes the enactment  date. A valuation  allowance is provided for
the amount of deferred tax assets that,  based on  available  evidence,  are not
expected to be realized.

Related Parties
---------------

Parties are  considered to be related if one party has the ability,  directly or
indirectly,  to control the other party or exercise  significant  influence over
the other party in making financial and operational decisions.  Parties are also
considered  to be  related  if they are  subject  to  common  control  or common
significant influence. Related parties may be individuals or corporate entities.

Revenue Recognition
-------------------

In accordance with the provisions of Staff Accounting  Bulletin No. 103, revenue
is recognized  when  merchandise is shipped and title passes to the customer and
collectibility is reasonably assured.



                                       12
<PAGE>

Concentration of Credit Risk
----------------------------

Financial  instruments  that  potentially  subject  the  Company to  significant
concentrations  of credit risk consist  primarily of trade accounts  receivable.
The Company  performs  ongoing credit  evaluations with respect to the financial
condition  of its  creditors,  but  does  not  require  collateral.  In order to
determine the value of the Company's accounts receivable,  the Company records a
provision for doubtful  accounts to cover  probable  credit  losses.  Management
reviews and adjusts this allowance  periodically based on historical  experience
and its evaluation of the collectibility of outstanding accounts receivable.

Results of  Operations  - Three  Months Ended June 30, 2005 as Compared to Three
Months Ended June 30, 2004

One of our subsidiaries,  Jiahua Marine was engaged in manufacturing and selling
of health and bio-product.  During the three months ended June 30, 2005,  Jiahua
Marine contributed  $2,450,940 or 38% to the total sales of the Group. The gross
profit  ratio for this  segment was around 82% and the major  expenses  for this
segment were  advertising,  which was about 34% of the revenues.  The net income
contributed by this segment was $1,199,512 this quarter. Since Jiahua Marine was
acquired by our Group in the third quarter of 2004, comparative figures for 2004
for this particular segment are not applicable.

The other principal  activity of the Group was the  manufacturing and selling of
aquatic  products.  The revenue  contributed  by this segment was $4,064,815 and
$460,919 for the three months  ended June 30, 2005 and 2004,  respectively.  The
gross  profit  ratio of this segment was 18% for the three months ended June 30,
2005 compared with a gross loss ratio of 16% for the three months ended June 30,
2004. That segment's contribution to net income was a net profit of $302,284 for
the  current  quarter  while  it  showed  a  net  loss  of  $1,292,936  for  the
corresponding  quarter of 2004. Production was stopped in the first half of 2004
because the factory went under major renovations.

For the three months ended June 30, 2005 revenue  increased by  $6,054,836 or 13
times to $6,515,755 from $460,919 as compared to the corresponding period of the
prior year.  The increase  resulted from improved  performance by both segments:
the aquatic product segment saw its sales increasing by $3.6 million compared to
the second quarter of 2004 as its activities  resumed normal levels in 2005, and
because 2004  production was almost  stopped due to  renovations  experienced in
that period.  Furthermore,  for the health and  bio-product  segment,  since its
operations were acquired in August 2004, there were no financials results in our
Group for that segment in 2004. In 2005,  the sales  contributed by that segment
in 2005 were $2.5 million.

Cost of sales increased by $3,185,624 or 6 times to $3,720,157 from $534,533 for
the three months ended June 30, 2005, as compared to the corresponding period of
the prior  year.  Approximately  90% of the  increase  was due to the  increased
activities   in  the  aquatic   products   segment  as  the  company  was  in  a
reconstruction  process  in 2004.  The  balance of the  increase  was due to the
acquisition of Sealink in August 2004.

Selling and distribution  expenses slightly increased by $4,176 or 7% to $65,778
for the three  months  ended June 30,  2005,  as compared  to the  corresponding
period of the prior  year.  The  increase  was in line  with the  Group's  sales
improvement compared with last year.



                                       13
<PAGE>

Advertising  expenses  increased  by  $830,183  from  zero  as  compared  to the
corresponding  period of the prior year. The primary factor  responsible for the
increase was that HQSM  acquired  Jiahua Marine (as part of its  acquisition  of
Sealink) in August  2004,  as Jiahua  Marine  requires  significant  advertising
expenditures  for the  promotion  of its  pharmaceutical  products  in  order to
achieve customer recognition, which is consistent with industry practices.

General and administrative  expenses decreased by $506,429 or 49% to $530,114 as
compared to the  corresponding  period of the prior year. In 2005,  the level of
such expenses  came back to its normal level as in 2004,  we incurred  important
expenses in our process of becoming a listed company.

Depreciation  increased  by  $161,456  or 2 times to $240,769 as compared to the
corresponding  period to the prior year.  The  increase was due to the effect in
the current period of improvements in plant and machinery which were made in the
first  half of  2004 by  HQOF,  and  additional  assets  purchased  through  the
acquisition of Jiahua Marine in mid-August 2004.

Provision  for  doubtful  accounts  decreased  by  $238,581 or 100% to zero from
$238,581 as compared to corresponding period of the prior year. No provision was
required in 2005 as receivable accounts are current.

Finance costs  increased to $90,274 from $43,625 for the three months ended June
30, 2005, as compared to the  corresponding  period of the prior year, a 107% or
$46,649 increase.  The increase is due to financing costs incurred in the health
and bio-product segment during the current period which were not in the Group in
2004.

Other income increased by $28,239 or 12% from $236,641 to $208,402 for the three
months ended June 30, 2005.  The other income  mainly  represents  the bad debts
recovered as the Group's credit control improved.

Other  expenses  decreased from $54,518 for the three months ended June 30, 2004
to $52,170 for the three months  ended June 30,  2005, a 4% or $2,348  decrease.
The main reason of the  decrease  was the  reduction  of the  insurance  for the
vessels and some sailors being released since the first quarter of 2005.

Current income taxes increased from zero to $97,379 in the current period.  Such
increase was due to the fact that Jiahua  Marine earned  taxable  income in 2005
and HQOF suffered a loss for the six months ended June 30, 2005 and 2004.

Deferred  income tax  increased  by $5,681 from $11,362 to $17,043 for the three
months ended June 30, 2005.  The  increase is due to the  temporary  differences
reversing in the current period.

Minority  interest  decreased  from $69,581 to zero.  The change  resulted  from
HQSM's acquisition of the 15.58% minority interest of HQOF in August 2004.

The net income  attributable to shareholders was $1,080,290 for the three months
ended June 30, 2005,  compared with a net loss  attributable  to shareholders of
$1,292,936,  a $2,373,226 increase. The increase was due to the higher sales and
margin in the aquatic  segment in 2005 compared to 2004,  and the newly acquired
bio-product segment and its effect in 2005.


                                       14
<PAGE>

Results of Operations - Six Months Ended June 30, 2005 as Compared to Six Months
Ended June 30, 2004

One of our subsidiaries,  Jiahua Marine was engaged in manufacturing and selling
of health and  bio-product.  During the six months ended June 30,  2005,  Jiahua
Marine  contributed  $4,375,331  or 46% to the total  revenue of the Group.  The
gross profit  ratio for this  segment was around 82% and the major  expenses for
this segment were advertising,  which was about 42% of the sales. The net income
was  $1,604,279 for the half-year  ended June 30, 2005.  Since Jiahua Marine was
acquired by our Group in the third quarter of 2005, comparative figures for 2004
for this particular segment are not applicable.

The other  principal  activity  of the Group  remained to be  manufacturing  and
selling of  aquatic  products.  The  revenue  contributed  by this  segment  was
$5,157,310  and  $702,292  for the six  months  ended  June 30,  2005 and  2004,
respectively.  The gross profit ratio of this segment was 16% for the six months
ended June 30,  2005  compared  with a gross loss ratio of 7% for the six months
ended June 30, 2004. This segment's contribution to net income was a net loss of
$93,685 for the current  period while it showed a net loss of $2,863,478 for the
corresponding  period of 2004.  Production was stopped in the first half of 2004
because the factory went under major renovations during that period.

For the six months ended June 30, 2005 revenue  increased  by  $8,830,349  or 13
times to  $9,532,641  from  $702,292 for the  corresponding  period of the prior
year. The increase  resulted from a better  performance  by both  segments:  the
aquatic product segment saw its sales increasing by $4.5 million compared to the
corresponding  period of 2004 as its  activities  resumed normal levels in 2005.
The 2004  production was almost  stopped due to renovations  experienced in that
period.  Furthermore,   for  the  health  and  bio-product  segment,  since  its
operations  were acquired in August 2004,  there were no operations in our Group
for that segment in 2004. In 2005,  the sales  contributed  by that segment were
$4.4 million.

Cost of sales increased by $4,270,961 or 6 times to $5,019,323 from $748,362 for
the six months ended June 30, 2005, as compared to the  corresponding  period of
the prior  year.  Approximately  88% of the  increase  was due to the  increased
activities   in  the  aquatic   products   segment  as  the  company  was  in  a
reconstruction  process in 2004 while  balance  of the  increase  was due to the
acquisition of Sealink in August 2004.

Selling and  distribution  expenses  increased by $10,185 or 11% to $106,386 for
the six months ended June 30, 2005, as compared to the  corresponding  period of
the prior  year.  The  increase  was in line with the  Group's  sales  improving
compared with last year.

Advertising  expenses  increased  by  $1,831,002  from zero as  compared  to the
corresponding  period of the prior year. The primary factor  responsible for the
increase was that HQSM  acquired  Jiahua Marine (as part of its  acquisition  of
Sealink) in August  2004,  as Jiahua  Marine  requires  significant  advertising
expenditures  for the  promotion  of its  pharmaceutical  products  in  order to
achieve customer recognition, which is consistent with industry practices.

General and  administrative  expenses decreased by $212,949 or 16% to $1,157,055
as compared to the corresponding period of the prior year. In 2005, the level of
such expenses  came to back its normal level as in 2004,  we incurred  important
expenses in our process of becoming a listed company.



                                       15
<PAGE>

Depreciation  increased by $322,363 to $481,041 as compared to the corresponding
period to the prior  year.  The  increase  was due to the effect in the  current
period of  improvements in plant and machinery which were made in the first half
of 2004 by HQOF,  and additional  assets  purchased  through the  acquisition of
Jiahua Marine in mid-August 2004.

Provision for doubtful  accounts  decreased by $1,484,979 or 97% from $1,523,331
to $38,352 as  compared  to  corresponding  period of the prior  year.  No major
provision was required in 2005 as receivable accounts are current.

Finance  costs  increased to $181,982 from $43,625 for the six months ended June
30, 2005, as compared to the  corresponding  period of the prior year, a 3 times
or $138,357  increase.  The increase is due to financing  costs  incurred in the
health and  bio-product  segment during the current period which were not in the
Group in 2004.

Other income  increased by $44,684 or 18% from  $253,669 to $208,985 for the six
months ended June 30, 2005.  The other income  mainly  represents  the bad debts
recovered as the Group's credit control improved.

Other expenses decreased from $183,095 for the six months ended June 30, 2004 to
$119,879 for the six months ended June 30, 2005, a 35% or $63,216 decrease.  The
main reason of the decrease was the  reduction of the  insurance for the vessels
and some sailors being released since the first quarter of 2005.

Current income taxes increased from zero to $130,198 in the current period. Such
increase was due to the fact that Jiahua  Marine earned  taxable  income in 2005
and HQOF suffered a loss for the six months ended June 30, 2005 and 2004.

Minority  interest  decreased  from $337,944 to zero.  The change  resulted from
HQSM's acquisition of the 15.58% minority interest of HQOF in August 2004.

The net income  attributable  to  shareholders  was  $642,322 for the six months
ended June 30, 2005,  compared with a net loss  attributable  to shareholders of
$2,863,478,  a  $3,505,800  increase.  The  increase was due to higher sales and
margin in the aquatic  segment in 2005 compared to 2004,  and the newly acquired
bio-product segment and its effect in 2005.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

We have funded capital  requirements  through cash flow from  operations.  As of
June 30, 2005 we had a cash balance of $ 4,353,245 and a working capital surplus
of  $3,248,836.  This compares  with a cash balance of $4,551,505  and a working
capital surplus of $1,471,961 as of December 31, 2004.

Management  believes that,  from time to time, we may attempt to raise financing
through some  combination of commercial bank borrowings or the private or public
sale of equity or debt securities, in an effort to ensure that we have access to
sufficient  funds to meet our needs.  However,  future equity or debt financings
may not be  available to us at all,  or, if  available,  may not be on favorable
terms.  We cannot assure you that these efforts,  together with items  described


                                       16
<PAGE>

above,  will be sufficient to fund our growth,  or that external funding will be
available  to us at  favorable  interest  rates or at all.  If we are  unable to
obtain  financing in the future,  we will  continue to develop our business on a
reduced  scale based on our existing  capital  resources.

On July 25,  2005,  we  executed a loan  guarantee  commitment  letter with Alps
Resources Bankers Inc. (Alps), a Florida corporation,  for loan guarantees of up
to an  aggregate  of USD 60 million,  such loan to mature in five years from the
date of issuance.  Alps undertakes,  pursuant to the agreement, to secure a bank
guarantee from a Standard and Poor's A+ rated Bank

The loan  guarantees  shall be in increments  of USD 10 million each.  The first
loan  guarantee  closing is  anticipated to be on August 15, 2005. No assurances
can be given  that we will  exercise  our right to this  initial  USD 10 million
increment.

Pursuant to the terms and conditions of the agreement with Alps, we will appoint
two directors, designated by Alps, to our Board of Directors and will grant Alps
ten million  restricted shares of common stock. As a condition of the guarantee,
and to secure the repayment of the guarantee,  if exercised,  Alps will have the
right to receive,  as  collateral  in the event of  default,  a block of control
shares from the founders of HQSM.

ITEM 3. CONTROL AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

         We  carried  out an  evaluation,  under  the  supervision  and with the
participation  of our  management,  including  our Chief  Executive  Officer and
Principal Financial Officer, of the effectiveness of our disclosure controls and
procedures,  as defined  in Rules  13a-15(e)  and  15d-15(e)  of the  Securities
Exchange Act of 1934 as of the end of the period  covered by this report.  Based
on that evaluation,  our Chief Executive Officer and Principal Financial Officer
have concluded  that our disclosure  controls and procedures as of June 30, 2005
were  effective  to ensure that  information  required to be  disclosed by us in
reports  that we file or submit  under the  Securities  Exchange  Act of 1934 is
recorded,  processed,  summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms.

Changes in Internal Controls

         There have been no  material  changes  in our  internal  controls  over
financial  reporting or in other factors that could  materially  affect,  or are
reasonably  likely to affect,  our internal  controls over  financial  reporting
during the quarter ended June 30, 2005.







                                       17
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

We are  currently  not involved in any  litigation  that we believe could have a
materially  adverse effect on our financial  condition or results of operations.
There is no action, suit, proceeding,  inquiry or investigation before or by any
court,  public board,  government agency,  self-regulatory  organization or body
pending or, to the knowledge of the executive  officers of our company or any of
our subsidiaries, threatened against or affecting our company, our common stock,
any of our  subsidiaries  or of our  company's  or our  company's  subsidiaries'
officers or directors in their  capacities as such, in which an adverse decision
could have a material adverse effect.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the period covered by this report,  we have sold  securities  pursuant to
the  following  transactions,  all of which were  exempt  from the  registration
requirements of the Securities Act of 1933, as amended (the  "Securities  Act").
We plan to use the  proceeds  of all such  issuances  for  working  capital  and
general corporate purposes.

In April 2005, we issued  148,000  shares of our common stock to Lucky  Ventures
Resources Limited in consideration of the financial consultant services rendered
to us by that firm.  Those securities were issued in reliance upon the exemption
from registration provided in Section 4(2) of the Securities Act.

In June 2005, we issued  99,999 shares of our common stock to three  independent
non-executive   directors   Jacques   Vallee,   Fred  Bild  and  Daniel  Too  in
consideration of $15,000 of remuneration.

During the  second  quarter of 2005,  we issued  1,888,665  shares of our common
stock, pursuant to Regulation S promulgated under the Securities Act, to several
parties for a gross consideration of $400,325 and net proceeds of $144,214 after
payment of escrow, finders' and other fees.

ITEM 3 - DEFAULTS UPON SENIOR SECURITES

There have been no material defaults.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters have been  submitted to a vote of security  holders during the period
covered by this report.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

         31.1     Certification  of Chief Executive  Officer Pursuant to Section
                  302 of the Sarbanes-Oxley Act.

         31.2     Certification  of Principal  Financial and Accounting  Officer
                  Pursuant to Section 302 of the Sarbanes-Oxley Act.

         32.1     Certification  of Chief Executive  Officer Pursuant to Section
                  906 of the Sarbanes-Oxley Act.

         32.2     Certification  of Principal  Financial and Accounting  Officer
                  Pursuant to Section 906 of the Sarbanes-Oxley Act.



                                       18
<PAGE>

                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(b) of the Securities  Exchange
Act of 1934, the registrant caused this report to be signed on its behalf by the
undersigned,  thereunto duly  authorized,  in the City of New York, New York, on
August 12, 2005.

Dated: August 12, 2005


                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.


                  By:          /s/ Norbert Sporns
                  --------------------------------------------
                              Name: Norbert Sporns
                  Title: Chief Executive Officer and President