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 MARCH 31, 2006


                                       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                         000-18980                62-1407522
  (State or jurisdiction of         (Primary Std. Industrial       (IRS Employer
Incorporation or organization)     Classification Code Number)       ID Number)

1511 Third Avenue, Suite 788, Seattle, Washington                      98101
     (Address of principal executive offices)                       (Zip Code)

       Registrant's telephone number, including area code: (206) 621-9888

         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  |_|

Indicate by check mark whether the  registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act). Yes |_|  No |X|


As of March 31, 2006, there were 117,095,225  shares of the registrant's  common
stock outstanding.

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]


<PAGE>

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

PART I - FINANCIAL INFORMATION

Item  1. Financial Statements.
           |X|  Condensed Consolidated Balance Sheets                     2-3
           |X|  Condensed Consolidated Statements of Income               4
           |X|  Condensed Consolidated Statements of Cash Flows           5
           |X|  Notes to Condensed Consolidated Financial Statements      6-11
Item 2.  Management Discussion & Analysis or Plan of Operations.          12-16
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 and Reports on Form 8-K                                 18

















                                       1
<PAGE>
<TABLE>
<CAPTION>

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

                      CONDENSED CONSOLIDATED BALANCE SHEETS


                                     ASSETS
                                     ------



                                                 March 31, 2006    December 31, 2005
                                                  (Unaudited)          (Audited)
                                               -----------------   -----------------
<S>                                            <C>                 <C>
CURRENT ASSETS
  Cash and cash equivalents                    $       9,040,421   $       5,140,159
  Trade receivables, net of provision                  7,539,335           8,423,127
  Inventory                                            1,000,613             557,464
  Prepayments                                            377,630             131,864
  Due from related parties, net of provision             655,885             526,195
  Advance to employees                                    43,475             127,231
  Tax recoverable                                         46,661              83,514
                                               -----------------   -----------------
  TOTAL CURRENT ASSETS                                18,704,020          14,989,554
                                               -----------------   -----------------

OTHER ASSETS
  Deferred taxes                                         891,738             926,623
  Deferred cost                                        1,399,562             500,000
                                               -----------------   -----------------
  TOTAL OTHER ASSETS                                   2,291,300           1,426,623
                                               -----------------   -----------------

PROPERTY, PLANT AND EQUIPMENT, NET                     7,795,505           8,000,503
                                               -----------------   -----------------

TOTAL ASSETS                                   $      28,790,825   $      24,416,680
                                               =================   =================
</TABLE>











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

                                       2
<PAGE>
<TABLE>
<CAPTION>

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

                      CONDENSED CONSOLIDATED BALANCE SHEETS


                      LIABILITIES AND SHAREHOLDERS' EQUITY



                                                    March 31, 2006     December 31, 2005
                                                     (Unaudited)           (Audited)
                                                  -----------------    -----------------
<S>                                               <C>                  <C>
CURRENT LIABILITIES
  Accounts payable and accrued expenses           $       1,832,554    $       2,617,446
  Bank loans                                              1,208,385            1,726,264
  Tax payable                                                46,532               73,245
  Due to related parties                                    746,542              787,716
  Due to directors                                        1,544,997            1,350,539
  Current portion of promissory note                      2,850,000                 --
                                                  -----------------    -----------------
  TOTAL CURRENT LIABILITIES                               8,229,010            6,555,210
                                                  -----------------    -----------------

LONG TERM LIABILITIES
  Promissory note, net of discount                          145,200                 --
                                                  -----------------    -----------------

TOTAL LIABILITIES                                         8,374,210            6,555,210
                                                  -----------------    -----------------

SHAREHOLDERS' EQUITY
  Preferred stock                                               100                  100
  Common stock                                              117,095              116,105
  Additional paid-in capital                             18,971,460           15,574,752
  Accumulated Other Comprehensive Income                    443,342              499,251
  Retained Earnings (Deficit)                            (1,232,856)            (314,583)
  Appropriation of Retained Earnings (Reserves)           2,117,474            1,985,845
                                                  -----------------    -----------------

TOTAL SHAREHOLDERS' EQUITY                               20,416,615           17,861,470
                                                  -----------------    -----------------

TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                          $      28,790,825    $      24,416,680
                                                  =================    =================
</TABLE>







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

                                       3
<PAGE>

            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
                                               March 31, 2006    March 31, 2005
                                               --------------    --------------

SALES                                          $    6,885,340    $    3,016,886

COST OF SALES                                       4,353,455         1,299,166
                                               --------------    --------------
GROSS PROFIT                                        2,531,885         1,717,720

SELLING AND DISTRIBUTION EXPENSES                      69,168            40,608

ADVERTISING                                         1,112,735         1,000,819

GENERAL AND ADMINISTRATIVE                          1,003,470           626,941
   EXPENSES

DEPRECIATION                                          234,448           240,272

PROVISION FOR DOUBTFUL ACCOUNTS                       183,930            38,352
                                               --------------    --------------

(LOSS) FROM OPERATIONS                                (71,866)         (229,272)

FINANCE COSTS                                         605,877            91,708

OTHER EXPENSES                                         36,167            67,126
                                               --------------    --------------

(LOSS) BEFORE INCOME TAXES                           (713,910)         (388,106)

INCOME TAXES
  CURRENT                                              83,385            32,819

  DEFERRED                                             34,885            17,043
                                               --------------    --------------

 NET LOSS ATTRIBUTABLE TO SHAREHOLDERS         $     (832,180)         (437,968)
                                               ==============    ==============

 NET PROFIT PER SHARE                          $        (0.01)            (0.00)
                                               ==============    ==============

WEIGHTED AVERAGE COMMON SHARE
    OUTSTANDING                                   116,803,336        96,194,971
                                               ==============    ==============





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 THREE MONTHS ENDED MARCH 31, 2006 AND 2005
                                   (UNAUDITED)
                                                                      2006           2005
                                                                  -----------    -----------
<S>                                                               <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                      $  (832,180)   $  (437,968)
  Adjustments to reconcile net income to net cash provided
     by operating activities:

  Depreciation                                                        234,448        240,272
  Financing expense                                                   446,474
  (Increase)/decrease in assets:
     Inventory                                                       (443,149)        (8,115)
     Trade receivables, net of provisions                             883,792       (291,705)
     Prepayment                                                      (245,766)          --
     Advance to employee                                               83,757         (1,414)
     Deferred taxes                                                    34,885         17,044
  Increase/(decrease) in liabilities:
     Accounts payables and accrued expenses                          (784,892)      (811,905)

     Deposit received from customers                                     --             --
     Taxes payable                                                     10,139         32,873
                                                                  -----------    -----------
Net cash from by operating activities                                (612,492)    (1,260,918)
                                                                  -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment and construction
      in progress                                                     (31,692)          --
                                                                  -----------    -----------
Net cash from by investing activities                                 (31,692)          --
                                                                  -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock                                          272,800        408,411
  Promissory note                                                   5,225,000           --
  Received from directors                                             194,458          2,287
  (Payment)/Receive from related parties                             (170,864)       251,533
  Deferred Finders and legal fees                                    (450,938)          --
  Repayment of bank loans                                            (517,879)          --
                                                                  -----------    -----------
Net cash from by financing activities                               4,552,577        662,231
                                                                  -----------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                             3,908,393       (598,687)

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
  CASH EQUIVALENTS                                                     (8,130)          --

  Cash and cash equivalents, beginning of period                    5,140,158      4,551,505
                                                                  -----------    -----------

  Cash and cash equivalents, end of period                        $ 9,040,421    $ 3,952,818
                                                                  ===========    ===========

SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                                   $    33,351    $    62,848
                                                                  ===========    ===========

  Taxes paid                                                      $    73,245    $      --
                                                                  ===========    ===========

SUPPLEMENTARY DISCLOSURE OF NON-CASH
  INVESTING AND FINANCING ACTIVITIES
  Common shares issued for services                               $   100,500    $      --
                                                                  ===========    ===========

  Note payable in connection with acquisition of Jiahua Marine    $      --      $   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
                                 MARCH 31, 2006
                  --------------------------------------------

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, 2005 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



                                       6
<PAGE>

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.

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 not calculated as HQSM are suffering
loss during the three months ended March 31, 2006 and 2005.

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  March  31,  2006 and  December  31,  2005 due to the  relatively
short-term nature of these instruments.


                                       7
<PAGE>

NOTE 6 - FOREIGN CURRENCY CONVERSION

The Company's financial  information is presented in US dollars.  The Group uses
the average  exchange  rate for the period and the exchange  rate at the balance
sheet  date  to  translate   its  operating   results  and  financial   position
respectively. Any translation gains and losses are recorded in accumulated other
comprehensive income as a component of shareholders' equity.

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.  HQOF and Jiahua
Marine  were  subject to a tax rate of 15% and 7.5%,  respectively  during  this
quarter.  HQOF and Jiahua  Marine were  entitled to a two-year  tax exempted and
three-year  half tax rate holiday from 2001 and 2002  commencing  with the first
profit-making year, respectively.

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:

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

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

NOTE 8 - PROMISSORY NOTE AND WARRANTS

Effective January 25, 2006, the Company closed on a financing transaction with a
group  of  private  investors  for an  amount  of  $5,225,000.  After  deducting
commissions  and other costs of the offering of $522,500,  the Company  received
net proceeds of $4,702,500.00.  The financing  consisted of two components:  (a)
promissory  notes of the Company,  in the principal  amount of  $5,225,000,  due
January 25, 2008,  such Notes  convertible  into shares of the Company's  common
stock,  $0.001 par value (the "Common Stock") at a per share conversion price at
the rate of $0.30  per  share  of  Common  Stock;  and (b)  Class A and  Class B
Warrants registered in the name of each Investor.



                                       8
<PAGE>

The Notes are due January 25, 2008. The Notes are convertible into shares of the
Company's  Common Stock at a per share conversion price at the rate of $0.30 per
share of Common Stock.  The Notes shall accrue interest on the principal  amount
at a rate per annum of eight  percent  (8%) from  January  25, 2006 and shall be
payable, in arrears,  subject to the terms and conditions of the Notes, together
with principal amount payments, on January 25, 2008.

One Class A Warrant  and one Class B Warrant  will be issued for each two shares
of Common Stock which would be issued on the Closing Date  assuming the complete
conversion of the Note issued on the Closing Date at the rate of $0.30 per share
of Common  Stock.  The  exercise  price to acquire a share of Common  Stock upon
exercise of a Class A Warrant  shall be $0.35.  The exercise  price to acquire a
share of Common  Stock upon  exercise of a Class B Warrant  shall be $0.40.  The
Class A Warrants  shall be  exercisable  until January 25, 2009 (three (3) years
after the closing of the  financing).  The Class B Warrants shall be exercisable
until January 25, 2011 (five (5) years after the closing of the financing).  The
Company also issued to certain Finders' Warrants to purchase 1,741,667 shares of
Common  Stock  similar to and  carrying  the same rights as the Class B Warrants
issuable  to the  Investors  except that the  exercise  price shall be $0.35 per
Warrant Share.

The offer and sale of the  securities  above were  effected  in  reliance on the
exemptions for sales of securities not involving a public offering, as set forth
in Rule 506  promulgated  under the  Securities  Act of 1933,  as  amended  (the
"Securities  Act") and in Section  4(2) and Section 4(6) of the  Securities  Act
and/or Rule 506 of Regulation D.
















                                       9
<PAGE>
<TABLE>
<CAPTION>

The shares of Common Stock  underlying  the  securities  sold in this  financing
transaction  will be  registered  for resale on a  Registration  Statement to be
filed by the Company in accordance  with terms and conditions  the  subscription
agreement. .

NOTE 9 - SEGMENTS

No  geographical  segment  analysis is provided for the three months ended March
31, 2006 and 2005, 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 March 31, 2006

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

Sales to external customers                      4,673,498     2,211,842           --          6,885,340
                                               =========================================================

General and administrative expenses                155,566        22,621        825,283        1,003,470
Depreciation                                       153,923        77,928          2,598          234,448
Selling expenses                                    49,507        19,661           --             69,168
Advertising                                           --       1,112,735           --          1,112,735
Finance costs                                        3,244        30,478        572,155          605,877
Provision for doubtful accounts                    171,958        11,972           --            183,930
Profit / (Loss) before taxation                     79,771       606,333     (1,400,014)        (713,910)
Income taxes                                        71,738        46,532           --            118,270
Profit / (Loss) for the period                       8,033       559,801     (1,400,014)        (832,180)
                                               =========================================================

Segment assets                                  14,991,215     9,221,777      4,577,833       28,790,825
                                               =========================================================

Segment liabilities                              2,699,070     1,709,294      3,965,846        8,374,210
                                               =========================================================

Business segment for the three months ended March 31, 2005

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

Sales to external customers                      1,092,495      1,924,391          --          3,016,886
                                               =========================================================

General and administrative expenses                147,682         36,078       443,181          626,941
Depreciation                                       163,824         75,311         1,137          240,272
Selling expenses                                    20,535         20,073          --             40,608
Advertising                                           --        1,000,819          --          1,000,819
Finance costs                                       57,778         31,220         2,710           91,708
Provision for doubtful accounts                       --           38,352          --             38,352
(Loss) / Profit before taxation                   (378,926)       437,585      (446,765)        (388,106)
Income taxes                                        17,043         32,819          --             49,862
(Loss) / Profit for the period                    (395,969)       404,766      (446,765)        (437,968)
                                               =========================================================

Segment assets                                  12,764,745      7,156,065       245,562       20,166,372
                                               =========================================================

Segment liabilities                              4,162,120      2,480,794     1,941,591        8,584,505
                                               =========================================================
</TABLE>




                                       10
<PAGE>

NOTE 10 - RECENTLY ISSUED ACCOUNTING STANDARDS

In November  2004, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard ("SFAS") No. 151 "Inventory Costs -
an amendment of ARB No. 43, Chapter 4" ("SFAS 151").  This statement  amends the
guidance  in ARB  No.  43,  Chapter  4,  "Inventory  Pricing,"  to  clarify  the
accounting  for abnormal  amounts of idle facility  expense,  freight,  handling
costs,  and wasted  material  (spoilage).  SFAS 151 requires that those items be
recognized as current-period  charges. In addition, this Statement requires that
allocation  of fixed  production  overheads to costs of conversion be based upon
the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for fiscal years  beginning  after June 15, 2005. As such, the Company
is required to adopt these  provisions at the beginning of the fiscal year ended
December 31, 2006. The Company has adopted SFAS 151 and believes that the impact
on its  consolidated  financial  statements is immaterial  for the quarter ended
March 31, 2006.

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- an  amendment  of APB  Opinion No. 29" ("SFAS  153").  SFAS 153  replaces  the
exception  from fair value  measurement  in APB Opinion  No. 29 for  nonmonetary
exchanges of similar  productive assets with a general exception from fair value
measurement  for  exchanges of  nonmonetary  assets that do not have  commercial
substance.  A nonmonetary  exchange has commercial  substance if the future cash
flows of the  entity are  expected  to change  significantly  as a result of the
exchange.  SFAS 153 is effective for fiscal years beginning after June 15, 2005.
As such,  the Company is required to adopt these  provisions at the beginning of
the fiscal year ended  December 31,  2006.  The Company has adopted SFAS 153 and
believes that the impact on its consolidated  financial statements is immaterial
for the quarter ended March 31, 2006.

In May  2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections  - a  replacement  of APB Opinion No. 20 and FASB  Statement  No. 3"
("SFAS  154").  SFAS 154 changes the  requirements  for the  accounting  for and
reporting of a change in accounting  principle.  These requirements apply to all
voluntary  changes and changes  required by an accounting  pronouncement  in the
unusual instance that the  pronouncement  does not include  specific  transition
provisions.  SFAS 154 is effective for fiscal years beginning after December 15,
2005.  As such,  the  Company  is  required  to adopt  these  provisions  at the
beginning of the fiscal year ended  December  31, 2006.  The Company has adopted
SFAS 154 and believes that the impact on its consolidated  financial  statements
is immaterial for the quarter ended March 31, 2006.

In February  2006, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 155,  "Accounting for
Certain  Hybrid  Financial  Instruments - an amendment of FASB Statement No. 133
and 140" ("SFAS  155").  SFAS 155 resolves  issues  addressed  in Statement  133
Implementation  Issue  No.  D1,  "Application  of  Statement  133 to  Beneficial
Interests  in  Securitized  Financial  Assets."  SFAS 155 is  effective  for all
financial instruments acquired or issued after the beginning of the first fiscal
year that begins after  September 15, 2006. As such,  the Company is required to
adopt these  provisions at the  beginning of the fiscal year ended  December 31,
2007.  The  Company  is  currently  evaluating  the  impact  of SFAS  155 on its
consolidated financial statements.

In  March  2006,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standard  ("SFAS") No. 156,  "Accounting for
Servicing of Financial  Assets - an amendment of FASB  Statement No. 140" ("SFAS
156"). SFAS 156 amends FASB Statement No. 140 with respect to the accounting for
separately  recognized  servicing  assets and  servicing  liabilities.  SFAS 156
requires all separately recognized servicing assets and servicing liabilities to
be initially  measured at fair value, if practical.  SFAS 156 is effective as of
the beginning of the first fiscal year that begins after  September 15, 2006. As
such, the Company is required to adopt these  provisions at the beginning of the
fiscal year ended  December 31, 2007.  The Company is currently  evaluating  the
impact of SFAS 156 on its consolidated financial statements.



                                       11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS


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.

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.

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.




                                       12
<PAGE>

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

Inventories  are stated at the lower of cost and net realizable  value.  Cost is
calculated  on the weighted  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 weighted
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.

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.





                                       13
<PAGE>

Results of  Operations  - Three Months Ended March 31, 2006 as Compared to Three
Months Ended March 31, 2005

One of our  subsidiaries,  Jiahua  Marine is  engaged in the  manufacturing  and
selling of health and bio-products. During the three months ended March 31, 2006
and  2005,   Jiahua  Marine   realized   sales  of  $2,211,842   and  $1,924,391
respectively.  The gross profit ratio for this segment  stood at 85% and 84% for
the three  months  ended  March 31,  2006 and 2005,  and the major  expense  was
advertising, corresponding to 50% and 52% of revenues for the three months ended
March 31, 2006 and 2005 respectively. The net income contributed by this segment
was  $559,801  and  $404,766  for the three months ended March 31, 2006 and 2005
respectively., mostly attributable to an increase in volume.

The other principal  activity in our Group is the  manufacturing  and selling of
aquatic products.  The revenue contributed by this segment was $4,673,498 in the
first quarter of 2006 compared to $1,092,495  for the  corresponding  quarter of
2005. The related gross profit ratio of this segment was 15% in 2006 compared to
7% for the three months ended March 31, 2005. This segment contributed $8,033 to
net income in the first  quarter of 2006  compared to a net loss of $395,969 for
the  corresponding  period of 2005.  The  increased  activity of this segment in
2006, together with increased margins resulted in the improved  profitability in
the first quarter of 2006 compared to the same period of 2005.

For the three  months ended March 31, 2006 revenue  increased by  $3,868,454  or
128% to  $6,885,340.  This  improvement  in sales mainly  resulted from a better
performance  of the aquatic  product  segment in 2006. The sales of that segment
increased  by $3.6 million in the first  quarter of 2006  compared to 2005 while
the balance of the increase came from the health and  bio-products  segment.  In
the first  quarter of 2005,  the Island of Hainan,  where the Company  holds its
processing  plants,  experienced  severe weather  conditions  which affected the
performance of the aquatic product segment materially.

Cost of sales increased by $3,054,289 or 2.4 times to $4,353,455 from $1,299,166
for the three  months  ended March 31,  2006,  as compared to the  corresponding
period of the  prior  year.  Approximately  99% of the  increase  was due to the
increased  activities  in the aquatic  product  segment as the  turnover of this
segment  increased  by $3.6 million . The overall  gross profit ratio  decreased
from 57% in the first  quarter of 2005 to 37% for the  current  quarter of 2006.
That decrease in the gross profit ratio is due to the mix of increased  activity
from the  aquatic  product  segment in 2006 (with less gross  margin)  and about
similar level of activity and margin in the health and bio-products segment. The
increased  activity  in the  aquatic  product  segment is the main  contributing
factor in the increase of the gross profit for the current quarter.

Selling and distribution expenses increased by $28,560 or 70% to $69,168 for the
three months ended March 31, 2006,  as compared to the  corresponding  period of
the prior year.  The increase  was the result of higher  turnover in the current
quarter.

Advertising expenses increased by $111,916 or 11% from $1,000,819 as compared to
the corresponding  period of prior year. The primary factor  responsible for the
increase in the current  quarter is that Jiahua Marine made more  advertisements
to attract customers in order to increase sales; the turnover of this particular
segment  increased by 15% in the current quarter  compared to the same period of
2005.


                                       14
<PAGE>

General and  administrative  expenses increased by $376,529 or 60% to $1,003,470
as compared to the  corresponding  period of the  previous  year.  The  increase
results  mainly from  traveling,  marketing  and investors  relations'  expenses
incurred in the first quarter of 2006 compared to 2005.

Depreciation  decreased  by  $5,824  or  2%  to  $234,448  as  compared  to  the
corresponding  period of prior year.  The decrease was caused by several  assets
being fully  depreciated,  thus requiring less  depreciation in 2006 compared to
the corresponding period of the 2005.

Doubtful  accounts  contributed an amount of $145,678 of additional  expenses in
the first quarter of 2006 from the  corresponding  quarter of 2005. That was the
result  of  providing   conservatively   for  the  slower  paying  customers  in
application of our Group's accounting policy.

Financing  costs  increased to $605,877  from $91,708 for the three months ended
March 31, 2006 as compared to the corresponding  period of the previous year, an
increase of  $514,169.  The  increase  was due to a  combination  of  additional
financing costs arising from the notes of $ 5,250,000  issued during the current
quarter,  and a reduction  in  interest  costs on bank loans  reimbursed  in the
period from April 1, 2005 to March 31, 2006. In accordance  with US GAAP's,  the
company  recognized  the  financing  costs  related to the future  conversion of
warrants  attributed  in the first  quarter of 2006 to the new  investors in the
Company; that financing costs amounted to approximately $445,000.

Other expenses  decreased from $67,126 for the three months ended March 31, 2005
to $36,167 for the three months ended March 31, 2006, a 46% or $30,959 decrease.
The main reason of the decrease was improvement in cost control by management.

Loss before income taxes increased to $713,910 in the first quarter of 2006 from
$388,106 in the corresponding  quarter of prior year. The increased activity and
gross profit  recognized  in the first  quarter of 2006 was  affected  mainly by
increased financing costs ($514,000) and bad debts ($145,000) experienced in the
current quarter.

Current income taxes increased from $32,819 to $83,385 in the current period. In
the first  quarter of 2006,  the  aquatic  product  segment was  profitable  and
taxable at a rate of 15% while it suffered a loss in the  corresponding  quarter
of 2005.

Deferred  income tax  increased by $17,842 from $17,043 to $34,885 for the three
months ended March 31, 2006.  The increase was due to the income tax rate of the
aquatic  product  segment which went from 7.5% to 15.0% after  expiration of the
tax holiday period.

The net loss  attributable to  shareholders  increased from $437,968 to $832,180
for  the  three  months  ended  March  31,  2006.  The  deterioration,  although
experiencing  increased  activity  and gross  profit in both our segments in the
2006 quarter compared to 2005, was affected by increased financing costs and bad
debts, as described above.



                                       15
<PAGE>

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

The Group has in recent years financed its  operations  primarily with operating
revenues.  The Group  anticipates  that  revenues  from its  operations  will be
sufficient to satisfy the Group's cash  requirements  for operations  during the
foreseeable  future,  except to the extent that increasing  orders and sales may
require  temporary  borrowings  to finance such  expansion  and related costs of
employee  compensation  and  inventory  build-up.  No  assurance  can be  given,
however,  that additional debt or equity  financing will not be required or will
be available if required.

The current ratio was stable at 2.3 times  ($14,989,554/$6,555,210)  at December
31, 2005 and 2.3 times ($18,704,020/$8,229,010) at March 31, 2006.

























                                       16
<PAGE>

ITEM 3.  CONTROL AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures.

Under the supervision and with the  participation  of our management,  including
our Chief  Executive  Officer and Chief  Financial  Officer,  we  evaluated  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  (as such term is  defined  in Rule  13a-15(e)  under the  Securities
Exchange Act of 1934 (the "Exchange Act")).  Disclosure  controls and procedures
are the controls and other procedures that we designed to ensure that we record,
process,  summarize  and  report  in a timely  manner  the  information  we must
disclose in reports that we file with or submit to the  Securities  and Exchange
Commission under the Exchange Act. Based on this evaluation, our Chief Executive
Officer and our Chief Financial Officer  concluded that our disclosure  controls
and  procedures  were  effective  as of the end of the  period  covered  by this
report.

Disclosure controls and procedures are controls and procedures that are designed
to ensure that  information  required to be  disclosed  in our reports  filed or
submitted under the Securities Exchange Act is recorded,  processed,  summarized
and reported,  within the time periods  specified in the Securities and Exchange
Commission's  rules and  forms.  Disclosure  controls  and  procedures  include,
without limitation,  controls and procedures designed to ensure that information
required  to be  disclosed  in our  reports  filed  under  the  Exchange  Act is
accumulated and  communicated to management,  including our principal  executive
officer and our principal  financial  officer,  as appropriate,  to allow timely
decisions regarding required disclosure.


(b) Changes in Internal Control over Financial Reporting.

During the Quarter  ended March 31,  2006,  there was no change in our  internal
control  over  financial  reporting  (as such term is defined in Rule  13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.

















                                       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.

On January 10, 2006, Wu Zhi Quan  exercised his employee stock option to acquire
500,000 shares of our common stock, in consideration of $140,000.

On January 24, 2006,  Henry S. Krauss exercised his placement agent common stock
purchase warrant to acquire 190,000 shares of our common stock, in consideration
of $32,300.

On February 28, 2006 we issued  250,000 shares and 50,000 of our common stock to
Stanley Wunderlick and Joseph I. Emas in consideration of financial services and
legal service provided to us by that them,  respectively.  Those securities were
issued in reliance upon the exemption from registration provided in Section 4(2)
of the Securities Act.

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.




                                       18
<PAGE>

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.





















                                       19
<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 Seattle,  Washington, on
May 15, 2006.

Dated: May 15, 2006
                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.


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


                                 /s/ Jean-Pierre Dallaire
                              ----------------------
                              Jean-Pierre Dallaire,
                              Principal Financial and Accounting Officer


















                                       20