UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 --------------

                                   FORM 10-QSB
(MARK ONE)

[ ]      QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
         ACT OF 1934

                     For the quarterly period ended _______________

[X]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

                    For the transition period from May 1, 2004 to June 30, 2004.
                    Commission file number 0-18980.



                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                 (Name of Small Business Issuer in Its Charter)

Delaware                                                              62-1407522
(State or other jurisdiction                (I.R.S. Employer Identification No.)
of incorporation ororganization)


    Wall Street Center, 14 Wall Street, 20th Floor, New York, New York 10005
                    (Address of principal executive offices)

                                 (212) 618-1712
                (Issuer's telephone number, including area code)

                             Process Equipment, Inc.
                                  (Former name)

         Check whether the issuer (1) 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 (2)
has been subject to such filing requirements for the past 90 days.

         Yes [X]       No [ ]

         State the number of shares  outstanding of each of the issuer's classes
of equity securities,  as of the latest  practicable date:  63,809,437 shares of
Common Stock, $0.001 par value per share, outstanding as of August 11, 2004.

         Transitional Small Business Disclosure Format (check one):

         Yes [ ]       No [X]



<PAGE>

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

PART I - FINANCIAL INFORMATION

Item  1. Financial Statements.
           Condensed Consolidated Balance Sheets                               2
           Condensed Consolidated Statements of Income (Loss)                  4
           Condensed Consolidated Statements of Cash Flows                     5
           Notes to Condensed Consolidated Financial Statements              6-8
Item  2. Management Discussions & Analysis of Financial Condition and          9
           Results of Operations.
Item 3.  Controls and Procedures                                              14

PART II - OTHER INFORMATION

Item  1. Legal Proceedings                                                    15
Item  2. Changes in Securities                                                15
Item  3. Defaults Upon Senior Securities                                      15
Item  4. Submission of Matters to a Vote of Security Holders                  15
Item  5  Other Information                                                    16
Item  6. Exhibits and Reports on Form 8-K                                     16



















                                       1
<PAGE>
<TABLE>
<CAPTION>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                     (INCORPORATED IN THE STATE OF DELAWARE)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------


                                                        June 30, 2004   April 30, 2004
                                                       --------------   --------------
<S>                                                    <C>              <C>
CURRENT ASSETS
     Cash and cash equivalents                         $    6,257,807   $    5,854,623
     Trade receivables, net of provisions                   1,410,964        2,368,364
     Inventory                                                237,172           79,527
     Prepayments                                               37,573           45,052
     Due from related parties, net of provisions              471,720          188,802
     Due from directors                                        44,515           42,613
     Tax recoverable                                           81,602           81,602
                                                       --------------   --------------
TOTAL CURRENT ASSETS                                        8,541,353        8,660,583
                                                       --------------   --------------

OTHER ASSETS
     Deferred taxes                                         1,392,247        1,403,609
                                                       --------------   --------------

PROPERTY, PLANT AND EQUIPMENT,
     NET                                                    5,942,576        2,211,633
                                                       --------------   --------------

CONSTRUCTION IN PROGRESS, NET                                    --          3,378,990

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

TOTAL ASSETS                                           $   15,876,176   $   15,654,815
                                                       ==============   ==============
</TABLE>













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

                                       2
<PAGE>
<TABLE>
<CAPTION>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                     (INCORPORATED IN THE STATE OF DELAWARE)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                           CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------


                                                   June 30, 2004    April 30, 2004
                                                  --------------    --------------
 <S>                                               <C>               <C>
CURRENT LIABILITIES
     Accounts payable and accrued expenses        $    1,707,142    $    1,503,109
     Deposit received from customers                       4,215            37,452
     Bank loans                                        2,771,084         3,012,048
     Due to directors                                      1,763              --
     Convertible notes                                   255,422           255,422
     Subscription received                                  --           1,848,410
                                                  --------------    --------------
TOTAL CURRENT LIABILITIES                              4,739,626         6,656,441
                                                  --------------    --------------

LONG-TERM LIABILITIES                                       --                --
                                                  --------------    --------------

TOTAL LIABILITIES                                      4,739,626         6,656,441

MINORITY INTEREST                                       (438,657)         (397,910)

SHAREHOLDERS' EQUITY
     Share capital                                        63,809            25,000
     Additional paid-in capital                       15,610,715        13,121,114
     Reserves                                            957,656           957,656
     Accumulated losses                               (5,056,973)       (4,707,486)
                                                  --------------    --------------

TOTAL SHAREHOLDERS' EQUITY                            11,575,207         9,396,284
                                                  --------------    --------------

TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                         $   15,876,176    $   15,654,815
                                                  ==============    ==============
</TABLE>








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


                                       3
<PAGE>
<TABLE>
<CAPTION>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                     (INCORPORATED IN THE STATE OF DELAWARE)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                           STATEMENTS OF INCOME (LOSS)
                 FOR THE TWO MONTHS ENDED JUNE 30, 2004 AND 2003


                                   Two months ended June 30        Six months ended June 30

                                     2004            2003            2004            2003
                                 ------------    ------------    ------------    ------------
<S>                              <C>             <C>             <C>             <C>
SALES                            $    293,064    $  4,329,816    $    702,292    $ 10,196,913

COST OF SALES                         303,126       2,907,130         748,362       6,844,190
                                 ------------    ------------    ------------    ------------

GROSS PROFIT/(LOSS)                   (10,062)      1,422,686         (46,070)      3,352,723

SELLING AND DISTRIBUTION
     EXPENSES                          43,478          75,581          96,201         169,948

GENERAL AND ADMINISTRATIVE
     EXPENSES                         209,338         108,522       1,370,004         144,558

DEPRECIATION                           52,858          52,318         158,678         156,860

PROVISON FOR BAD AND
     DOUBTFUL DEBTS                      --           531,393       1,523,331         542,845
                                 ------------    ------------    ------------    ------------

INCOME/(LOSS) FROM
     OPERATIONS                      (315,736)        654,872      (3,194,284)      2,338,512

FINANCE COSTS
                                       36,849          67,890          43,625         155,241

OTHER INCOME                          (14,103)           (215)       (253,669)        (25,365)


OTHER EXPENSES                         40,391          50,720         183,095         319,470
                                 ------------    ------------    ------------    ------------

INCOME/(LOSS) BEFORE INCOME
     TAXES                           (378,873)        536,477      (3,167,335)      1,889,166

INCOME TAXES
     CURRENT                             --            72,246            --           165,561

     DEFERRED                          11,362          11,362          34,087          34,087
                                 ------------    ------------    ------------    ------------

NET INCOME/(LOSS) BEFORE
     MINORITY INTEREST               (390,235)        452,869      (3,201,422)      1,689,518

MINORITY INTEREST                      40,747        (136,343)        337,944        (311,823)
                                 ------------    ------------    ------------    ------------

NET INCOME/(LOSS) ATTRIBUTABLE
     TO SHAREHOLDERS             $   (349,488)   $    316,526    $ (2,863,478)   $  1,377,695
                                 ============    ============    ============    ============

NET INCOME/(LOSS) PER SHARE
     BASIS AND DILUTE            $         01    $         32    $        .09    $        138
                                 ============    ============    ============    ============

WEIGHTED AVERAGE COMMON
     SHARE OUTSTANDING             45,995,269          10,000      32,076,876          10,000
                                 ============    ============    ============    ============
</TABLE>


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


                                       4
<PAGE>
<TABLE>
<CAPTION>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                     (INCORPORATED IN THE STATE OF DELAWARE)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                             STATEMENTS OF CASH FLOW


                                                              Two months ended June 30,
                                                                2004            2003
                                                            ------------    ------------
<S>                                                         <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
  Net (loss)/income                                         $   (390,235)   $    452,869

  Adjustments to reconcile net income to net
       Cash provided by operating activities:
       Provision for doubtful account                               --           531,393
       Depreciation                                               52,858          52,318
      (Increase)/decrease in assets:
       Inventory                                                (157,645)         65,418
       Trade receivables, net of provisions                      957,400      (2,062,363)
       Prepayment                                                  7,479         295,858
       Deferred taxes                                             11,362          11,362
  Increase/(decrease) in liabilities :
       Accounts payables and accrued expenses                    204,033         (35,241)
       Deposit received from customers                           (33,237)        (26,758)
       Taxes payable                                                --            39,134
                                                            ------------    ------------
Net cash provided by/(used in) operating activities              652,015        (676,010)
                                                            ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES :
      Acquisition of property, plant and equipment              (404,811)         (1,621)
      Additions to construction in progress                         --        (1,108,982)
                                                            ------------    ------------
Net cash used in investing activities                           (404,811)     (1,110,603)
                                                            ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES :
      Proceeds from common stock                                 680,000       1,915,746
       Due to directors                                            1,764          69,595
       Due from related parties, net of provisions              (282,918)       (356,956)
       Due from directors                                         (1,902)         (1,241)
      Repayment of bank loans                                   (240,964)           --
                                                            ------------    ------------
      Net cash (used in)/provided by financing activities        155,980       1,627,144
                                                            ------------    ------------

                                                            ------------    ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS                          403,184        (159,469)
                                                            ------------    ------------
Cash and cash equivalents, beginning of period                 5,854,623      11,937,510
                                                            ------------    ------------

Cash and cash equivalents, end of period                       6,257,807      11,778,041
                                                            ============    ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
      Interest paid                                         $     43,933    $     75,754
                                                            ============    ============
      Taxes paid                                            $       --      $       --
                                                            ============    ============
</TABLE>


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


                                       5
<PAGE>

                     HQ SUSTAINABLE MARTIME INDUSTRIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    UNAUDITED
                                  June 30, 2004
                   ------------------------------------------


NOTE 1 - BASIS OF PRESENTATION

The unaudited  condensed  consolidated  financial  statements of HQ  Sustainable
Maritime Industries,  Inc. (the Company) (formerly Process Equipment, Inc.) 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 June 30, 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


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  Hainan  Quebec.  As a result of that  transaction,  Hainan
Quebec is presently 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.


HQSM's  principal  executive  office is located at Wall Street  Center,  14 Wall
Street,  20th Floor, New York, New York 10005, and its telephone number is (212)
618-1712.




                                       6
<PAGE>

The Company is  principally  engaged in the  vertically  integrated  business of
aquaculture  through  co-operative supply agreements and processing and sales of
farm-bred and aquatic products.


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 - EARNING 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 is 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,  2004  and  December  31,  2003  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  (Reminbi dollars) has been converted into US dollars
at the exchange rate of 8.3 to 1.

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.



                                       7
<PAGE>

No provision for PRC profits tax has been made as Hainan Quebec did not have any
assessable profits for the two and six months ended June 30, 2004. (2003: 72,246
for 2 months, 165,561 for 6 months)


NOTE 8 - SUBSEQUENT EVENTS

Pending final approval by the proper Chinese authorities,  the Company, pursuant
to a resolution of its Board of directors, purchased all of the remaining issued
and outstanding  common shares  (corresponding to 15.58%) of Hainan Quebec Ocean
Fishing Co. Ltd, bringing the participation in this subsidiary to 100%. Based on
an independent  valuation by Vigers Appraisal & Consulting  Limited,  subject to
the final  approval  of the  relevant  government  agencies  in China and of the
Company's  board of directors,  the purchase price of $5.7 million will be fully
paid by the Company in cash, at closing.

































                                       8
<PAGE>

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

As used in  this  report,  "we",  "us",  "our",  "HQSM",  "our  company"  or the
"Company"  refers to HQ  Sustainable  Maritime  Industries,  Inc. and all of its
subsidiaries and affiliated companies.

About Our Company

As  previously  disclosed  in our  filings  with  the  Securities  and  Exchange
Commission (the "SEC"), our company 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 Hainan Quebec. As a result of that transaction, Hainan Quebec is presently
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.

HQSM is principally engaged in the vertically integrated business of aquaculture
through  co-operative  supply agreements,  and processing and sales of farm-bred
aquatic  products.  We have a series of  tilapia,  shrimp and other  harvestable
products mainly in the following forms:

         o        Tilapia:  whole  round  frozen  tilapia;   gutted  and  scaled
                  tilapia; boneless-skinless tilapia fillet; and

         o        Shrimp:  head-on,   shell-on;   headless,   shell-on;  peeled,
                  tail-on;   peeled  and   deveined;   peeled   and   undeveined
                  principally  white leg shrimp  and ocean  farmed  shrimp  (for
                  instance, tiger shrimp).

HQSM is  committed  to  providing  a variety of high  quality  aquatic  products
through an integrated operation that covers key areas along the production chain
from a  bio-secure  and stable  supply of tilapia and shrimp  under  stringently
monitored  conditions,  processed in accordance with internationally  recognized
standards of hygiene. HQSM's products are distributed domestically and exported.

The following  discussion  should be read in  conjunction  with the  information
contained in the condensed  consolidated financial statements of the Company and
the  notes  thereto  appearing  elsewhere  herein  and in  conjunction  with the
Management's Discussion and Analysis set forth in the Company's Annual Report on
Form 10-KSB for the four months ended April 30, 2004 and in this report.



                                       9
<PAGE>

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  should be read in  conjunction  with the  information
contained in our financial  statements and the notes thereto appearing elsewhere
herein.

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

Below is a description of accounting policies, which we consider critical to the
preparation and  understanding  of our  consolidated  financial  statements.  In
addition,  certain amounts included in or affecting our financial statements and
related disclosure must be estimated, which requires us to make assumptions with
respect to values or conditions which cannot be known with certainty at the time
the  financial  statements  are prepared.  Actual  results may differ from these
estimates under different  assumptions or conditions.  The selection of critical
accounting  policies,  the  judgments  and  other  uncertainties  affecting  the
application of those policies and the sensitivity of reported results to changes
in conditions and  assumptions  are factors to be considered  when reviewing our
consolidated  financial  statements.  We  believe  that the  following  critical
accounting  policies set forth below involve the most significant  judgments and
estimates used in the preparation of our consolidated  financial statements.  We
evaluate these policies on an ongoing basis,  based upon historical  results and
experience,  consultation  with  experts,  trends and other  methods we consider
reasonable in the particular  circumstances,  as well as our forecasts as to how
these might change in the future.

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.



                                       10
<PAGE>

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.

The  Company  does not always  receive  revenue  for  shipping  and  handling to
customers.  Shipping and handling  expenses  incurred by the Company for the two
months  ended June 30, 2004 and 2003  respectively  are  included in selling and
administrative expenses in the accompanying consolidated statements of income.


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.


RECENT DEVELOPMENTS
-------------------

We filed a current  report on Form 8-K on March 17, 2004 reporting the agreement
and plan of merger among  Process  Equipment,  PEAC and Jade,  pursuant to which
Process Equipment,  through its wholly-owned  subsidiary PEAC, acquired Jade and




                                       11
<PAGE>

84.42% ownership in its subsidiary Hainan Quebec.  The merger was consummated by
the parties on March 24, 2004 as reported on a Current  Report on Form 8-K filed
April 2, 2004.  In the same report,  filed March 17, 2004,  we also reported the
change in our fiscal year from April 30 to December 31.

On April 28, 2004, we filed an Information  Statement  pursuant to Section 14(c)
of the Securities  Exchange Act of 1934 relating to the name change from Process
Equipment,  Inc. to "HQ Sustainable Maritime Industries,  Inc.", effective April
16,  2004 by  virtue  of the  reincorporation,  which is also  described  in the
Information  Statement,  of Process Equipment,  Inc. by a merger with and into a
newly-formed  wholly-owned  Delaware  subsidiary  to be known as HQ  Sustainable
Maritime Industries,  Inc. The merger was completed pursuant to an agreement and
plan of merger  dated as of May 19, 2004,  which has been  reported on a current
report  on Form 8-K  filed on May 24,  2004.  This  Information  Statement  also
related to the adoption of our 2004 Stock  Incentive  Plan and reported that the
holders of the majority of our outstanding common stock have given their consent
to approve the adoption of the Plan.

On May 18, 2004,  we filed a current  report on Form 8-K reporting the change in
certifying  accountant  from Baum & Company to Rotenberg & Co., LLP. That report
also  clarified  the  implementation  of the  change  in  fiscal  year  that was
previously addressed in the Form 8-K filed March 17, 2004.

On May 24, 2004,  we filed a current  report on Form 8-K  reporting  the audited
financial information of the subsidiary, Jade Profit Investment Limited.

On June 28,  2004,  we filed a  current  report  on Form 8-K  reporting  that HQ
Sustainable Maritime Industries Inc. has entered into a Letter of Intent for the
acquisition  of Tomich  Bros.  Seafood  Inc. to which we refer as Tomich in this
report,  through its wholly owned subsidiary,  HQ Sustainable Maritime Marketing
Inc., for a floor price,  consisting of the combination of the Company's  common
stock and cash, valued at not less than $6.6 million. Additional conditions will
be made public upon the signature of the final agreement.

According to  information  we received from Tomich,  which we have not verified,
Tomich is a 70 year-old  fishery  products  company and it is one of the leading
processors  of squid,  sardines and mackerel  caught off the coast of California
and has recently  diversified  to  distribution  of a variety of other  products
throughout the United States and Mexico,  particularly  tilapia and shrimp.  Its
squid products are currently  marketed  principally to China. These products are
also marketed  throughout the world.  If our acquisition of Tomich is completed,
we hope that its marketing  network may  complement  that of HQSM in the future,
and we anticipate bringing our China production base and international marketing
capabilities to complement the capabilities of Tomich.  Following the completion
of our proposed  acquisition  of Tomich,  it plans to continue to market  HQSM's
products and its brands. After this proposed acquisition, it is anticipated that
the current  management  of Tomich  will  continue to help manage the new merged
entity, providing access to their vast experience and network of contacts.

RESULTS OF OPERATIONS - TWO MONTHS ENDED JUNE 30, 2004 AS COMPARED TO TWO MONTHS
--------------------------------------------------------------------------------
ENDED JUNE 30, 2003
-------------------



                                       12
<PAGE>

For the two months ended June 30, 2004  revenues  decreased by $4,036,752 or 93%
to $293,064 from $4,329,816 as compared to the corresponding period of the prior
year.  This  decrease  resulted  from our  processing  plant  being  under major
reconstruction  and  renovation,  and the fact that  production  was ceased from
January 2004 to May 2004.

Cost of sales decreased by $2,604,004 or 90% to $303,126 from $2,907,130 for the
two months ended June 30, 2004, as compared to the  corresponding  period of the
prior year.  The primary factor  responsible  for the decrease was that that, as
stated  above,  our  processing  plant  was  under  major  renovation,  and  the
production was ceased from January 2004 to May 2004.

Selling  and  distribution  expenses  decreased  by $32,103 or 42% to $43,478 as
compared  to the  corresponding  period of the prior year.  The  primary  factor
responsible  for the  decrease was that the  production  was ceased from January
2004 to May 2004.

General and administrative  expenses increased by $100,816 or 93% to $209,338 as
compared to the corresponding  period of the prior year. The increase was mainly
due to HQSM  corporate  level of operating  expenses  after the Company became a
public company. It mainly represented the salaries and professional fees for the
two months ended June 30, 2004.

Depreciation  increased by $540 or 1% as compared to the corresponding period to
the prior year. The slight increase was due to some low value fixed assets being
acquired during late 2003.

Provision for bad and doubtful debts decreased by $531,393 or 100% from $531,393
to $0 as compared  to  corresponding  period of the prior  year.  As at June 30,
2004,  there were almost 67% of trade  receivable that were provided for bad and
doubtful  debts.  The  provision  was made  during  April  2004,  therefore,  no
provision  for bad and doubtful  debts was required in the two months ended June
30, 2004.

Finance  cost  decreased  by $31,041 or 46% to $36,849  from $67,890 for the two
months ended June 30, 2004, as compared to the corresponding period of the prior
year.  It was due to the fact that one of the major bank loans was fully  repaid
in January 2004.

Other income  increased by $13,888 from $215 to $14,103 for the two months ended
June 30, 2004. The increase was due to an amount due from a related party, which
was classified as  non-recoverable  in previous period, but was recovered in the
current period.

Other expenses  decreased from $50,720 for the two months ended June 30, 2003 to
$40,391 for the two months ended June 30, 2004, a 20% or $10,329  decrease.  The
main contribution of the decrease was the decrease in insurance for vessels.

Current income taxes decreased by $72,246 or 100% from $72,246 to $0 for the two
months ended June 30, 2004. It was due to the fact that the Company  experienced
a loss for the current  period while a profit was earned during two months ended
June 30, 2003. Deferred income tax is $11,362 for the both periods.

Minority  interest  decreased  by  $177,090  from  negative  $136,343 in 2003 to
positive  $40,747 in 2004.  The change  resulted from the operating  loss of the
subsidiary in 2004 compared to a profit in 2003.



                                       13
<PAGE>

The net income  attributable to shareholders was $316,526 in 2003 as compared to
a net loss  attributable  to  shareholders  at  $349,488  in 2004.  The loss was
essentially  attributed to almost no  production  taking place in the first five
months of 2004 while our processing plant was under major renovation.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2004 AS COMPARED TO SIX MONTHS
--------------------------------------------------------------------------------
ENDED JUNE 30, 2003
-------------------

For the six months ended June 30, 2004  revenues  decreased by $9,494,621 or 93%
from  $10,196,913  to $702,292 as  compared to the  corresponding  period of the
prior  year.  This  decrease  resulted  because our  processing  plant was under
reconstruction  and renovation,  and the production was ceased from January 2004
to May 2004.

Cost of sales decreased by $6,095,828 or 89% to $748,362 from $6,844,190 for the
six months ended June 30, 2004, as compared to the  corresponding  period of the
prior  year.  The  primary  factor  responsible  for the  decrease  was that our
processing plant was under  reconstruction and renovation and the production was
ceased from January 2004 to May 2004.

Selling  and  distribution  expenses  decreased  by $73,747 or 43% to $96,201 as
compared  to the  corresponding  period of the prior year.  The  primary  factor
responsible   for  the  decrease  was  that  our  processing   plant  was  under
reconstruction and renovation,  and the production was ceased since January 2004
until May 2004.

General and  administrative  expenses  increased by  $1,225,446 to $1,370,004 as
compared  to  $144,558  for the  corresponding  period  of the prior  year.  The
increase was mainly due to HQSM corporate level of operating  expenses after the
Company became a public company.

Depreciation  increased by $1,818 or 1% as compared to the corresponding  period
in the prior  year.  The  slight  increase  due to some low value  fixed  assets
acquired during late 2003.

Provision for bad and doubtful debts increased by $980,486 or 181% from $542,845
to $1,523,331 as compared to  corresponding  period of the prior year. Since the
production  was ceased for  reconstruction,  we could not supply  goods to their
customers.  Some customers  refused to pay their debts within the normal trading
terms. According to the provision method previously adopted, a further provision
for bad debts was needed.

Finance cost  decreased by $111,616 or 72% to $43,625 from  $155,241 for the six
months ended June 30, 2004, as compared to the corresponding period of the prior
year.  It was due to the fact that one of the major bank loans was fully  repaid
in January 2004.

Other  income  increased by $228,304 or 9 times from $25,365 to $253,669 for the
six months  ended June 30,  2004.  The  increase  was due to the  recovery of an
amount due from a related  party,  which was  classified as  non-recoverable  in
previous period, but was recovered in the current period.

Other expenses decreased from $319,470 for the six months ended June 30, 2003 to
$183,095 for the six months ended June 30, 2004, a 43% or $136,375 decrease. The
main  contribution of the decrease was the decrease in insurance for vessels and
a provision for the bad and doubtful debts for amount due from related party was
recorded in the 2003 but not in 2004.


                                       14
<PAGE>

Current  income taxes  decreased by $165,561 or 100% from $165,561 to $0 for the
six  months  ended  June  30,  2004.  It was due to the fact  that  the  Company
experienced  a loss for the current  period while a profit was earned during six
months ended June 30, 2003. Deferred income tax was $34,087 for both periods.

Minority  interest  decreased  by  $649,767  from  negative  $311,823 in 2003 to
positive  $337,944 in 2004.  The change  resulted from the operating loss of the
subsidiary in 2004 compared to a profit in 2003.

The net income  attributable to shareholders was $1,377,695 in 2003 compare to a
net loss  attributable  to  shareholders  at  $2,863,478  in 2004.  The loss was
essentially  attributed to the fact that almost no production  took place in the
first five months of 2004 while our processing plant was under major renovation.


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

We have funded capital  requirements  through cash flow from  operations.  As of
June 30, 2004 we had a cash balance of $6,257,807 and a working  capital surplus
of  $3,801,717.  This compares  with a cash balance of $5,854,623  and a working
capital surplus of $2,004,142 for April 30, 2004.

Management  believes that after  completing  the  renovations  on the processing
plant and  having  financed  them from our  internal  operations,  the cash flow
generated by operating  activities  will be utilized and should be sufficient to
support the working capital  requirements for months to come. In addition,  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 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.

ITEM 3.  CONTROL AND PROCEDURES.


We maintain  disclosure controls and procedures that are designed to ensure that
information  that is required to be disclosed in the Securities  Exchange Act of
1934 reports are recorded,  processed,  summarized and reported  within the time
periods  specified in the SEC's rules and forms,  and that such  information  is
accumulated  and  communicated  to our  management  to  allow  timely  decisions
regarding required disclosure.

At of  the  end of  the  period  covered  by  this  report,  we  carried  out an
evaluation,  under the supervision and with the participation of our management,
including  our Chief  Executive  Officer  and  President  and our  Acting  Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of our
disclosure  controls and procedures pursuant to Rule 13a-15 under the Securities
Exchange  Act of 1934,  as  amended.  Based  upon  this  evaluation,  our  Chief
Executive  Officer and our Acting Chief Financial  Officer concluded that, as of
the end of the period  covered  by this  report,  our  disclosure  controls  and
procedures were effective under Rule 13a-15.



                                       15
<PAGE>

There were no significant  changes in our internal  controls or in other factors
that could  significantly  affect these  controls  subsequent  to the end of the
period  covered  by this  report,  including  any  significant  deficiencies  or
material weaknesses of internal controls that would require corrective action.

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.
However,  we may, from time to time,  participate  in legal  proceedings  in the
ordinary course of our business.  We do not believe that such  proceedings  will
have a  material  adverse  effect  on our  financial  condition  or  results  of
operations.

ITEM 2 - CHANGES IN SECURITIES

Beginning in March 2004 through the end of the period covered by this report, we
have sold, or committed for issuance, as explained below, 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").

In connection  with the recent merger of all of the capital stock of Jade Profit
Investment Limited, a British Virgin Islands limited liability corporation, into
Process  Equipment,  Inc.,  which is described in more detail  elsewhere in this
report:

         o        On March 25, 2004, we issued  21,355,200  shares of our common
                  stock  to four  shareholders,  in a  private  placement  under
                  Section 4(2) of the Securities Act;

         o        On March 25, 2004, we issued warrants to acquire an additional
                  27,068,570  shares  of  newly-issued   common  stock  to  four
                  shareholders.  The  warrants'  exercise  price  was  $0.00 per
                  share. The warrants were issued in reliance upon the exemption
                  from  registration  provided in Section 4(2) of the Securities
                  Act and  Regulation D  thereunder.  All of the  warrants  were
                  exercised, in full, in May 2004; and

         o        We also agreed to issue,  but have not issued as of the end of
                  the period  covered  by this  report,  in a private  placement
                  under Section 4(2) of the  Securities  Act,  520,685 shares of
                  our   common   stock   to   Westminster    Securities    Corp.
                  ("Westminster")  or its designees,  in  consideration  of this
                  firm's  services as our financial  advisor in connection  with
                  the merger.

In  addition,  in April 2004 we completed a private  placement of 38  investment
units (or Units) of our company,  at a purchase  price of $34,000 per Unit,  all
Units in the  aggregate  consisting  of  7,600,000  shares of our common  stock,
3,040,000  Class C common stock purchase  warrants and 3,040,000  Class D common
stock purchase  warrants,  to 10 accredited  investors for an aggregate purchase
price of $1,292,000.  We issued the shares of common stock and warrants included
in these Units in late May 2004. These securities were sold in reliance upon the
exemption from  registration  provided in Section 4(2) of the Securities Act and
Regulation D thereunder.



                                       16
<PAGE>

Westminster acted as our placement agent in connection with the above April 2004
private  placement.  In  consideration  of its  services,  we agreed to grant to
Westminster or its designees a warrant (the "Agent  Warrant")  representing  the
right to purchase up to 3.8 Units, each Unit consisting of 200,000 shares of our
common stock, 80,000 Series C common stock purchase warrants and 80,000 Series D
common stock purchase  warrants.  Westminster  subsequently  allocated the Agent
Warrant and/or the securities  covered  thereby to three of its officers and one
of its employees.

In April 2004 we also  completed  a private  placement  of a total of  4,121,337
shares of our common stock to three persons,  for an aggregate purchase price of
$1,236,410.  In late May 2004 we issued shares  pursuant to this  transaction to
one person in reliance upon the exemption from registration  provided in Section
4(2) of the  Securities  Act and  Regulation D thereunder,  and to two remaining
persons, in reliance upon Regulation S.

Also in late May 2004,  we issued  18,600 shares of our common stock and granted
50,000  warrants  to  purchase  shares of our  common  stock to  Consulting  for
Strategic  Growth 1, Ltd., in  consideration  of the public  relations  services
rendered to us by that firm.  In  consideration  of the same  services,  we also
issued 900 shares to Bonnie Barrett  Stretch,  a related party of Consulting for
Strategic  Growth.  All of these  securities  were issued in  reliance  upon the
exemption from registration provided in Section 4(2) of the Securities Act.

In June  2004,  we  agreed to  issue,  but have not  issued as of the end of the
period covered by this report,  500,000 shares of our common stock, in a private
placement  under  Section  4(2) of the  Securities  Act,  to Lui  Hung  Yen,  in
consideration of Mr. Yen's cancellation of an outstanding promissory note issued
by  Jade,  our  subsidiary,   in  the  amount  of  HK$2,000,000   (approximately
US$ 256,410)  and the  release of Jade and our company by Mr. Yen of any and all
claims relating to such note.

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

We have no other information to report.



                                       17
<PAGE>

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits required by Item 601 of Regulation S-B.

Exhibit No.       Description
-----------       -----------

2                 Agreement  and Plan of Merger,  dated as of March 17, 2004, by
                  and  among  Process   Equipment,   Inc.,   Process   Equipment
                  Acquisition  Corporation  and Jade Profit  Investment  Limited
                  (incorporated  by  reference  to the  Report  on Form  14-C of
                  Process Equipment,  Inc. (Commission File No. 0-18980),  filed
                  with the Commission on April 28, 2004).

3.1               Certificate  of  Incorporation  of  HQ  Sustainable   Maritime
                  Industries, Inc., as amended (incorporated by reference to the
                  Report on Form 14-C of  Process  Equipment,  Inc.  (Commission
                  File No.  0-18980),  filed  with the  Commission  on April 28,
                  2004).

3.2               Bylaws   of   HQ   Sustainable   Maritime   Industries,   Inc.
                  (incorporated  by  reference  to the  Report  on Form  14-C of
                  Process Equipment,  Inc. (Commission File No. 0-18980),  filed
                  with the Commission on April 28, 2004).

4                 Process   Equipment,    Inc.   2003   Stock   Incentive   Plan
                  (incorporated  by  reference  to the  Report  on Form  14-C of
                  Process Equipment,  Inc. (Commission File No. 0-18980),  filed
                  with the Commission on April 28, 2004).

10.1              Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ  Sustainable  Maritime  Industries,  Inc. and Harry
                  Wang.

10.2              Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Lillian
                  Wang.

10.3              Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Norbert
                  Sporns.

10.4              Form  of   Independent   Non-Executive   Director   Agreement,
                  effective as of June 15, 2004, between HQ Sustainable Maritime
                  Industries, Inc. and Fred Bild.

10.5              Form  of   Independent   Non-Executive   Director   Agreement,
                  effective as of June 15, 2004, between HQ Sustainable Maritime
                  Industries, Inc. and Jacques Vallee.

31.1              Certification of Norbert Sporns, Chief Executive Officer of HQ
                  Sustainable Maritime  Industries,  Inc. pursuant to Rule 13a -
                  14(a)/15d-14(a) of the Securities Exchange Act of 1934.

31.2              Certification of Lillian Wang,  Acting Chief Financial Officer
                  of HQ Sustainable Maritime  Industries,  Inc. pursuant to Rule
                  13a - 14(a)/15d-14(a) of the Securities Exchange Act of 1934.

32.1              Certification  of Chief  Executive  Officer of HQ  Sustainable
                  Maritime Industries,  Inc. pursuant to 18 U.S.C. Section 1350,
                  as adopted pursuant to Section 906 of the  Sarbanes-Oxley  Act
                  of 2002 - Norbert Sporns.

32.2              Certification   of  Acting  Chief  Financial   Officer  of  HQ
                  Sustainable  Maritime  Industries,  Inc. pursuant to 18 U.S.C.
                  Section  1350,  as  adopted  pursuant  to  Section  906 of the
                  Sarbanes-Oxley Act of 2002 - Lillian Wang.



                                       18
<PAGE>

(b) Reports on Form 8-K

The  following  reports  on Form 8-K were filed  during the last  quarter of the
period covered by this report:

1. Current report on Form 8-K filed with the SEC on May 18, 2004
This report  disclosed that the  accounting  firm Rotenberg and Co. LLP replaced
Baum and Company, P.A. as the auditor for Process Equipment, Inc.

2. Current report on Form 8-K filed with the SEC on May 24, 2004
In this report we disclosed that Process  Equipment,  Inc. changed its corporate
name to HQ Sustainable Maritime Industries,  Inc. and its state of incorporation
to  Delaware,  by means of a merger  with and into a new  wholly-owned  Delaware
corporation called HQ Sustainable  Maritime  Industries,  Inc. We also announced
that our new over-the-counter trading symbol, HQSM.OB, would take effect May 25,
2004,  and  announced  40426A 10 9 as our new CUSIP  number.  We also  filed the
audited  financial  statements for year ended December 31, 2002 and 2003 of Jade
Profit Investment Limited.

3. Current report on Form 8-K filed with the SEC on June 28, 2004
In this report we disclosed our June 15, 2004 press release  announcing that we,
through our wholly owned  subsidiary,  HQ Sustainable  Maritime  Marketing Inc.,
entered  into a Letter of Intent for the  acquisition  of Tomich  Bros.  Seafood
Inc., a California  corporation.  This report disclosed the financial statements
of Tomich Bros.  Seafood Inc. and related pro forma  financial  information.  We
also elaborated on our June 17, 2004 press release announcing the appointment of
Mr. Jacques Vallee and Mr. Fred Bild as independent  non-executive directors and
stated  that  Mr.  Vallee  is to act as head of our  Board of  Directors'  Audit
Committee.













                                       19
<PAGE>



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                       HQ SUSTAINABLE MARITIME INDUSTRIES, INC.

                       By:    /s/ Norbert Sporns
                              --------------------------------------------------

                              Name: Norbert Sporns
                              Title: Chief Executive Officer and President

                       Date:  August 13, 2004

                       By:    /s/ Lillian Wang
                              --------------------------------------------------

                              Name: Lillian Wang
                              Title: Chairman and Acting Chief Financial Officer

                       Date:  August 13, 2004