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

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

                                   FORM 10-QSB
(MARK ONE)

[X]  QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934 for the quarterly period ended March 31, 2005

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

                         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 of             (I.R.S. Employer Identification No.)
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)


         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:  98,124,859 shares of
Common Stock, $0.001 par value per share, outstanding as of March 31, 2005.

         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                             2-3
         Condensed Consolidated Statements of Income                       4
         Condensed Consolidated Statements of Cash Flows                   5
         Notes to Condensed Consolidated Financial Statements              6-10
Item  2. Management Discussions & Analysis of Financial Condition and
         Results of Operations.                                            11-15
Item 3.  Controls and Procedures                                           15

PART II - OTHER INFORMATION

Item  1.     Legal Proceedings                                             16
Item  2.     Unregistered Sales of Equity securities and Use of Proceeds   16
Item  3.     Defaults Upon Senior Securities                               16
Item  4.     Submission of Matters to a Vote of Security Holders           16
Item  5      Other Information                                             16
Item  6.     Exhibits and Reports on Form 8-K                              17










                                       1
<PAGE>
<TABLE>
<CAPTION>

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

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2005 AND DECEMBER 31, 2004


                                     ASSETS



                                                 March 31, 2005    December 31, 2004
                                               -----------------   -----------------
<S>                                            <C>                 <C>
CURRENT ASSETS
  Cash and cash equivalents                    $       3,952,818   $       4,551,505
  Trade receivables, net of provision                  5,697,876           5,406,172
  Inventory                                              236,679             228,564
  Prepayments                                              1,932               1,932
  Due from related parties, net of provision             183,986             388,506
  Advance to employee                                     29,332              27,918
  Tax recoverable                                         81,602              81,602
                                               -----------------   -----------------
  TOTAL CURRENT ASSETS                                10,184,225          10,686,199
                                               -----------------   -----------------

OTHER ASSETS
  Deferred taxes                                       1,192,746           1,209,790
                                               -----------------   -----------------

PROPERTY, PLANT AND EQUIPMENT, NET                     8,789,401           9,029,673
                                               -----------------   -----------------

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

TOTAL ASSETS                                   $      20,166,372   $      20,925,662
                                               =================   =================
</TABLE>











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

                                       2
<PAGE>

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

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2005 AND DECEMBER 31, 2004


                      LIABILITIES AND SHAREHOLDERS' EQUITY



                                           March 31, 2005     December 31, 2004
                                         -----------------    -----------------
CURRENT LIABILITIES
  Accounts payable and accrued expenses  $       3,392,724    $       4,204,630
  Bank loans                                     4,457,831            4,457,831
  Tax payable                                       32,873                 --
  Amount due to related parties                    134,006               86,994
  Due to directors                                 211,649              209,361
  Convertible notes                                255,422              255,422
                                         -----------------    -----------------
  TOTAL CURRENT LIABILITIES                      8,484,505            9,214,238
                                         -----------------    -----------------

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

TOTAL LIABILITIES                                8,584,505            9,314,238

MINORITY INTEREST                                     --                   --

SHAREHOLDERS' EQUITY
  Share capital                                     98,125               95,055
  Additional paid-in capital                    13,504,546           13,099,205
  Reserves                                       1,146,316            1,146,316
  Accumulated loss                              (3,167,120)          (2,729,152)
                                         -----------------    -----------------

TOTAL SHAREHOLDERS' EQUITY                      11,581,867           11,611,424
                                         -----------------    -----------------

TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                 $      20,166,372    $      20,925,662
                                         =================    =================







The  accompanying  notes  are an  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
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

                                                       2005            2004
                                                   ------------    ------------

SALES                                              $  3,016,886    $    241,373

COST OF SALES                                         1,299,166         213,829
                                                   ------------    ------------

GROSS PROFIT                                         1,717,720           27,544

SELLING AND DISTRIBUTION EXPENSES                        40,608          34,599

ADVERTISING
                                                      1,000,819            --

GENERAL AND ADMINISTRATIVE EXPENSES                     626,941         333,461

DEPRECIATION                                            240,272          79,365

PROVISION FOR DOUBTFUL DEBTS                             38,352       1,284,750
                                                   ------------    ------------

LOSS FROM OPERATIONS                                   (229,272)     (1,704,631)

FINANCE COSTS                                            91,708            --

OTHER INCOME                                               (583)        (17,028)

OTHER EXPENSES                                           67,709         128,577
                                                   ------------    ------------

LOSS BEFORE INCOME TAXES                               (388,106)     (1,816,180)

INCOME TAXES
  CURRENT
                                                         32,819            --

  DEFERRED                                               17,043          22,725
                                                   ------------    ------------

NET LOSS BEFORE MINORITY INTEREST                      (437,968)     (1,838,905)

MINORITY INTEREST                                          --           268,363
                                                   ------------    ------------

NET LOSS ATTRIBUTABLE TO SHAREHOLDERS              $   (437,968)     (1,570,542)
                                                   ============    ============

NET LOSS PER SHARE BASIC AND DILUTED               $      (0.00)         (62.82)
                                                   ============    ============

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING            96,194,971          25,000
                                                   ============    ============




The  accompanying  notes  are an  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 FLOW
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004

                                                                     2005            2004
                                                                 ------------    ------------
<S>                                                              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                       $   (437,968)   $ (1,838,905)
  Adjustments to reconcile net income to net cash provided
     by operating activities:
  Provision for doubtful account                                      (38,352)      1,284,750
  Depreciation                                                        240,272          79,365
  (Increase)/decrease in assets:
     Inventory                                                         (8,115)         51,055
     Trade receivables, net of provisions                            (253,353)        143,294
     Prepayment                                                          --           (70,017)
     Advance to employee                                               (1,414)           --
     Deferred taxes                                                    17,044          22,725
  Increase/(decrease) in liabilities:
     Accounts payable sand accrued expenses                          (811,905)         36,938
     Deposit received from customers                                     --             8,789
     Taxes payable                                                     32,873            --
                                                                 ------------    ------------
Net cash from by operating activities                              (1,260,918)       (282,006)
                                                                 ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment                           --          (632,576)
                                                                 ------------    ------------
Net cash from by investing activities                                    --          (632,576)
                                                                 ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock                                          408,411         414,900
  Receive from/(payment to) directors                                   2,287         (42,589)
  Receive from/(payment to) related parties                           251,533        (148,977)
  Repayment of bank loans                                                --        (6,024,097)
                                                                 ------------    ------------
Net cash from by financing activities                                 662,231      (5,800,763)
                                                                 ------------    ------------

Net CHANGE IN CASH AND CASH EQUIVALENTS                              (598,687)     (6,715,345)

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

  Cash and cash equivalents, end of period                       $  3,952,818    $  4,322,435
                                                                 ============    ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                                  $     62,848    $       --
                                                                 ============    ============

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

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



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


                                       5
<PAGE>

                     HQ SUSTAINABLE MARTIME INDUSTRIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                    UNAUDITED
                                 MARCH 31, 2005
--------------------------------------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

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

NOTE 2 - NATURE OF COMPANY

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



                                       6
<PAGE>

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

HQSM and its subsidiaries, collectively referred to in this report as 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  (wholly-owned  subsidiary of Sealink) are
Shark Cartilage  Capsule,  Shark Liver Oil and Shark Liver (Soft gel). The major
market for these products is the PRC.

NOTE 3 - USE OF ESTIMATES

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

NOTE 4 - EARNINGS PER SHARE

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

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

NOTE 6 - FOREIGN CURRENCY CONVERSION

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



                                       7
<PAGE>
<TABLE>
<CAPTION>

NOTE 7 - INCOME TAXES

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

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

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

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

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

NOTE 8 - SEGMENTS

No  geographical  segment  analysis is provided for the three months ended March
31, 2005 and 2004, as less than 10% of  consolidated  revenues and less than 10%
of consolidated income from operations is attributable to the segment other than
the Mainland China.

Business segment for the three months ended March 31, 2005

                                      Aquaculture     Health and   Unallocated   Consolidation
                                        Product      Bio-product      Items
Sales to external customers             1,092,495      1,924,391          --        3,016,886
                                      ===========    ===========   ===========    ===========
<S>                                   <C>            <C>           <C>            <C>
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
Profit/(Loss) before taxation            (378,926)       437,585      (446,765)      (388,106)
Taxation                                   17,043         32,819          --           49,862
Profit/(Loss) for the period             (395,969)       404,766      (446,765)      (437,968)
                                      ===========    ===========   ===========    ===========



                                       8
<PAGE>


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>

No business  segment is provided for the three months ended March 31, 2004 as no
revenues and income from operations is  attributable  to business  segment other
than the vertically  integrated  business of aquaculture  through processing and
sales of farm-bred and ocean harvested aquatic products.

NOTE 9 - UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

The accompanying  Unaudited Pro Forma Condensed Consolidated Statement of Income
for the  quarter  ended  March  31,  2004,  has been  prepared  to  reflect  the
acquisition as if it had occurred as of January 1, 2004.

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

                                                            3/31/2004
                                                            USD (`000)
            Turnover                                             2,166
            Loss from operations                                 1,179
            Net loss attributable to shareholder                 1,076
                                                            ==========

            Weighted average outstanding number of shares       25,000
                                                            ==========
                 as at March 31, 2004

            Earnings (loss) per share                           (43.05)
                                                            ==========


                                       9
<PAGE>

NOTE 10 - SUBSEQUENT EVENTS

HQSM had an  obligation  under  the Note to issue to SSC  100,000  shares of its
preferred stock  corresponding to $100,000 principal amount under the Note. HQSM
and SSC  entered  into a Waiver  and  Amendment  Agreement  dated  May 4,  2005,
extending the due date of the issuance of the related 100,000 preferred stock to
November  4,  2005.  The  Waiver and  Amendment  Agreement  has been filed as an
exhibit to this  quarterly  report.  Also  pursuant to the Waiver and  Amendment
Agreement, SSC waived any and all defaults that have occurred and are continuing
under the original agreement dated November 4, 2004 and under the Note.



















                                       10
<PAGE>

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

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

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

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

The following Management's Discussion and Analysis, or 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
thereto appearing elsewhere in this quarterly report.

Effective  May 1, 2004,  the fiscal year of the Group  changed  from April 30 to
December 31.

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

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



                                       11
<PAGE>

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

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

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

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

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

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

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

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

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

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

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



                                       12
<PAGE>

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

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

Results of  Operations  - Three Months Ended March 31, 2005 as Compared to Three
--------------------------------------------------------------------------------
Months Ended March 31, 2004
---------------------------

One of the subsidiaries of HQSM, Jiahua Marine, was engaged in manufacturing and
selling  health and  bio-product.  During the three months ended March 31, 2005,
Jiahua Marine  contributed  $1,924,391 to the total  turnover of the Group.  The
gross  profit  ratio for this  segment was around 81% and the major  expense for
this  segment  was  advertising,  which was about 52% of the  turnover.  The net
income  contributed by this segment was $404,766 in the current quarter.  Jiahua
Marine was acquired during the third quarter of 2004 and no comparative  figures
for the first quarter of 2004 are shown.

Another  principal  activity of the Group continues to be the  manufacturing and
selling of aquatic  products.  The  turnover  contributed  by this  segment  was
$1,092,495  and  $241,373  for the three  months  ended March 31, 2005 and 2004,
respectively.  The gross  profit  ratio of this  segment  was 7% and 11% for the
three  months  ended  March  31,  2005  and  2004,  respectively.  This  segment
contributed net loss of $395,969 and $1,462,182 for the three months ended March
31, 2005 and 2004, respectively.

For the three months ended March 31, 2005,  revenue  increased by  $2,775,513 or
11.5 times to $3,016,886 from $241,373 as compared to the  corresponding  period
of the prior year. The increase  resulted  primarily from HQSM's  acquisition of
Sealink in August 2004 and the resulting inclusion of Sealink's turnover as part
of our revenue for this quarter.

Cost of sales increased by $1,085,337 or 5 times to $1,299,166 from $213,829 for
the three months ended March 31, 2005, as compared to the  corresponding  period
of the prior year. Approximately two thirds of the increase was due to increased
activities in the aquatic products segment,  and the balance of the increase was
due to the acquisition of Sealink in August 2004.

Selling  and  distribution  expenses  increased  by $6,009 or 17% to  $40,608 as
compared  to the  corresponding  period of the prior year.  The  primary  factor
responsible  for the increase was that the Group's sales  increased this quarter
compared with the same quarter last year.

Advertising  expenses  increased  by  $1,000,819  from zero as  compared  to the
corresponding  period of the prior year. The primary factor  responsible for the
increase was that HQSM  acquired  Jiahua Marine (as part of its  acquisition  of
Sealink) in August 2004, and, consistent with industry practices,  Jiahua Marine
requires  significant   advertising   expenditures  for  the  promotion  of  its
nutraceutical products in order to achieve customer recognition.


                                       13
<PAGE>

General and administrative  expenses increased by $293,480 or 88% to $626,941 as
compared  to the  corresponding  period of the prior year.  The primary  factors
responsible for the increase was that the Group incurred  additional  costs as a
public  company in 2005,  and also that it acquired  and shared the  expenses of
Sealink.

Depreciation  charged  to  general  and  administrative  expenses  increased  by
$160,907 or two times to $240,272 as compared to the corresponding period of the
prior  year.  The  increase  was due to the  effect  in the  current  period  of
improvements  made in the  first  half of 2004 by HQOF,  and  additional  assets
purchased through the acquisition of Jiahua Marine in mid-August 2004.

Provision  for bad and  doubtful  debts  decreased  by  $1,246,398  or 97%  from
$1,284,750 to $38,352 as compared to corresponding period of the prior year. The
decrease was due to increased recoverability of trade receivable.

Finance cost increased to $91,708 from zero for the three months ended March 31,
2005, as compared to the corresponding period of the prior year. The increase is
due to financing costs incurred in the health and bio-product segment during the
currentperiod  which were not in the Group in 2004, and additional loan interest
costs supported by HQOF in 2005.

Other  income  decreased  by $16,445  or 97% from  $17,028 to $583 for the three
months ended March 31, 2005.  The other income  mainly  represents  the interest
income earned during the period.

Other expenses decreased from $128,577 for the three months ended March 31, 2004
to $67,709 for the three months ended March 31, 2005, a 47% or $60,868 decrease.
The main reason of the  decrease  was the  reduction  of the  insurance  for the
vessels and some sailors being released during the current period.

Current income taxes increased from zero to $32,819 in the current period.  Such
increase was due to the fact that Jiahua  Marine earned  taxable  income in 2005
and HQOF suffered a loss in 2004 and 2005.

Minority  interest  decreased  from $268,363 to zero.  The change  resulted from
HQSM's acquisition of the 15.58% minority interest of HQOF in August 2004.

The net loss  attributable to  shareholders  decreased by $1,132,574 to $437,968
for the first quarter of 2005.  The decrease was mostly due to a combination  of
additional  income from the Jiahua  Marine and the  reduction in  provision  for
doubtful debts.

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

We have funded capital  requirements  through cash flow from  operations.  As of
March 31,  2005,  we had a cash  balance  of  $3,952,818  and a working  capital
surplus of  $1,699,720.  This compares  with a cash balance of $4,551,505  and a
working capital surplus of $1,471,961 as of December 31, 2004.

Management  believes  that, to fund our working  capital  needs,  operations and
anticipated  expansion,  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



                                       14
<PAGE>

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 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 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 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.

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.













                                       15
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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

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

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

In January  2005,  we issued  124,167 and 240,000  shares of our common stock to
Lucky Ventures  Resources  Limited in consideration of the financial  consultant
services  rendered to us by that firm, and to Paul Courteau in  consideration of
the consultant service rendered to us by that individual,  respectively.  All of
these  securities  were issued in reliance upon the exemption from  registration
provided in Section 4(2) of the Securities Act.

In  February  2005,  pursuant  to  the  Independent   Non-executive   Director's
Agreements,  we issued  17,857  shares of our common  stock to each of our three
independent  non-executive  directors  as  consideration  of a portion  of their
remuneration as directors.

During  the first  quarter  of 2005,  we issued  2,651,998  shares of our common
stock,  pursuant  to  Regulation  S  promulgated  under the  Securities  Act, to
ninety-five  parties for gross  consideration  of $745,230  and net  proceeds of
$265,541, after payment of escrow, finders' and other fees.

ITEM 3 - DEFAULTS UPON SENIOR SECURITES

There have been no material defaults.

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

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

ITEM 5 - OTHER INFORMATION

None.


                                       16
<PAGE>

ITEM 6 - EXHIBITS

The following exhibits are being filed as part of this quarterly report:

Exhibit No.       Description

10.1              Waiver  and  Amendment  Agreement,  dated  as of May 4,  2004,
                  between HQ Sustainable Maritime Industries, Inc. and Sino-Sult
                  Canada (S.S.C.) Limited.

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 Jean-Pierre Dallaire, 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 Norbert Sporns as the 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.

32.2              Certification  of Jean-Pierre  Dallaire as the 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.





                                       17
<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:  May 13, 2005

                                 By: /s/ Jean-Pierre Dallaire
                                    --------------------------------------------
                                    Name: Jean-Pierre Dallaire
                                    Title: Chief Financial Officer

                                    Date:  May 13, 2005











                                       18