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 July 1, 2004 to September 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 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:  77,109,877 shares of
Common Stock, $0.001 par value per share, outstanding as of November 9, 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.
|X|      Condensed Consolidated Balance Sheets                          2-3
|X|      Condensed Consolidated Statements of Income                    4
|X|      Condensed Consolidated Statements of Cash Flows                5
|X|      Notes to Condensed Consolidated Financial Statements           6-7
Item  2. Management Discussions & Analysis of Financial Condition and
         Results of Operations.                                         8-12
Item 3.  Controls and Procedures                                        13

PART II - OTHER INFORMATION

Item  1. Legal Proceedings                                              14
Item  2. Unregistered Sales of Equity securities and Use of Proceeds    14
Item  3. Defaults Upon Senior Securities                                14
Item  4. Submission of Matters to a Vote of Security Holders            14
Item  5  Other Information                                              14
Item  6. Exhibits                                                       14




























                                        1


<PAGE>
<TABLE>
<CAPTION>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
                     (INCORPORATED IN THE STATE OF DELAWARE)
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------



                                                 September 30, 2004      April 30, 2004
                                                 ------------------    ------------------
<S>                                              <C>                   <C>
CURRENT ASSETS
   Cash and cash equivalents                     $        5,910,765    $        5,854,623
   Trade receivables, net of provisions                   4,384,226             2,368,364
   Inventory                                                819,929                79,527
   Prepayments                                              298,490                45,052
   Due from related parties, net of provisions            1,154,746               188,802
   Due from directors                                        17,429                42,613
   Advance to employee                                        9,307                  --
   Tax recoverable                                           81,602                81,602

                                                 ------------------    ------------------
   TOTAL CURRENT ASSETS                                  12,676,494             8,660,583
                                                 ------------------    ------------------

OTHER ASSETS
   Deferred taxes                                         1,226,944             1,403,609
                                                 ------------------    ------------------

PROPERTY, PLANT AND EQUIPMENT, NET                        9,268,313             2,211,633
                                                 ------------------    ------------------

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

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

TOTAL ASSETS                                     $       23,171,751    $       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)
                           CONSOLIDATED BALANCE SHEETS

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


                                             September 30, 2004       April 30, 2004
                                             ------------------     ------------------
<S>                                          <C>                    <C>
CURRENT LIABILITIES
   Accounts payable and accrued expenses     $        2,958,252     $        1,503,109
   Deposit received from customers                         --                   37,452
   Bank loans                                         4,457,831              3,012,048
   Amount due to related parties                        956,180                   --
   Due to directors                                      31,764                   --
   Convertible notes                                    255,422                255,422
   Subscription received                                   --                1,848,410

                                             ------------------     ------------------
   TOTAL CURRENT LIABILITIES                          8,659,449              6,656,441
                                             ------------------     ------------------

OTHER LIABILITIES
   Convertible note                                  11,111,345                   --
                                             ------------------     ------------------

TOTAL LIABILITIES                                    19,770,794              6,656,441

MINORITY INTEREST                                          --                 (397,910)

SHAREHOLDERS' EQUITY
   Share capital                                         76,543                 25,000
   Additional paid-in capital                         4,190,123             13,121,114
   Reserves                                           1,032,897                957,656
   Accumulated losses                                (1,898,606)            (4,707,486)

                                             ------------------     ------------------
TOTAL SHAREHOLDERS' EQUITY                            3,400,957              9,396,284
                                             ------------------     ------------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY   $       23,171,751     $       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)
                              STATEMENTS OF INCOME
             FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003



                                                  3 months ended September 30     9 months ended September 30
                                                     2004            2003            2004            2003
                                                 ------------    ------------    ------------    ------------
<S>                                              <C>             <C>             <C>             <C>
SALES                                            $  7,665,287    $  3,734,985    $  8,367,579    $ 13,931,898

COST OF SALES                                       4,817,384       2,671,584       5,565,746       9,515,774
                                                 ------------    ------------    ------------    ------------
GROSS PROFIT/(LOSS)                                 2,847,903       1,063,401       2,801,833       4,416,124

SELLING AND DISTRIBUTION EXPENSES                     124,775         269,298         220,976         439,246

ADVERTISING                                           542,409            --           542,409            --

GENERAL AND ADMINISTRATIVE EXPENSES                   848,254         113,554       2,218,258         258,112

DEPRECIATION                                           13,653           7,856         172,331         164,716

PROVISION FOR DOUBTFUL DEBTS                               (0)         25,543       1,523,331         568,388
                                                 ------------    ------------    ------------    ------------
INCOME/(LOSS) FROM OPERATIONS                       1,318,812         647,150      (1,875,472)      2,985,662

FINANCE COSTS                                         136,361         119,790         179,986         275,031

OTHER INCOME                                       (2,284,953)         (1,529)     (2,538,622)        (26,894)

OTHER EXPENSES                                         68,551          80,306         251,646         399,776
                                                 ------------    ------------    ------------    ------------

INCOME/(LOSS) BEFORE INCOME TAXES                   3,398,853         448,583         231,518       2,337,749

INCOME TAXES
   CURRENT                                               --            17,810            --           183,371

   DEFERRED                                           165,303          17,043         199,390          51,130
                                                 ------------    ------------    ------------    ------------
NET INCOME/(LOSS) BEFORE MINORITY INTEREST          3,233,550         413,730          32,128       2,103,248

MINORITY INTEREST                                        --           (63,235)        337,944        (375,058)
                                                 ------------    ------------    ------------    ------------
NET INCOME/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS   $  3,233,550    $    350,495    $    370,072    $  1,728,190
                                                 ============    ============    ============    ============

NET INCOME/(LOSS) PER SHARE
   BASIC AND DILUTED                             $       0.05    $         35    $       0.01    $        173
                                                 ============    ============    ============    ============

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING          70,031,231          10,000      44,820,674          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 WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                             STATEMENTS OF CASH FLOW




                                                                              2004            2003
                                                                          ------------    ------------
<S>                                                                       <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                             $  2,884,062    $    866,599
   Adjustments to reconcile net income to net cash
     provided by operating activities :
   Provision for doubtful account                                           (2,284,953)        556,935
   Depreciation                                                                267,767         235,712
   (Increase)/decrease in assets:
     Inventory                                                                (555,189)         99,615
     Trade receivables, net of provisions                                    4,593,396      (2,018,651)
     Prepayment                                                                   (160)        296,976
     Advance to employee                                                        (9,308)           --
     Deferred taxes                                                            176,665          28,406
   Increase/(decrease) in liabilities:
     Accounts payables and accrued expenses                                 (1,162,324)        616,560
     Deposit received from customers                                           (37,450)        (26,758)
     Taxes payable                                                                --            56,944
                                                                          ------------    ------------
Net cash from operating activities                                           3,872,506         712,338
                                                                          ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of property, plant and equipment                               (406,107)       (131,548)
   Additions to construction in progress                                          --        (1,765,699)
   Cash received from acquisition                                            1,205,193            --
                                                                          ------------    ------------
Net cash from by investing activities                                          799,086      (1,897,247)
                                                                          ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from common stock                                               (1,848,410)      1,915,746
   Due to directors                                                             31,763          69,596
   Due from directors                                                           25,184          (2,446)
   Due from related parties, net of provisions                                (165,490)       (682,743)
   Amount due to related parties                                               956,180            --
   Capital expenditure                                                      (3,771,623)           --
   Purchase of minority interest from shareholders                             397,910            --
   Repayment of bank loan                                                     (240,964)           --
                                                                          ------------    ------------
Net cash from by financing activities                                       (4,615,450)      1,300,153
                                                                          ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                         56,142         115,244

   Cash and cash equivalents, beginning of period                            5,854,623      11,937,510
                                                                          ------------    ------------

   Cash and cash equivalents, end of period                               $  5,910,765    $ 12,052,754
                                                                          ============    ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
   Interest paid                                                          $    118,571    $    230,152
                                                                          ============    ============

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

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
   Note payable in connection with acquisition of Jiahua Marine           $ 11,111,345    $       --
                                                                          ============    ============
</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
                               SEPTEMBER 30, 2004
--------------------------------------------------------------------------------

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 April 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.


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"), and
Sealink  Wealth  Limited,   a  British  Virgin  Islands  liability   corporation
("Sealink"),  whereby we acquired Sealink, SSC's wholly owned subsidiary, on the
terms and  conditions as specified  therein.  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.

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
does not already own in Hainan  Quebec Ocean  Fishing  Company  Limited,  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
Hainan Quebec being acquired by Jade. Jade has previously obtained all requisite
governmental approvals in the PRC in order to consummate this transaction.


                                       6
<PAGE>

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


The Company 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,  ocean  harvested  aquatic  products,
healthcare products and bio-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 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  September  30,  2004 and 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  (Renminbi) 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'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.

No provision for PRC profits tax has been made as Hainan Quebec did not have any
assessable profits for the nine months ended September 30, 2004. (2003:  $17,810
for three months, $183,371 for nine months).

NOTE 8 - SUBSEQUENT EVENTS (Convertible Note)

In connection  with the  acquisition of Jiahua Marine Bio Products,  the Company
issued a note  payable  to the seller in the  amount of  $11,111,345.  The note,
dated August 17, 2004,  was  renegotiated  and is  convertible  into  15,730,493
shares of common stock and 100,000 shares of preferred stock of the Company.  In
addition,  all accrued interest will be paid through the date of the conversion.
The conversion is expected to occur on or about November 14, 2004.



                                       7
<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.

On  August  17,  2004,   we  have  entered  into  a  Purchase   Agreement   (the
"Nutraceutical  Purchase  Agreement") with SSC and Sealink,  whereby we acquired
Sealink (the "Nutraceutical Acquisition"), SSC's wholly owned subsidiary, on the
terms and  conditions as specified  therein.  That  purchase  agreement has been
filed as an exhibit to our August 18 current report on Form 8-K.  Sealink is the
sole owner of 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. On October 18, 2004, we filed a current report on
Form 8-K containing certain audited,  including pro forma, financial information
relating  to our  subsidiary  Jiahua  Marine,  which we  acquired as part of the
Nutraceutical Acquisition as described above.

In addition,  as  previously  disclosed in our current  report on Form 8-K filed
with the Commission on August 18, 2004, effective August 17, 2004 we caused Jade
Profit Investment Limited, our wholly-owned subsidiary,  to acquire the minority
equity  interest equal to 15.58% that Jade does not already own in Hainan Quebec
Ocean Fishing Company Limited, our principal operating subsidiary. This purchase
was  effected by Jade  pursuant to the  Purchase  Agreement,  dated as of August
17th,  2004,  between Jade and Hainan Fuyuan  Investment  Company  Limited,  the
holder of the minority  equity interest of Hainan Quebec being acquired by Jade.
Jade has previously obtained all requisite  governmental approvals in the PRC in
order to consummate this transaction.

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,  bio-product  and  healthcare  product.  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



                                       8
<PAGE>

         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).

         o        Shark Liver Oil Capsule

         o        Shark Cartilage Capsule

         o        Shark Liver (Soft gel)

         o        Seal Oil (Soft gel)

         o        Seal Genitals

HQSM is committed to  providing a variety of high quality  aquatic  products and
bio-product  through an  integrated  operation  that  covers key areas along the
production  chain from a  bio-secure  and stable  supply of tilapia,  shrimp and
shark and seal 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.

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.


                                       9
<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.

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  September  30, 2004 as Compared to
Three Months Ended September 30, 2003

For the three months ended  September 30, 2004 revenues  increased by $3,930,302
or 105% to $7,665,287 from $3,734,985 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  revenues  for this  quarter,  as well as an increase  in our  production
activity following the re-opening of our reconstructed processing plant.

Cost of sales  increased by $2,145,800 or 80% to $4,817,384  from $2,671,584 for
the three months ended  September  30,  2004,  as compared to the  corresponding
period of the prior year.  The primary factor  responsible  for the increase was
also HQSM's acquisition of Sealink in August 2004, as well as an increase in our
production  activity  following the re-opening of our  reconstructed  processing
plant.

Selling and  distribution  expenses  decreased by $144,523 or 54% to $124,775 as
compared  to the  corresponding  period of the prior year.  The  primary  factor
responsible  for the  decrease  was that the group has  better  cost  management
compared with last year.

Advertising  expenses  increased  by  $542,409  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 described elsewhere in this quarterly report) in August 2004, and Jiahua
Marine requires  significant  advertising  expenditures for the promotion of its
nutraceutical  products  in  order to  achieve  customer  recognition,  which is
consistent with industry practices.

General and administrative expenses increased by $734,700 or 647% to $848,254 as
compared to the corresponding  period of the prior year. The increase was mainly
due to Jiahua Marine's  contribution to the general and administrative  expenses
and HQSM's increased  operating expenses following its becoming a public company
in the United States  earlier this year.  The increase  mainly  represented  the
salaries and professional fees for the three months ended September 30, 2004.

Depreciation  increased  by  $5,797  or  74%  to  $13,653  as  compared  to  the
corresponding  period to the prior year. The increase resulted from depreciation
in office equipment HQSM acquired in 2004.




                                       10
<PAGE>

Provision for bad and doubtful  debts  decreased by $25,543 or 100% from $25,543
to zero as compared to corresponding  period of the prior year. The decrease was
due to increased recoverability of trade receivable.

Finance cost increased by $16,571 or 14% to $136,361 from $119,790 for the three
months ended September 30, 2004, as compared to the corresponding  period of the
prior  year.  It was due to the fact  that  $11,111,345  convertible  note at an
annual interest rate of 5% was issued during August 2004.

Other income  increased by $2,283,424  from $1,529 to  $2,284,953  for the three
months  ended  September  30, 2004.  The increase was due to trade  receivables,
which were classified as  non-recoverable in previous period, but were recovered
in the current period.

Other expenses  decreased from $80,306 for the three months ended  September 30,
2003 to $68,551 for the three months ended  September 30, 2004, a 15% or $11,755
decrease.  The main  contribution  of the decrease was the decrease in insurance
for vessels.

Current  income taxes  decreased by $17,810 or 100% from $17,810 to zero for the
three months ended September 30, 2004. It was due to the fact that Hainan Quebec
experienced a loss for the current period while a profit was earned during three
months ended  September 30, 2003;  and Jiahua Marine was exempted from corporate
income tax.

Deferred income tax increased to $165,303 from $17,043 by $148,260  compare with
same  quarter of last year.  The  increase is due to timing  difference  for the
provision for doubful debts was eliminated in the quarter.

Minority interest decreased by $63,235 from $63,235 to zero. The change resulted
from HQSM's  acquisition  of the 15.58%  minority  interest of Hainan  Quebec in
August 2004.

The  net  income  attributable  to  shareholders   increased  by  $2,883,054  to
$3,233,550  in 2004.  The increase  mainly  resulted  from the increase in other
income and  consolidation of the financial results of Jiahua Marine in the three
months ended September 30, 2004.

Results of Operations - Nine Months Ended September 30, 2004 as Compared to Nine
Months Ended September 30, 2003

For the nine months ended September 30, 2004 revenues decreased by $5,564,319 or
40% to $8,367,579 from  $13,931,898 as compared to the  corresponding  period of
the  prior  year.  The  decrease  resulted  from the fact that  Hainan  Quebec's
processing  plant was under  reconstruction  and renovation,  and production was
ceased from  January  2004 to May 2004.  Operations  of the  reconstructed  plan
started again in June 2004, and gradually  increased up to full capacity  during
the period covered by this report.  While the  consolidation  of Jiahua Marine's
results of  operations  had a positive  effect on HQSM, it did not totally cover
the negative  effect of the cessation of the plant's  production  earlier in the
year.

Cost of sales  decreased by $3,950,028 or 42% to $5,565,746  from $9,515,774 for
the nine months  ended  September  30,  2004,  as compared to the  corresponding
period of the prior year.  The primary factor  responsible  for the decrease was
that  the  processing  plant  of  our  subsidiary,   Hainan  Quebec,  was  under
reconstruction  and renovation,  and production  ceased from January 2004 to May
2004.

Selling and  distribution  expenses  decreased by $218,270 or 50% to $220,976 as
compared  to the  corresponding  period of the  prior  year.  The  major  factor
responsible  for the  decrease  was that the group has  better  cost  management
compared with last year and the  production of Hainan Quebec ceased from January
2004 to May 2004.

Advertising  expenses  increased  by  $542,409  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 in August 2004, and Jiahua Marine
requires  significant   advertising   expenditures  for  the  promotion  of  its
nutraceutical  products  in  order to  achieve  customer  recognition,  which is
consistent with industry practices.


                                       11
<PAGE>

General  and  administrative   expenses  increased  by  $1,960,146  or  759%  to
$2,218,258  as  compared  to the  corresponding  period of the prior  year.  The
increase  was mainly due to Jiahua  Marine's  contribution  to the  general  and
administrative  expenses and HQSM's increased  operating  expenses following its
becoming a public  company in the United States  earlier this year. The increase
mainly  represented the salaries and professional fees for the nine months ended
September 30, 2004.

Depreciation  increased  by  $7,615  or  5%  to  $172,331  as  compared  to  the
corresponding  period to the prior year.  This  slight  increase  resulted  from
depreciation in office equipment HQSM acquired in 2004.

Provision for bad and doubtful debts increased by $954,943 or 168% from $568,388
to  $1,523,331  as compared  to  corresponding  period of the prior year.  Since
production  ceased  for  reconstruction,  we  could  not  supply  goods  to  our
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.  However,  most of the  trade  receivables  that were
classified as non-recoverable were recovered in the current period and presented
in other income.

Finance cost  decreased by $95,045 or 35% to $179,986 from $275,031 for the nine
months ended September 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 $2,511,728  from $26,894 to  $2,538,622  for the nine
months  ended  September  30, 2004.  The increase was due to trade  receivables,
which were classified as  non-recoverable in previous period, but were recovered
in the current period.

Other expenses  decreased from $399,776 for the nine months ended  September 30,
2003 to $251,646 for the nine months ended September 30, 2004, a 37% or $148,130
decrease.  The main  contribution  of the decrease was the decrease in insurance
for vessels.

Current income taxes decreased by $183,371 or 100% from $183,371 to zero for the
nine months ended  September 30, 2004. It was due to the fact that Hainan Quebec
operation  experienced  a loss for the current  period while a profit was earned
during nine months ended September 30, 2003; and Jiahua Marine was exempted from
corporate income tax.

Deferred income tax increased to $199,390 from $51,130 by $148,260  compare with
sam  period of last  year.  The  increase  is due to timing  difference  for the
provision for bad debts was eliminated in the current period.

Minority  interest  decreased  by $713,002  from  negative  $375,058 to positive
$337,944.  The change  resulted from HQSM's  acquisition of the 15.58%  minority
interest of Hainan Quebec in August 2004.

The net income attributable to shareholders  decreased by $1,358,119 to $370,072
in 2004.  The decrease  mainly  resulted from 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
September  30, 2004 we had a cash balance of  $5,910,764  and a working  capital
surplus of $ 4,017,046.  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.

                                       12
<PAGE>

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 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.
















                                       13
<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.
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 - 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 late  August  2004,  we  issued  12,698,078  shares  of our  common  stock to
Sino-Sult Canada (S.S.C.  Limited),  in a private placement,  in connection with
the  Nutraceutical  Acquisition  and  pursuant  to  the  Nutraceutical  Purchase
Agreement described elsewhere in this quarterly report.

In September 2004, we issued a total of 35,411 shares of our common stock to (1)
Reiner Herman Thoelke (14,977 shares),  (2) Graham Funnell (15,966 shares),  and
(3) Amritlal Patel (4,468 shares), in a private placement pursuant to Regulation
S promulgated under the Securities Act. The gross proceeds to the Company of the
offering  to these three  invistors  was  $24,508,  and the net  proceeds  after
payment of escrow, finders' and other fees was $8,768.


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

During the period  covered by this  quarterly  report,  Fusheng  Wang became our
Honorary  Chairman and  director,  effective  August 17,  2004.  Mr. Wang is the
father of Lillian  Wang Li, one of our  executive  officers  and  directors.  In
addition,  Daniel Too became one of our independent non-executive directors, and
we entered into an Independent  Non-Executive  Director  Agreement with Mr. Too,
effective  September  2,  2004,  which  has  been  filed as an  exhibit  to this
quarterly report.  Finally,  Jean-Pierre Dallaire has been appointed to serve as
our Chief  Financial  Officer,  effective  September 1, 2004. We entered into an
employment  agreement  with Mr.  Dallaire,  which has been filed as an exhbit to
this report.

ITEM 6 - EXHIBITS
The following exhibits are being filed as part of this quarterly report:

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

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




                                       14
<PAGE>

10.2              Independent  Non-Executive  Director  Agreement,  dated  as of
                  September 2, 2004, between HQ Sustainable  Maritime Industries
                  Inc. and Daniel Too.

10.3              Employment  Agreement,  dated as of September 1, 2004, between
                  HQ  Sustainable   Maritime  Industries  Inc.  and  Jean-Pierre
                  Dallaire.

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.





                                       16
<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:  November 15, 2004

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

                                 Date: November 15, 2004

















                                       17