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

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

                                   FORM 10-KSB
       (MARK ONE)

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

                   For the annual period ended April 30, 2004

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

              For the transition period from _________ to _________

                           COMMISSION FILE NO. 0-18980


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

                             Process Equipment, Inc.
                                  (Former Name)
Delaware                                                        62-1407522
(State or other jurisdiction of incorporation or            (I.R.S. Employer
organization)                                               Identification No.)

    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)

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

                    Common Stock, Par Value $0.001 Per Share
                                (Title of Class)

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 [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the best of registrant's  knowledge, in definite proxy or information statements
incorporated  by reference  in Part III of this form 10-KSB or any  amendment to
this Form 10-KSB. [X]

The issuer's revenues for the four months ended April 30, 2004 were $409,228.

The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates as of July 28, 2004 was approximately $14,703,116.

State the number of shares outstanding of each of the issuer's classes of equity
securities,  as of the  latest  practicable  date:  63,809,437  shares of Common
Stock, $0.001 par value per share, outstanding as of July 28, 2004

Transitional Small Business Disclosure Format (check one):

Yes [ ]       No [X]





<PAGE>

                                     PART I


ITEM 1.    BUSINESS


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

History

         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.

         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 URL for our website is http://www.hqfish.com.

Business


         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
Group is  committed  to  providing a variety of high  quality  aquatic  products
through an  integrated  operation  that  covers  value added key areas along the
production chain from a bio-secure and stable supply of tilapia and shrimp under
stringently monitored  conditions,  processed in accordance with internationally
recognised standards of hygiene.

         The  Group  has  developed  a  co-operative  supply  network  in Hainan
Province,  which  allows it to  guarantee  quality and  quantity of products for
processing  without engaging  directly in farming  operations and having to deal
with the associated capital costs and risks. The Group, through the co-operative
supply agreements,  is active in the transfer of technology to its suppliers and
the constant monitoring of quality.




<PAGE>

Manufacturing

The Group's aquatic products  processing plant is a Canadian  designed  facility
and is  located  in  Hainan,  the PRC.  The  Group had two  production  lines in
aggregate and they are located in the same processing  plant in Hainan.  The two
production  lines are  specifically  utilized for processing  tilapia and shrimp
products.  The facility is capable of processing an average of  approximately 10
tonnes of fish per day,  operating  in two shifts  for a total of 17 hours.  The
Group's products have been awarded the HACCP Certification for exporting aquatic
products  to the US.  HACCP is used by the US Food and  Drug  Administration  in
controlling  food  safety  and  sanitary  hazards.  It  is a  preventive  system
previously used by astronauts,  focusing on preventing  hazards that could cause
food-borne illnesses by applying  sciencebased  controls,  from raw materials to
finished  products.  The successful  implementation of a HACCP plan is dependent
upon the design and performance of facilities and equipment,  which can minimise
the occurrence of a hazard in a finished product.


         Apart from the HACCP  Certification,  the Group has also been  assigned
with an EU Code for exporting  aquatic products to the EU. The Directors believe
the awards of the HACCP  Certification  and the  assignment  of the EU Code have
enabled  the  Group  to  export  to the US and the EU  respectively.  The  HACCP
Certification and EU Code assignment signify the Group's attainment of stringent
hygiene standards and enable the Group to better market and export its processed
aquatic products to overseas clients in the US and the EU.


         The Group's  products are also  acknowledged  as  eco-friendly by CIDA,
which  illustrates  that the  Group has met or  exceeded  certain  standards  of
environmental  protection  and that the Group has  conducted  its  business in a
sustainable  and  socially   responsible   fashion  with  high  regard  for  the
environment and place of women in the communities in which it operates.



         The Group conducts sample  laboratory  testing on the Group's processed
aquatic  products to ensure no  forbidden  substances  are present in them.  The
laboratory  testing  was  initiated  by the  Group  in  compliance  with  strict
quarantine guidelines imposed by domestic export control government agencies and
foreign import control government agencies.


The Products


Tilapia products


         Tilapia  are  native  to  Africa,  but  have  been  introduced  in many
countries around the world. They are disease-resistant,  reproduce easily, eat a
wide variety of foods and tolerate poor water quality with low dissolved  oxygen
levels.  Most will grow in brackish  water and some will adapt to full  strength
sea water.  These  characteristics  make  tilapia  suitable  for culture in most
developing countries. They are most often grown in ponds, cages and rice fields.


         There  are many  tilapia  species  but only a few are  cultured  widely
around  the world  today.  There  are  three  common  species  which are  reared
commercially  in  ponds  from  Japan,  the  Philippines  down  to  Thailand  and
Indonesia,  namely the black or Nile tilapia  (Oreochromis  niloticus),  the red
tilapia  (Oreochromis  mossambicus) and the blue tilapia  (Oreochromis  aureus),
usually in the form of a new hybrid based on the original strains.


Black or Nile tilapia


         The fry eat zooplankton and the adults eat zooplankton,  phytoplankton,
insects,  other bottom organisms and manufactured food. The optimum  temperature
to culture  black tilapia is 25 to 30 degrees  centigrade  and black tilapia can
tolerate low temperature of 11 degrees  centigrade.  Black tilapia can grow well
in water up to 20 parts per thousand salinity.


<PAGE>

Red tilapia


         The fry eat zooplankton and the adults eat  zooplankton,  phytoplankton
and manufactured  food. The optimum  temperature to culture red tilapia is 25 to
30 degrees  centigrade and red tilapia can tolerate low  temperature of 10 to 12
degrees centigrade. Red tilapia can grow well in full strength sea water.


Blue tilapia


         The  fry  eat   zooplankton   and  the  adults  eat   zooplankton   and
phytoplankton, graze on bottom organisms and eat manufactured food. Blue tilapia
prefers to be cultured under temperatures of 25 to 30 degrees centigrade and can
tolerate low  temperature  of 8 to 9 degrees  centigrade.  Blue tilapia can grow
well up to salinities of 16 to 20 parts per thousand.



Tilapia market


         In the  1960s  and  1970s,  tilapia  culture  was  geared  towards  the
production of food for local  consumption and for the  diversification  of rural
activities  related  to  agriculture  and animal  husbandry.  During the past 20
years,   commercially   viable   techniques   have  been  developed  to  control
overcrowding in the different production systems,  thereby permitting faster and
more uniform growth to larger sizes. Commercial production has become popular in
many countries around the world.


         In 1996,  over 800,000 tonnes of tilapia were cultured  worldwide,  and
this  production  has  continued  to  expand.   Tilapia  aquaculture  has  grown
impressively  during the 1990s,  and  forecasts  indicate that the industry will
continue to expand significantly in the years to come. US is the world's largest
consumer of tilapia.  In 2000, total  consumption was 45,000 tonnes with a value
of US$1.01  billion.  In 2001,  the total  consumption  was 52,000 tonnes with a
value of US$1.2  billion,  which  represented an increase of 15%. Due to limited
resources  in domestic  US tilapia  production,  tilapia  exports to the US will
increase.  Imported tilapia already accounts for around 90% of total consumption
of tilapia in the US. The Directors  believe that the largest demand for tilapia
in the world will continue to be the US. In 2000, the US imported  50,000 tonnes
of tilapia.


         In the US,  consumption  of  tilapia  has  risen in the  recent  years.
Tilapia now ranks third after farm-raised shrimp and Atlantic salmon in terms of
aquaculture  products  imported  into the US. In terms of volume,  frozen  whole
round fish ranks first,  followed by frozen  fillets,  and lastly fresh fillets.
Frozen whole round fish and fillets  originate  primarily  from Asia,  and fresh
fillets primarily from Central America and the Caribbean.

         Recently, with the increase in production of tilapia in the PRC and the
growing demand of tilapia in the international  market, the export of tilapia in
the PRC has also increased.  In 1998, 473 tonnes of tilapia were exported to the
US, which was worth  approximately  US$656,000.  In 2000,  exports  increased to
13,492  tonnes which was worth  approximately  US$21.0  million.  The  Directors
believe that tilapia is the product that is most competitive internationally and
has the greatest potential for development.


         The PRC has  significantly  increased  its exports of tilapia to the US
from 230 tonnes in 1993 to 12,500 tonnes in 2000,  with  stronger  growth in the
past two years.


<PAGE>

Fresh water shrimp products


         Shrimp is a favourite seafood all over the world. The giant tiger prawn
or black  tiger  shrimp  (Penaeus  monodon)  accounts  for more than half of all
farmed shrimp and dominates  production  in Thailand,  Indonesia,  India and the
Philippines.  In the PRC,  the fleshy  prawn or Chinese  white  shrimp  (Penaeus
chinensis)  is  dominant,  whereas  in Latin  America it is the white leg shrimp
(Litopenaeus  Vannamei) which is the leading species.  The Indian prawn (Penaeus
indicus) is also farmed in Asia.


White leg shrimp in the PRC


         Aquaculture  of  shrimp is  rapidly  developing  in the PRC.  White leg
shrimp with its scientific name Litopenaeus vannamei, is one of the world's most
important farmed products.  It is found throughout Central and South America and
along the coast of the Pacific Ocean.  With the introduction of parent white leg
shrimp into the PRC and the success in raising  seedlings,  total  production of
white leg shrimp increased to 300,000 tonnes in 2000.


Marketing



         Our sales and marketing  team consists of nine members and is under the
supervision of Mr. Harry Wang, our Chief  Operating  Officer,  and Liam Haniffy,
our  Sales  and  Quality  Product  Manager.  The  sales  and  marketing  team is
responsible  for  establishing   our  sales  and   distribution   networks  both
domestically and internationally, promoting our image and product awareness, and
maintaining our customer relationships.


         Our board of  directors  believes  that Hainan  Quebec,  our  principal
operating   subsidiary,   is  the  only  PRC-based   producer   present  at  the
International  Seafood Shows. This enables Hainan Quebec to establish high level
and immediate contacts with potential buyers. Buyer preferences and our response
to these  preferences  as well as prices and  response to quality  and  quantity
concerns can be immediately  addressed without the usual screening and middleman
costs.


         We have located the following as potential and prospective markets that
we intend to focus upon for expansion:


         North America
         -------------


         The North American  market for tilapia and shrimp is significant and is
growing. Competition from producers across the globe, ranging from Bangladesh to
Chile, is intense.  Minimum quality is presumed as a pre-requisite and consumers
tend to be less educated as to the benefits of higher quality in this region. We
plan to continue to export to this market where our products are generally  well
received.


<PAGE>

       European Union
       --------------


         The European Union has imposed a ban on frozen farmed products,  but as
a result  of our  qualifying  for EU Code  assignment,  our  company  meets  the
principal objectives of the European Union and, therefore,  will be able to gain
an exemption that will allow our products to be exported to the European  Union.
We believe that our organic food approach  will lead to marketing  opportunities
and that we will be  successful  in our efforts to  differentiate  our  products
based on quality and not price alone.  In adding to  acceptance  by the European
market  of  organic  certified  products,  the  North  American  market  is also
increasingly showing interest in such products.


       People's Republic of China
       --------------------------


         Given the  enormous  demand and  potential  in the PRC market,  we also
consider it a prospective market. The advantageous  climatic conditions found in
Hainan Province allow year-round production,  which differentiates it from other
areas  in the  PRC.  With  the  PRC's  accession  to the WTO  and the  continued
development of our distribution  network,  opportunities  should arise for us to
establish strategic linkages with foreign producers and suppliers seeking access
to the ever changing and modernizing  Chinese market.  We will  consolidate this
position by being a producer of quality  product and this  strategy  should also
allow us to decide and select strategic partners in the PRC in the future.


       Japan
       -----


         We also  continue  to market  and sell our  products  in Japan.  We are
currently in the process of developing specialty items, such as butterfly shrimp
and butterfly tilapia, for sales in the Japanese market.


Competition



         Our  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 and ocean  harvested  aquatic
products.  The co-operative supply agreements entered into between Hainan Quebec
and selected  tilapia and shrimp farmers in Hainan  Province  secure the supply,
quality and price of raw materials for our Production. Through such arrangement,
we believe that we have a competitive  advantage over our  competitors in Hainan
Province.


         The PRC  aquaculture  industry  is open to  competition  from local and
overseas   operators  engaged  in  aquaculture  and  from  other  captured  fish
producers.  Our major  aquaculture  products  tilapia and shrimp are also facing
competition from some other domestic aquaculture producers. Some of the domestic
aquaculture  processing  companies in Hainan Province also obtain the same HACCP
Certification  and EU Code  assignment  that we possesses,  which certifies that
their products are also in compliance to certain standards.  However, we believe
that the competition from such producers is minimal because,  to the best of our
knowledge,  there  is no  competitor  in  Hainan  Province  that  has a  similar
operating  scale and production  capacity,  or that has developed the vertically
integrated business model under which we operate.


         Although  there is no formal  entry  barrier  for  engaging  in similar
aquaculture processing production and activities in the PRC, we believe that the
high infrastructure costs associated with developing and constructing processing
plants and facilities does pose a barrier to potential competitors. Accordingly,
competitors have to mobilize extensive resources in order to maintain a presence
similar to ours.


         We believe that we are geographically  well-positioned to capitalize on
the significant  potentials of seafood markets both overseas and within the PRC.
As buying power  increases in Asia, and developed  countries  gravitate  towards


<PAGE>

fishery  products,  seafood  producers  are under  great  pressure to respond to
increasing  demands. We further believe that the following factors contribute to
our principal strengths and competitive advantages:


         Equipped with  integrated  operations.  We run a vertically  integrated
operation that covers key areas along the production  chain including  sourcing,
co-operative  supply farming and  distribution.  Co-operative  supply agreements
have  been  secured  with  several  producers  who  benefit  from our  extensive
technology  development  program..  Through  intensive  monitoring  and  quality
control of fish fry, pond environment and feed supply, we are able to assure the
supply of quality aquaculture products.


         International  and  domestic  sales and  marketing  efforts.  We have a
distribution  network for our export sales and domestic  sales that is developed
and maintained  through our marketing  offices in Beijing and Shanghai,  through
our international  direct and indirect marketing efforts,  and also by virtue of
our presence and participation at international seafood shows.


         Strategic  location of co-operative  supply and production base. We are
geographically  well-positioned in Hainan Province to leverage on the year-round
favorable climatic conditions,  abundant water supply and pristine  environment.
Such  strategic  location is a key attribute to the success of our  co-operative
suppliers of locally farmed tilapia and shrimp, particularly white leg shrimp.


         Co-operative  supply  and  vertical  integration.  We have  an  assured
supply,  quality and price of raw  materials  for  production  through long term
arrangements  with leading  local  suppliers of shrimp and tilapia.  We actively
monitor aquaculture quality and provide  technological support to our suppliers,
which  allows us to  concentrate  our  resources  and  minimize  risks.  Through
intensive  monitoring and control of the growth of fish fry, shrimp larvae, pond
environment  and feed  supply,  we are able to  assure  the  supply  of  quality
aquaculture products and to enhance product differentiation.


         An established  track record and brand name in the industry.  Since our
inception,  we have established a track record of supplying high quality aquatic
products to its overseas and local customers.


         Good quality control.  Safe and hygienic processing of aquatic products
are of  paramount  importance,  as any  failure to carry out the  processing  of
harvested  fish  correctly  could  render  the  product   unsuitable  for  human
consumption.  We adopt and  implement  stringent  quality  control  measures and
procedures  throughout our production  process.  Our processing  plant in Hainan
Province has obtained HACCP and EU Code assignment.


         Low labor cost. We are operating in a labor intensive industry.  Due to
the lower  labor cost in China,  we are able to  achieve  lower  operating  cost
advantage when compared to our competitors in North America and elsewhere.


         Local government support. The policy of Hainan Provincial Government is
to encourage increased  investment in aquaculture and increased export of farmed
aquatic  products.   In  December  2001,  Hainan  Quebec,   our  main  operating
subsidiary,  was  recognized  as a "Leading  Agriculture  Enterprise"  by Hainan
Provincial  Government,  and in April 2001 Hainan Quebec were  recognized as the
new/high tech Enterprise of Hainan Province.  These recognitions will be a great
asset when we  participate  in annual trade shows  including  the  International
Boston Seafood Show and European Seafood Exposition.


         Reduction  of  production  cost due to the benefit of economy of scale.
Expansion of facilities  and current sales volumes allows our company to benefit
from significant economies of scale. Our research and quality control staff have


<PAGE>

been able to monitor  an  increased  number of  operations  without  the need of
further hiring.  Large buyers are able to sole source instead of having to group
supply from various producers, allowing long term supply agreements.


         Awards we have received. In December 2001, Hainan Quebec was recognized
as a "Leading Agriculture  Enterprise" by Hainan Provincial  Government,  and in
April 2001,  Hainan Quebec was awarded the "New/high  tech  Enterprise of Hainan
Province" by Hainan Provincial Technology  Authorities.  In January 2003, Hainan
Quebec was awarded the Industrial  Enterprise of the Province.  In 2002,  Hainan
Quebec was named a Leading  Agriculture  Enterprise for both Hainan Province and
Wenchang.  Our board of directors believes that these accreditations reflect our
achievements  and  contribution  to  the  development  of  the  PRC  aquaculture
industry.


         Production certification. We also have received HACCP Certification and
EU Code assignment,  which demonstrates our commitment to providing a variety of
high quality aquatic products under stringent hygiene standards.



         International  management  expertise.  We have successfully  achieved a
vertically  integrated  operation that enables us to capitalize on opportunities
in the domestic and  international  fishery  markets.  Such  achievement  can be
attributed  to our founders and senior  management  who have  contributed  their
international management expertise and technical know-how to our development.



Government Regulation



         Aquaculture  producers in the PRC have to comply with the environmental
protection  laws  and   regulations   promulgated  by  the  national  and  local
governments  of the PRC.  Such  rules and  regulations  include,  among  others,
Environmental  Protection Law of the PRC, Ocean Environmental  Protection Law of
the PRC,  Regulations on  Administration  over Dumping of Wastes in the Ocean of
the PRC,  Ocean Aquatic  Industry  Administration  Regulation,  Fishing  License
Administration Regulation, Regulations on Administration of Hygiene Registration
of Exported Food  Manufacturers  and  Regulations on  Administration  of Quality
Control of Food Processors.



         Our  company  complies  with  various  national,  provincial  and local
environmental  protection  laws and  regulations.  In addition to statutory  and
regulatory  compliance,  we actively ensure the environmental  sustainability of
our operations.  Our costs of compliance with applicable  environmental laws are
minimal,  since the design of the plan includes a state-of-the-art  settling and
filtration  system which is inexpensive to maintain.  Penalties  would be levied
upon us if we fail to adhere to and maintain this standard. Such failure has not
occurred in the past,  and we generally do not  anticipate  that it may occur in
the future, although no assurance can be given in this regard.



Patents and Trade Secrets


         The  Company  presently  has no  patents on its  products  and does not
believe that having patents or other proprietary  technology is important to the
success of its planned operations.


Employees



         Through Hainan Quebec, our principal operating subsidiary, we currently
employ approximately 434 employees,  all of whom are full-time  employees.  They
are  located  predominantly  in Haikou,  PRC,  with the rest of them  located in
WenChang, PRC. We have employment contracts with many of our employees.  None of
our employees are covered by a collective bargaining  agreement,  and we believe
our employee relations are good.




<PAGE>

ITEM 2.   PROPERTIES



         The  Group  operates  its  aquacultural  processing  activities  in its
production  base  located at No. 1 Pier of Qinglan  Sub-factory,  Qinglan  Port,
Wenchang,  Hainan  Province,  the PRC.  The land  where the  production  base is
located on is rented from PLA Haijun No. 4802 Factory to Hainan Fuyuan  pursuant
to a lease agreement (the "Lease  Agreement")  dated 5 September 1999 for a term
of 10 years  commencing  from 1 October 1999 to 30  September  2009 at an annual
rent of RMB210,000. According to Jundui Property Leasing Certificate of Approval
(Document number: (2001) - 00386 dated 20 May 2001, the Lease Agreement has been
registered/filed by PLA Haijun Property  Administration Bureau and Hainan Quebec
had issued a  confirmation  letter on 23 September  2002 to undertake all rental
payable and other conditions set out in the Lease Agreement.)



ITEM 3.   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 4.   SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS





         Not applicable


                                     PART II



ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


         Our common stock is quoted sporadically,  with relatively small volumes
of  actual  trading,  on the  Over-The-Counter  Bulletin  Board  system  and the
National  Association  of Securities  Dealers (NASD)  Electronic  Bulletin Board
under the symbol "HQSM.OB."

         The following table sets forth, for the periods indicated, the high and
low sale  prices for our common  stock as  reported  by the  National  Quotation
Bureau, Inc.

Fiscal Year Ended April 30 (1)
                                Period                       High          Low
2003                            First Quarter                $0.20         $0.19
                                Second Quarter               $0.19         $0.17
                                Third Quarter                $0.17         $0.16


<PAGE>

                                Fourth Quarter               $0.16         $0.14
2004                            First Quarter                $0.17         $0.16
                                Second Quarter               $0.25         $0.16
                                Third Quarter                $0.50         $0.17
                                Fourth Quarter               $2.80         $0.15
Period following April 30,      May 2004                     $1.15         $1.01
2004
                                June 2004                    $0.95         $0.56
                                July 2004 (through July 15)  $0.95         $0.56

(1)  Effective  May 1,  2004,  we changed  our fiscal  year end from April 30 to
December 31.

On July 15, 2004, the closing bid price of our common stock was $0.62.

As of July 19, 2004, there were 936 holders of record of our common stock.

         Recent Sales of Unregistered Securities

         During  the  period  covered  by  this  annual  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").

         On March 17, 2004, in connection  with the merger of all of the capital
stock of Jade  Profit  Investment  Limited,  a British  Virgin  Islands  limited
liability corporation, into Process Equipment, Inc., we issued:

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

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

         o        we also agreed to issue, in a private  placement under Section
                  4(2) of the Securities Act, 520,685 shares of our common stock
                  to  Westminster   Securities  Corp.   ("Westminster")  or  its
                  designees,  in  consideration  of this firm's  services as our
                  financial advisor in connection with the merger; and

         o        we  further  agreed to issue,  in a  private  placement  under
                  Section  4(2) of the  Securities  Act,  500,000  shares of our
                  common  stock to Lui Hung Yen, in  consideration  of Mr. Yen's
                  cancellation of an outstanding promissory note issued by Jade,
                  our  subsidiary,  in the amount of US$ 256,410 and the release
                  of  Jade  and our  company  by Mr.  Yen of any and all  claims
                  relating to such note.

         On April 21, 2004, we issued 38 Units,  at a purchase  price of $34,000
per Unit,  all Units in the  aggregate  consisting  of  7,600,000  shares of our
common stock,  3,040,000  Class C common stock  purchase  warrants and 3,040,000
Class D common stock purchase warrants,  to 10 accredited investors in a private
placement for an aggregate  purchase price of $1,292,000.  These securities were
sold in reliance upon the exemption from  registration  provided in Section 4(2)
of the  Securities  Act and  Regulation D thereunder.  Westminster  acted as our
placement agent in connection with this  transaction.  In consideration of those
services,  we agreed to grant to  Westminster  or its  designees a warrant  (the
"Agent Warrant")  representing the right to purchase up to 3.8 Units,  each Unit
consisting of 200,000  shares of our common stock,  80,000 Series C common stock
purchase  warrants  and  800,000  Series  D  common  stock  purchase   warrants.
Westminster  subsequently  allocated  the Agent  Warrant  and/or the  securities
covered thereby to three of its officers and one of its employees.  The majority
of those  securities  are being  registered  by us, for resale by  Westminster's
designees, hereunder.


<PAGE>

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



Transfer Agent


         Our transfer agent is American  Stock  Transfer and Trust Company.  Its
address is 59 Maiden Lane, Plaza Level, New York, New York 10038.



Dividends


         We may never pay any dividends to our shareholders.  We did not declare
any dividends  for the four months ended April 30, 2004.  Our board of directors
does not intend to  distribute  dividends in the near future.  The  declaration,
payment and amount of any future dividends will be made at the discretion of the
board of directors, and will depend upon, among other things, the results of our
operations,   cash  flows  and  financial   condition,   operating  and  capital
requirements,  and other factors as the board of directors  considers  relevant.
There is no assurance  that future  dividends will be paid, and if dividends are
paid, there is no assurance with respect to the amount of any such dividend.



ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


       Overview

         Following  is a brief  overview  of factors  our  management  considers
important when evaluating our financial condition and operating performance.



         Turnover

         Our turnover is derived primarily from processing and trading of marine
fishing products, processing and trading of aquatic products and sub-contracting
services.


         Cost of sales

         Our cost of sales primarily  consists of purchases from local fishermen
of various kinds of goods, such as locally caught squid and ocean caught shrimp.


         Gross profit/loss

         Our management  believes that the gross profit margin of  approximately
33%  maintained by us for the for months ended April 30, 2003,  was  principally
attributed to the following reasons:

         o        The steady supply and cost of the raw materials;
         o        Good control of overhead and other direct cost; and
         o        The appropriate pricing strategy of our company.


<PAGE>

         However,  due to the reconstruction of factory resulting in termination
production  operation,  and some  obsolete  stock was sold at a gross loss,  the
gross loss percentage to sales for the four months ended is 9%.

         Management  believes that in the foreseeable  future we will be able go
back to normal operating environment and keep goes on.

         Other revenue/(expenses)

         Our other  revenue/(expense)  represents  non-operating  income  and/or
expenditures for the four months ended April 30, 2003 and 2004.


         Operating expenses

         Our operating expenses comprise distribution and selling expenses,  and
general and  administrative  expenses.  Distribution and selling expenses mainly
include   transportation   and  trip  and   traveling   expense.   General   and
administrative  expenses  mainly include staff and directors'  remuneration  and
depreciation.


         Finance costs

         Finance costs refer short-term  secured bank loan interests  charged to
us in both fiscal periods.


         Taxation

         For each of the four  months  ended  April 30,  2003 and  2004,  Hainan
Quebec, our principal  operating  subsidiary,  is entitled to a tax holiday as a
privileged treatment to Sino-foreign enterprise in Hainan Province. According to
an approval  received  from the Tax Bureau of Hainan  Province,  Hainan  Quebec,
being our product  sales arm, is  entitled to two year's  exemption  from income
tax,  followed  by  three  years  of  50%  tax  reduction  commencing  from  the
first-profit-making  year as a privileged  treatment for such  enterprise in the
PRC.

         Apart  from PRC  Enterprise  Income  Tax,  Hainan  Quebec is subject to
value-added  tax ("VAT")  for  processing  products  at 13% and  sub-contracting
service at 17%, respectively.


         Minority interests

         Minority interests represent the share of profits after taxation by the
minority shareholder of our company, based on its equity interest in HQSM.



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 annual  report.  This annual  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


<PAGE>

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 Group 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.

         Impairment of Long-Lived Assets

         In August 2001,  the Financial  Accounting  Standards  Boards  ("FASB")
issued Statement of Financial  Accounting Standards ("SFAS") No. 144. Accounting
for Impairment or Disposal of Long-Lived Assets.  This pronouncement  superseded
SFAS No. 121,  Accounting for the Impairment of Long-Lived Assets to be Disposed
of and was required to be adopted on January 1, 2002.  SFAS No. 144 retained the
fundamental  provisions  of SFAS No.  121 as it related to assets to be held and
used and  assets  to be sold.  SFAS No.  144  requires  impairment  losses to be
recorded  on  assets  to be held  and used by the  Company  when  indicators  of
impairment are present and the undiscounted cash flows estimated to be generated
by those  assets  are less  than the  carrying  amount  of the  assets.  When an
impairment  loss is required for assets to be held and used by the Company,  the
related assets are adjusted to their estimated fair value. Fair value represents
the  amount at which an asset  could be bought or sold in a current  transaction
between willing parties, that is, other than a forced or liquidation sale.

         The  estimation  process  involved in  determining  if assets have been
impaired and in the determination of fair value is inherently  uncertain because
it requires  estimates  of current  market  yields as well as future  events and
conditions.  Such  future  events and  conditions  include  economic  and market
conditions,  as well as availability of suitable  financing to fund  acquisition
and development  activities.  The realization of the Company's revenue producing
assets  is  dependent  upon  future   uncertain   events  and  conditions,   and
accordingly,  the actual  timing and  amounts  realized  by the  Company  may be
materially different from their estimated value.

         Income Taxes

         Taxes are calculated in accordance with taxation  principles  currently
effective  in the PRC. The Group  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


<PAGE>

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 in income in the
period that includes the enactment  date. A valuation  allowance is provided for
the amount of deferred tax assets that,  based on  available  evidence,  are not
expected to be realized.

         Related Parties

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

         Revenue Recognition

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

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

         Concentration of Credit Risk

         Financial instruments that potentially subject the Group to significant
concentrations  of credit risk consist  primarily of trade accounts  receivable.
The Group  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 Group's  accounts  receivable,  the Group  records a
provision for doubtful  accounts to cover  probable  credit  losses.  Management
reviews and adjusts this allowance  periodically based on historical  experience
and its evaluation of the collectibility of outstanding accounts receivable.

         Recent Developments

         We filed a current  report on Form 8-K on March 17, 2004  reporting the
agreement and plan of merger among Process Equipment, PEAC and Jade, pursuant to
which Process Equipment, through its wholly-owned subsidiary PEAC, acquired Jade
and 84.42% ownership in its subsidiary Hainan Quebec. The merger was consummated
by the parties on March 24,  2004 as  reported  on a Current  Report on Form 8-K
filed April 2, 2004. In the same report,  filed March 17, 2004, we also reported
the change in our fiscal year from April 30 to December 31.

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

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


<PAGE>

Results Of Operations - Four months Ended April 30, 2004 Compared to Four months
Ended April 30, 2003


         Sales.  Total sales  decreased by $5,457,869 or 93% from  $5,867,097 in
the four months  ended April 30,  2003 to  $409,228 in the fiscal  period  ended
2003. This decrease  resulted from the factory is under  reconstruction  and the
production is terminated since January 2004.

         Cost of Sales. Cost of sales decreased by $3,491,824 from $3,937,060 in
2003 to $445,236 in 2004.  The primary factor  responsible  for the decrease was
that the factory is under  reconstruction and the production is terminated since
January 2004.

         Gross  Profit/Loss.  A Gross loss at $36,008 is recognized for the four
months  ended April 30, 2004 while a gross profit at $ 1,930,037 is recorded for
the four months ended April 30, 2003.  Gross loss as a percentage of revenue for
the four months ended April 30, 2004 at 9% compared to 33% gross  profit  margin
for the four months ended April 30, 2003.

         The reason for the group  suffered gross loss this period is mainly due
to the factory is under  reconstruction  and the production is terminated  since
January 2004.  Some obsolete stock was sold at a gross loss. As a result,  sales
significantly decreased by 93% compare with last period.

         Selling  and  Distribution   Expenses.  The  selling  and  distribution
expenses  decreased  by $41,644 or 44% from  $94,367 for the for the four months
ended  April 30,  2003 to $ 52,723 for the four  months  ended  April 30,  2004.
Compare  the scale of  decrease  in sales and that of selling  and  distribution
expenses,  the degree of decrease is much  higher in sales.  It is because  some
fixed cost such as salaries will not deduced when sales decreased.

         General  and  Administrative   Expenses.   General  and  administrative
expenses  increased by $ 1,124,630 or 31 times (from $36,036 to $ 1,160,666) for
the four months  ended April 30, 2004 as compared to the  previous  period.  The
increase is due to there is significant  increase in legal and professional fees
for listing propose in the current period and a loss on termination of operation
was recorded in the current period.

         Depreciation.  Depreciation increased by 1% or $1,278 from $104,542 for
the four months ended April 30, 2003 to $105,820 for the four months ended April
30, 2004. The slightly  increase due to some low value fixed assets was acquired
during late 2003.

         Provision  for Bad and Doubtful  Debts.  Provision for bad and doubtful
debts for trade  receivable  was increased from $11,452 for the four month ended
April 30, 2003 to  $1,523,331  for the four  months  ended  April 30,  2004,  an
increase of $1,511,879 or 132 times.  Since the  production  was  terminated for
reconstruction,  the company can not supply goods to their  customer,  therefore
the  customer  refuse  to pay their  debts  within  the  normal  trading  terms.
According to the provision method  previously  adopted,  a further provision for
bad debts is needed.

         Income/Loss from Operations.  Income/Loss from operations  decreased by
$4,562,188  from  $1,683,640 in 2003 to a Loss from  operations at $2,878,548 in
2004. The primary factors  responsible for the decrease were the decrease in our
gross profit by $1,966,045 and the increase in our total  operating  expenses by
$2,596,143.

         Finance Cost.  Finance cost decreased by $80,575 or 92% from $87,351 to
$6,776 for the four months ended April 30, 2003 and April 30, 2004 respectively.
It was due to the $6,024,097 loan was repaid in Jan 2004.


<PAGE>

         Other Income.  Other income  increased by 853% or $214,416from  $25,150
for the four months  ended April 30, 2003 to $239,566  for the four months ended
April 30, 2004. The increase was due to an amount due from related party,  which
was classified as  non-recoverable at last Form 8-K filing, but was recovered at
the current period.

         Other  expenses.  Other  expenses  decreased from $268,750 for the four
months  ended  April 30, 2003 to  $142,704  for the four months  ended April 30,
2004, a 47% or $126,046  decrease.  The main  contribution  of the decrease is a
provision  for the bad and doubtful  debts for amount due from related party was
recorded in the 2003 but not in 2004.

         Income/Loss  Before  Income  Taxes.  Our  income  before  income  taxes
decreased by $4,141,151 from $1,352,689 in 2003 to a loss before income taxes at
$2,788,462 in 2004.  This  decrease  resulted from lower gross profit and higher
operating expense recorded in 2004.

         Income Taxes Current and Deferred.  Our current  income tax for 2004 is
zero due to the Group  has no  assessable  profit  earned  for the PRC  taxation
purpose and our deferred income tax for 2004 is $22,725.  The current income tax
for 2003 is $93,315 and deferred income tax is $22,725.

         Net Income/Loss  Before Minority  Interest.  Net income before minority
interest  decreased by $4,047,836  from  $1,236,649 in 2003 to a net loss before
minority  interest at  $2,811,187  in 2003.  This  decrease  resulted from lower
operating profit in 2003 compared to that in 2002.

         Minority  Interest.   Minority  interest  decreased  by  $472,677  from
negative $175,480 in 2003 to positive $297,197 in 2004. The decrease in minority
interest  resulted from the operating  result of the group is loss in 2004 while
profit in 2003.

         Net   Income/Loss   Attributable  to   Shareholders.   The  net  income
attributable to shareholders  decreased by $3,575,159 from $1,061,169 in 2003 to
net loss  attributable  to  shareholders at $2,513,990 in 2004. The decrease was
basically  attributed  to grate  operating  loss in 2004 compared to a operating
profit in 2002.


Liquidity and Capital Resources


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


         The current ratio decreased from 1.4 times  ($15,640,335 : $10,790,566)
to 1.3 times  ($8,660,583 : $6,656,441) for the four months ended April 30, 2003
and 2004  respectively.  The decrease is due to the group's cash outflow  higher
than the cash inflow for the current period  resulting  from the  termination of
production.


Cash Flow


         Period-to-period  fluctuations in various cash-flow category line items
were the result of several  factors.  Decrease  in net income and gross  margins
resulting from termination of production in current period.  Management believes
that after the reconstruction  period, the group's operation will turn to normal
and have growth.


<PAGE>

         Fluctuations  in  cash-flow  category  line items  such as period  over
period increase in accounts  receivable,  accounts  payable and accrued expenses
are subject to period to period timing differences.

         Because of the size and schedule  requirements  of particular  projects
undertaken by the company,  a significant  time lag may occur between  inventory
build-up related outlays and revenue recognition related to these projects.  Due
to the  variability  of the timing of these cash flows as compared with the date
certain used for reporting purposes, significant fluctuations of individual line
item cash flows period-over-period are apparent.

         For instance,  this form 10KSB  compares the cash flows  resulting from
operations for two four months  periods,  namely,  the fiscal period ended April
30, 2003 and April 30, 2004 respectively.  The company garnered roughly the same
gross revenue in each of these fiscal periods.  And,  although the difference in
net loss/ income comparing the two periods is $4,047,836, ($1,236,649 profit for
2003 vs.  $2,811,187  loss for  2004),  there was only a  $491,963  decrease  in
accounts  receivable  as of April  30,  2004  compared  to April 30,  2003.  The
explanation for this disparity is, as stated above, the result of termination of
production during since January, 2004.

         Typically,  the Group collects cash resulting from sales  approximately
30 to 60 days from the date of the sale.  However the collection  period is much
longer  in  2004  when  compare  with  2003.  It was due to the  termination  of
production since January 2004.

         For accounts payable, the credit terms offered by supplier is within 30
days.  But due to the group's cash flow pattern,  the group deferred the payment
to keep more cash in the bank for working capital proposes.

         Both of these  effects  are  reversed  if the timing of the bias of the
cost outlay versus cash collection schedules described above is reversed.

         Management does not believe these fluctuations are consequential to the
substantive  performance or financial condition of the company.  Management does
not believe that these  fluctuations  are the  indicative of any material  trend
with regard to substantive performance or financial condition of the company.

Results Of  Operations  - Year Ended  April 30,  2003 As Compared To Fiscal Year
Ended April 30, 2002

         Sales. Total sales increased by $1,166,364 from $15,481,181 in the year
ended  December 31, 2002 to  $16,647,545  in the year ended 2003.  This increase
resulted  from lowering unit prices of our products to increase our market share
and maintain our competitive position. We believe we are currently expanding our
market share by virtue of lowering our unit selling price.

         Cost of Sales. Cost of sales increased by $2,600,358 from $8,792,747 in
2002 to $11,393,105 in 2003. The primary factor responsible for the increase was
that the cost of supply went in view of our purchasing  from fishermen  directly
various products, such as ribbonfish, mackerel, bream, squid and prawns.

         Gross Profit. Gross profit decreased $1,433,994 from $6,688,434 in 2002
to $5,254,440  in 2003.  This decrease was due to the fact that we decreased the
unit  selling  price  to  broaden  our  market  share,  while  our cost of sales
increased, as described above.

         Selling and Distribution  Expenses.  Selling and distribution  expenses
primarily include transportation, declaration, expenses of the sales department,
staff salaries and sales commission. Selling and distribution expenses increased
$273,567 from  $295,031 in 2002 to $568,598 in 2003.  The increase is due to the


<PAGE>

fact that more direct export sales took place in 2003 than in 2002, leading to a
substantial  increase in the  transportation,  declaration and sales  commission
expenses.

         General  and  Administrative   Expenses.   General  and  administrative
expenses  mainly  consist of legal and  professional  fees,  directors and other
office staff salaries and rent.  General and  administrative  expenses increased
from  $571,322 in 2002 to $708,717 in 2003,  an increase of $137,395,  primarily
resulting  from  increased  costs of  insurance,  including  employee  workman's
compensation  insurance,  employee  health  insurance  and  corporate  liability
insurance premiums,  as well as increases in the salaries of directors and other
office personnel in 2003.

         Depreciation. Depreciation expenses increased by $29,379 to $314,953 in
2003 from $285,574 for the corresponding period of the prior year. This increase
is due to the fact that we acquired fixed assets in late 2002,  resulting in the
increase in depreciation of those assets in 2003.

         Finance Costs. Our finance costs decreased by $290,634 from $682,329 in
2002 to $391,695 in 2003. The main factor leading to this decrease is that we no
longer incurred interest on a shareholder loan in 2003, while we did so in 2002.

         Provision for Doubtful  Accounts.  Our provision for doubtful  accounts
increased by $481,839  from  $329,877 in 2002 to $811,716 in 2003.  The increase
was largely the result of a more  conservative  provision  policy adopted by our
management  in 2003 to more  accurately  reflect the  collectibility  of certain
doubtful accounts.

         Impairment  Loss on Value of Vessels.  Our impairment  loss on value of
vessels was $481,928 in 2002.  There was no impairment  loss on value of vessels
in 2003. This is because the value of the vessels was fully impaired in 2002.

         Total Operating  Expenses.  Our total operating  expenses  increased by
$149,618 from $2,646,061 in 2002 to $2,795,679 in 2003. The increase was largely
the result of the increases in selling and distribution  expenses, and provision
for doubtful  account,  as well as the decreases in finance costs and impairment
loss on value of vessels.

         Income from Operations.  Income from operations decreased by $1,583,612
from $4,042,373 in 2002 to $2,458,761 in 2003. The primary  factors  responsible
for the decrease  were the  decrease in our gross  profit by  1,433,994  and the
decrease in our total operating expenses by 149,618.

         Other Income and Expenses.  Our other income  increased by $27,206 from
$92,928  in 2002 to  $120,134  in 2003;  and our  other  expenses  increased  by
$267,133  from  $189,913  in 2002 to $457,046  in 2003.  This  increase in other
income was primarily due to the subsidy from local government increased, and the
increase in other  expenses  was  primarily  due to the  increase in the shipmen
wages in 2003.

         Income Before Income Taxes. Our income before income taxes decreased by
$1,823,539 from $3,945,388 in 2002 to $2,121,849 in 2003. This decrease resulted
from lower gross profit and higher operating expense recorded in 2003.

         Income Taxes Current and Deferred. Our current income tax for 2003 were
$168,377 and our deferred income tax for 2002 were $68,174. We had no current or
deferred income tax in 2002.

         Net  Income  Before  Minority  Interest.  Net  income  before  minority
interest  decreased by $2,060,090 from $3,945,388 in 2002 to $1,885,298 in 2003.
This decrease  resulted from lower operating  profit in 2003 compared to that in
2002.

         Minority  Interest.   Minority  interest  increased  by  $913,305  from
negative  $1,246,912  in 2002 to  negative  $333,607  in 2003.  The  increase in
minority interest resulted from the minority interest decreasing from 40% before
September 2002 to 15.58% since September 2002.

         Net Income Attributable to Shareholders. The net income attributable to
shareholders  decreased by 1,146,785  from  $2,698,476  in 2002 to $1,551,691 in
2002. The decrease was basically  attributed to lower  operating  profit in 2003
compared to that of in 2002.

<PAGE>

Risk Factors


         In additional to the risks listed below,  risks and  uncertainties  not
presently  foreseeable to us may also impair our business operations.  If any of
the  following  risks  actually  occurs,  our business,  financial  condition or
operating  results could be materially  adversely  affected.  In such case,  the
trading price of our common stock could decline, and you may lose all or part of
your investment.


Risks Relating To Our Company


         We Have No Long-Term Agreements With Customers Or Distributors;  Should
They Discontinue To Do Business With Us, Our Business And  Profitability  May Be
Adversely Affected.


         Currently,  most of our immediate customers are distributors who resell
our products to other customers.  Our sales arrangement with these  distributors
are  generally  short-term  in nature  and we had not  formed or  engaged in any
agency or distributorship arrangements with such distributors. In the event that
some of these  distributors  cease to purchase  our  products,  our business and
profitability may be adversely  affected.  Even if we are able to procure agency
or  distributorship  arrangements,  there is no guarantee that such arrangements
will be exclusive in procuring the domestic and/or export sales of our products.


         We rely on  co-operative  suppliers  and any  adverse  changes in these
relationships may adversely affect us.


         We have  developed a  co-operative  network in Hainan  Province for the
supply of tilapia and shrimp by entering  into  co-operative  supply  agreements
with  various  co-operative  suppliers,  who are  aquaculture  farmers in Hainan
Province.  Pursuant to the  co-operative  supply  agreements,  Hainan  Quebec is
assured the necessary supply of aquatic products from its cooperative suppliers.
The continuance and smooth operations of this co-operative network are essential
in ensuring cost efficiency and the timely  fulfillment of our customer  orders.
Any adverse change to the co-operative network,  including any early termination
or non-renewal of any material supply  agreement or any failure of the suppliers
to fulfill the obligations under the supply agreement,  may result in a material
adverse effect on our business model, operation and competitiveness.


         If we are  not  able to  implement  our  strategies  in  achieving  our
business  objectives,  our business operations and financial  performance may be
adversely affected.


         Our business plan is based on  circumstances  currently  prevailing and
the bases and assumptions that certain  circumstances will or will not occur, as
well as the  inherent  risks and  uncertainties  involved  in various  stages of
development.  However,  there  is no  assurance  that we will be  successful  in
implementing  our strategies or that our strategies,  even if implemented,  will
lead to the  successful  achievement  of our  objectives.  If we are not able to
successfully  implement our  strategies,  our business  operations and financial
performance may be adversely affected.


         We  depend on the  availability  of  additional  resources  for  future
growth.


         We are currently  experiencing a period of significant  growth in terms
of sales volume. We believe that our continued  expansion is essential for us to
remain  competitive  and to capitalize on the growth  potential of our business.
Such expansion may place a significant  strain on our management and operational
and financial resources.

<PAGE>

         As the  scale of our  operations  grows,  we will  have to  continually
improve our  management,  operational  and  financial  systems,  procedures  and
controls, and expand our workforce. The expansion of our business operations may
also involve  co-operation,  or  development  of new  relationships,  with third
parties,  such as customers and  suppliers.  There can be no assurance  that our
existing or future management, operational and financial systems, procedures and
controls will be adequate to support our operations,  or that we will be able to
recruit, retain and motivate our personnel.  There can also be no assurance that
we will be able to  establish,  develop or maintain the  business  relationships
beneficial to our operations.  Failure to manage growth effectively could have a
material  adverse  effect on our business and the results of our  operations and
financial condition.


         We depend  on key  management  personnel,  and the loss of any of their
services could materially adversely affect us.


         Our  operations  are dependent  upon the  experience and expertise of a
small  number of key  management  personnel.  Our  future  results  will  depend
significantly upon the efforts of these persons, in particular,  Mr. Harry Wang,
Ms.  Lillian Wang Li and Mr. Norbert  Sporns.  The loss of the service of any of
them for any reason could have a material  adverse  effect on the business,  and
the results of our operation and financial condition.


         We depend on supply of raw materials,  and any adverse  changes in such
supply or the costs of raw materials may adversely affect our operations.


         We currently  obtain all of our raw materials from various  aquaculture
farms in Hainan Province and are, therefore,  dependent on a stable and reliable
supply of such raw  materials in the region.  The supply of these raw  materials
can  be  adversely   affected  by  any  material   change  in  the  climatic  or
environmental  conditions  in the Hainan  province,  which may, in turn,  have a
material adverse effect on the cost of our raw materials and on our operations.


         We do not  maintain  any  product  liability  insurance,  and we  could
therefore be adversely affected by product liability claims against us.


         During the past four years,  we have not  purchased or  maintained  any
liability  insurance for our tilapia or shrimp  products.  We believe that there
are valid reasons for not purchasing  this  liability  insurance.  However,  our
tilapia  and  shrimp  products  are sold in the PRC  domestic  market as well as
exported to  locations in the United  States,  Canada,  Japan and some  European
countries.  There is a possibility that our customers, or the ultimate buyers of
our products, may have adverse reactions to the tilapia and shrimp products that
we process and sell.  Any  adverse  reaction  may result in actual or  potential
product  liability  claims to the Group.  Accordingly,  any significant  product
liability claim may have an adverse effect on our reputation and profitability.


         We may never pay any dividends to our shareholders.


         We did not declare any dividends for the year ended  December 31, 2003.
Our board of  directors  does not  intend to  distribute  dividends  in the near
future. The declaration, payment and amount of any future dividends will be made
at the discretion of the board of directors,  and will depend upon,  among other
things,  the  results of our  operations,  cash flows and  financial  condition,
operating and capital requirements,  and other factors as the board of directors
considers  relevant.  There is no assurance that future  dividends will be paid,
and if dividends are paid,  there is no assurance  with respect to the amount of
any such dividend.

<PAGE>

       Hainan Quebec is a sino-foreign joint venture and is not wholly-owned by
our company


         Hainan Quebec, our principal  operating  subsidiary,  is a sino-foreign
equity joint venture established in the PRC and is owned, approximately,  84.42%
by Jade and 15.58% by Hainan Fuyuan.  Accordingly, we may not be able to control
all the decisions made by Hainan Quebec without the consent and  co-operation of
Hainan  Fuyuan.  Hainan Fuyuan may also have  economic or business  interests or
goals  inconsistent with ours and Hainan Fuyuan may take actions contrary to our
requests,  policies or  objectives.  Hainan Fuyuan may be unable or unwilling to
fulfill  its  obligations  under  the joint  venture  agreement  and may  itself
experience  financial  difficulties  in the future which may impact our business
and operations.


         If the joint venture were to terminate or were to expire  without being
renewed, or if a deadlock or any significant  disputes arise between our company
and Hainan Fuyuan,  the operations and financial  results of Hainan Quebec could
be materially  and  adversely  affected  and,  because it is our main  operating
subsidiary,  that could adversely affect us. Furthermore,  Hainan Fuyuan has not
undertaken  that it will not engage in any business  operations on its own or in
association  with others that may be in competition  with our company.  Any such
developments could adversely affect the financial results of our company.


Risks Relating To The Aquaculture Industry


         Our  operating  subsidiary  must comply with  environmental  protection
laws, which could adversely affect our profitability.


         Hainan Quebec is required to comply with the  environmental  protection
laws and  regulations  promulgated by the national and local  governments of the
PRC.  Some of these  regulations  govern the level of fees payable to government
entities  providing   environmental   protection  services  and  the  prescribed
standards relating to the discharge of effluent.  Currently the plant treats all
of its  waste  effluent  completely  to level  one  (that  is,  consistent  with
releasing  potable  water back to the  environment),  and there is  currently no
charge being  levied.  In addition,  these  regulations  further  empower  local
governments to impose penalties on those companies which fail to comply with the
prescribed  standards.  If we, through Hainan Quebec. fail to comply with any of
these  environmental laws and regulations in the PRC, depending on the types and
seriousness of the violation,  we may be subject to, among other things, warning
from relevant  authorities,  imposition of fines,  specific  performance  and/or
criminal  liability,  forfeiture of profit made, being ordered to close down our
business operations and suspension of relevant permits.


         Although our production  technologies  allow us to efficiently  control
the  level  of   pollution   resulting   from  our   production   process,   and
notwithstanding  the fact that we have  received  evidence  of  compliance  with
environmental  protection requirements from government  authorities,  due to the
nature  of our  business,  effluent  wastes  are  unavoidably  generated  in the
aquaculture production processes.


         The national and the local  governments  may promulgate new regulations
that may  require  us to pay  environmental  protection  fees or  require  us to
upgrade our environmental  protection  facilities.  These regulations may impose
additional costs and may adversely affect our profitability.


         We could be adversely  affected by the occurrence of natural  disasters
in Hainan Province.


<PAGE>

         From  time to  time,  Hainan  Province,  like  other  South  China  Sea
destinations, experiences typhoons, particularly during the third quarter of any
calendar year. Natural disasters could impede operations,  damage infrastructure
necessary to our operations or adversely  affect the logistical  services to and
from Hainan  Province.  The occurrence of natural  disasters in Hainan  Province
could adversely  affect our business,  the results of our operations,  prospects
and financial  condition.  We do not currently have any insurance against damage
caused by natural  disasters,  accidents or other similar events, nor do we have
insurance  covering losses due to resulting business  interruption.  Should such
losses  occur,  our  operations,  revenue and  profitability  might be adversely
affected.


         We may be adversely  affected by the fluctuation in raw material prices
and selling prices of our products.


         The raw materials we use are aquaculture  stocks and  commodities  that
may experience price volatility caused by events such as market  fluctuations or
changes in governmental aquaculture programs. These price changes may ultimately
result in increases  in the selling  prices of our  products,  and may, in turn,
adversely affect our sales volume, revenue and operating profit.


         Neither our products nor the raw materials  required  have, in general,
experienced  any  significant  price  fluctuations  in the past, but there is no
assurance  that  the  raw  materials  we  require  will  not be  subject  to any
significant  price  fluctuations  or pricing  control in the future.  The market
price of these raw materials may also experience  significant upward adjustment,
if, for instance, there is a material under-supply or over-demand in the market.
Should this  happen,  our business  and the results of our  operations  could be
adversely affected.


         Our operations,  revenue and profitability  could be adversely affected
by changes in laws and regulations in the countries where we do business.


         The  governments  of our  exporting  countries,  including  the  United
States,  Japan and other overseas markets,  such as Europe and Canada, may, from
time to time,  consider  regulatory  proposals  relating to raw materials,  food
safety and market, and environmental  regulation,  which, if adopted, could lead
to disruptions in supply of our products and/or increases in operational  costs,
which, in turn, could affect our  profitability.  To the extent that we increase
our product  prices as a result of such  changes,  our sales volume and revenues
may be adversely affected.


         Furthermore, these governments may change certain regulations or impose
additional  taxes or duties on certain  Chinese  imports from time to time. Such
regulations,  if effected, may have a material adverse impact on our operations,
revenue and/or our profitability.


         We could be adversely  affected by contamination  and disease resulting
from our purchases of raw materials from third parties.


       We ceased our aquaculture farming operations in January 2003. Since that
time, we have been purchasing raw materials from contracted large-scale local
suppliers. If any contamination or outbreak of disease occurs, our supply of raw
materials may be jeopardized or disrupted, which, in turn, could adversely
affect our operations, revenue and/or profitability.


         We may be unable to continue to take advantage of the seasonal  pricing
fluctuation in sales of our products.

<PAGE>

         We have been  experiencing  seasonal  fluctuation  in sales in terms of
pricing.  Pricing fluctuation occurs during the winter season when fish farms in
northern PRC suspend production due to cold weather conditions. With the lack of
supply from these farms in northern PRC,  aquaculture  products from other parts
of the PRC could  customarily  be sold at a premium  during the  winter  season.
However,  there  can be no  assurance  that such  premium  or  pricing  could be
maintained in the future.


         Our  inability  to  successfully  compete with our  competitors  in the
aquaculture industry may adversely affect us.


         The aquaculture industry is open to competition from local and overseas
operators  engaged in  similar  businesses  and  products  to ours.  There is no
assurance  that we can  consistently  be successful in maintaining a competitive
advantage  against our  competitors.  Any  increase in  competition  may have an
adverse  effect on both the sales and the pricing of our  aquaculture  products,
which,  in turn, will have an adverse effect on our  performance,  profitability
and cash flow.


Risks Relating To The PRC


         There could be changes in government policies that may adversely affect
our business.


         The  aquatic  products  industry  in the  PRC is  subject  to  policies
implemented by the PRC government from time to time. The PRC government may, for
instance, impose control over aspects such as raw material distribution, product
pricing and sales. On the other hand, the PRC government may also make available
subsidies  or  preferential  treatments  (such as in the form of tax benefits or
favorable financing arrangements).


         If the raw materials  used by us or our products  should become subject
to any form of government  control,  then  depending on the nature and extent of
such control and our ability to make corresponding adjustments, there could be a
material adverse effect on our business and operating results.


         Certain  political  and economic  considerations  relating to PRC could
adversely affect our company.


         The PRC has a planned  economy.  While the PRC  government  has pursued
economic  reforms  since its adoption of the  open-door  policy in 1978, a large
portion of the PRC economy is still  operating  under five-year plans and annual
state plans. Through these plans and other economic measures, such as control on
foreign  exchange,  taxation and  restrictions on foreign  participation  in the
domestic market of various  industries,  the PRC government exerts  considerable
direct and  indirect  influence on the  economy.  Many of the  economic  reforms
carried out by the PRC government are  unprecedented  or  experimental,  and are
expected  to be refined  and  improved.  Other  political,  economic  and social
factors can also lead to further readjustment of such reforms. This refining and
readjustment  process  may  not  necessarily  have  a  positive  effect  on  our
operations  or  future  business  development.  Our  operating  results  may  be
adversely  affected by changes in the PRC's  economic and social  conditions  as
well as by changes in the  policies  of the PRC  government,  such as changes in
laws and regulations (or the official  interpretation  thereof),  measures which
may be  introduced  to  control  inflation,  changes  in the rate or  method  of
taxation, and imposition of additional restrictions on currency conversion.



         The recent nature and uncertain application of many PRC laws applicable
to us create an uncertain  environment  for business  operations  and they could
have a negative effect on us.


<PAGE>

         The PRC legal  system is a civil law  system.  Unlike  the  common  law
system, the civil law system is based on written statutes in which decided legal
cases have little value as  precedents.  In 1979,  the PRC began to promulgate a
comprehensive  system of laws and has since introduced many laws and regulations
to provide general guidance on economic and business practices in the PRC and to
regulate foreign investment.  Progress has been made in the promulgation of laws
and regulations dealing with economic matters such as corporate organization and
governance,  foreign investment,  commerce, taxation and trade. The promulgation
of new laws, changes of existing laws and the abrogation of local regulations by
national  laws  could  have a  negative  impact  on our  business  and  business
prospects.  In addition,  as these laws,  regulations and legal requirements are
relatively  recent,  their  interpretation and enforcement  involve  significant
uncertainty.

         Potential  effects  related  to the PRC's WTO  accession  could  have a
material adverse affect our company.

         The PRC became a member of the WTO in  December  2001.  Pursuant to the
bilateral  agreement  entered  into  between  the PRC and the  United  States on
December 11, 1999,  the PRC agreed to lower  tariffs on imports by an average of
approximately 17% and to eliminate quotas and other quantitative restrictions on
food product imports within two to five years. In particular, the average tariff
imposed on priority  agricultural products from the United States will fall from
31.5% to 14.5% by 2004.  We expect that the  lowering of import  tariffs and the
elimination  of quotas and other  import  restrictions  by the PRC in respect of
agricultural products would increase competition from overseas suppliers.  There
is no  assurance  that such  increased  competition  will not have any  material
adverse effect on our business or profitability.

         Currency conversion and exchange rate volatility could adversely affect
our financial condition.

         The PRC government imposes control over the conversion of Renminbi into
foreign currencies. Under the current unified floating exchange rate system, the
People's Bank of China publishes an exchange rate, which we refer to as the PBOC
exchange rate,  based on the previous  day's dealings in the inter-bank  foreign
exchange market.  Financial institutions  authorized to deal in foreign currency
may enter  into  foreign  exchange  transactions  at  exchange  rates  within an
authorized  range  above or below the PBOC  exchange  rate  according  to market
conditions.

         Pursuant to the Foreign Exchange Control  Regulations of the PRC issued
by the  State  Council  which  came  into  effect  on  April  1,  1996,  and the
Regulations  on the  Administration  of Foreign  Exchange  Settlement,  Sale and
Payment of the PRC which came into  effect on July 1,  1996,  regarding  foreign
exchange  control,  conversion  of  Renminbi  into  foreign  exchange by Foreign
Investment Enterprises, or FIEs, for use on current account items, including the
distribution of dividends and profits to foreign investors, is permissible. FIEs
are  permitted  to convert  their  after-tax  dividends  and  profits to foreign
exchange and remit such foreign exchange to their foreign exchange bank accounts
in the PRC.  Conversion of Renminbi into foreign  currencies for capital account
items,  including direct investment,  loans, and security  investment,  is still
under certain  restrictions.  On January 14, 1997, the State Council amended the
Foreign Exchange Control Regulations and added, among other things, an important
provision,  which provides that the PRC government shall not impose restrictions
on recurring international payments and transfers under current account items.

         Enterprises in the PRC (including  FIEs) which require foreign exchange
for transactions relating to current account items, may, without approval of the
State  Administration  of Foreign  Exchange,  or SAFE, effect payment from their
foreign exchange  account or convert and pay at the designated  foreign exchange
banks by providing valid receipts and proofs.

         Convertibility of foreign exchange in respect of capital account items,
such as direct investment and capital contribution,  is still subject to certain
restrictions,  and prior approval from the SAFE or its relevant branches must be
sought.

         Since 1994,  the exchange  rate for Renminbi  against the United States
dollars  has  remained  relatively  stable,  most of the time in the  region  of
approximately  RMB8.28  to  US$1.00.  However,  there can be no  assurance  that
Renminbi  will  not be  subject  to  devaluation.  We may not be  able to  hedge
effectively  against  Renminbi  devaluation,  so there can be no assurance  that
future  movements in the exchange rate of Renminbi and other currencies will not
have an adverse effect on our financial condition.



<PAGE>

         Hainan Quebec, our principle operating  subsidiary,  is an FIE to which
the  Foreign  Exchange  Control  Regulations  are  applicable.  There  can be no
assurance  that we will be able to obtain  sufficient  foreign  exchange  to pay
dividends or satisfy other foreign exchange requirements in the future.

         Our  dependence  upon Chinese  production  facilities  and raw material
suppliers could affect our company.

         All of our processing facilities are located in the PRC and all the raw
materials  we require  are located in the PRC.  Therefore,  our  operations  and
performance are subject to changes in the economic and political  environment in
the PRC and to the risks inherent in maintaining  operations  outside the United
States.


Selected Financial Data

         The  following   information   has  been   summarized   from  financial
information  included  elsewhere  and  should be read in  conjunction  with such
financial statements and notes thereto.


Summary of Statements of Operations of HQSM

                     Years/Four months Ended April 30, 2004



                                  2004                      2003

Sales                             $409,228                  $5,867,097
Gross Loss/Profit                 $(36,008)                 $1,930,037
Net (Loss)/Income                 $(2,513,990)              $1,061,169
Net (Loss)/Income
Per Share                         $(0.31)                   $106




Summary of Balance Sheets of HQSM



                                  April 30,2004         2003

Working Capital                   $2,004,142            $4,849,769
Total Assets                      $15,654,815           $19,620,832
Stockholders' Equity              $9,396,284            $9,089,106




ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<PAGE>


             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             APRIL 30, 2004 AND 2003




INDEX TO FINANCIAL STATEMENTS


                                                                      Pages
                                                                      -----


Independent Auditors' Report                                          F-2

Consolidated Balance Sheets as of April 30, 2004 and 2003             F-3 - F-4

Consolidated Statements of Income for the four months ended
April 30, 2004 and 2003                                               F-5

Consolidated Statements of Changes in Shareholders' Equity
for the four months ended April 30, 2004 and 2003                     F-6

Consolidated Statements of Cash Flows for the four months
ended April 30, 2004 and 2003                                         F-7

Notes to Consolidated Financial Statements                            F-8 - F-23





















                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
HQ Sustainable Maritime Industries, Inc. and Subsidiary
State of Nevada

We have audited the accompanying  consolidated  balance sheets of HQ Sustainable
Maritime Industries,  Inc. and Subsidiary as of April 30, 2004 and 2003, and the
related consolidated  statements of income, changes in shareholders' equity, and
cash flows for the periods then ended. These consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

We  conducted  our  audits in  accordance  with The  Public  Company  Accounting
Oversight Board Standards (United States).  Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the consolidated  financial  position of HQ
Sustainable  Maritime  Industries,  Inc. and Subsidiary as of April 30, 2004 and
2003, and the results of their  consolidated  operations and their  consolidated
cash flows for the periods then ended, in conformity with accounting  principles
generally accepted in the United States of America.


/s/ Rotenberg & Co., LLP

Rotenberg & Co., LLP
Certified Public Accountants

Rochester, New York
July 28, 2004






                                      F-2
<PAGE>

             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                           CONSOLIDATED BALANCE SHEETS
                          AS OF APRIL 30, 2004 AND 2003

                                     ASSETS
                                     ------

                                                          2004           2003
                                                      -----------    -----------

CURRENT ASSETS
  Cash and cash equivalents                           $ 5,854,623    $11,937,510
  Trade receivables, net of provisions                  2,368,364      2,860,327
  Inventory                                                79,527        324,655
  Prepayments                                              45,052        302,870
  Due from related parties, net of provisions             188,802        214,973
  Due from directors                                       42,613           --
  Tax recoverable                                          81,602           --
                                                      -----------    -----------

TOTAL CURRENT ASSETS                                    8,660,583     15,640,335
                                                      -----------    -----------

OTHER ASSETS
  Deferred Taxes                                        1,403,609      1,471,783
                                                      -----------    -----------

PROPERTY, PLANT AND EQUIPMENT, NET                      2,211,633      2,508,714
                                                      -----------    -----------

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

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

TOTAL ASSETS                                          $15,654,815    $19,620,832
------------                                          ===========    ===========






                                       F-3

<PAGE>

             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                           CONSOLIDATED BALANCE SHEETS
                          AS OF APRIL 30, 2004 AND 2003

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

                                                     2004              2003
                                                 ------------      ------------

CURRENT LIABILITIES
  Accounts payable and accrued expenses          $  1,503,109      $  1,288,518
  Deposit received from customers                      37,452            64,210
  Bank loans                                        3,012,048         9,036,145
  Taxes payable                                          --              93,315
  Due to directors                                       --              52,956
  Due to related parties                                 --                --
  Convertible notes                                   255,422           255,422
  Subscription received                             1,848,410              --
                                                 ------------      ------------

TOTAL CURRENT LIABILITIES                           6,656,441        10,790,566

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

TOTAL LIABILITIES                                   6,656,441        10,790,566

MINORITY INTEREST                                    (397,910)         (258,840)

SHAREHOLDERS' EQUITY
  Share Capital                                        25,000                 1
  Additional paid-in capital                       13,121,114        10,815,467
  Reserves                                            957,656           778,549
  Accumulated losses                               (4,707,486)       (2,504,911)
                                                 ------------      ------------

TOTAL SHAREHOLDERS' EQUITY                          9,396,284         9,089,106
                                                 ------------      ------------

TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                         $ 15,654,815      $ 19,620,832
                                                 ============      ============





                                      F-4
<PAGE>

             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                              STATEMENTS OF INCOME
                FOR THE FOUR MONTHS ENDED APRIL 30, 2004 AND 2003

                                                    2004               2003
                                               -------------      -------------

SALES                                          $     409,228      $   5,867,097

COST OF SALES                                        445,236          3,937,060
                                               -------------      -------------

GROSS (LOSS) PROFIT                                  (36,008)         1,930,037

SELLING AND DISTRIBUTION EXPENSES                     52,723             94,367

GENERAL AND ADMINISTRATIVE EXPENSES                1,160,666             36,036

DEPRECIATION                                         105,820            104,542

PROVISION FOR DOUBTFUL DEBTS                       1,523,331             11,452
                                               -------------      -------------

INCOME (LOSS) FROM OPERATIONS                     (2,878,548)         1,683,640

FINANCE COSTS                                          6,776             87,351

OTHER INCOME                                        (239,566)           (25,150)

OTHER EXPENSES                                       142,704            268,750
                                               -------------      -------------

INCOME (LOSS) BEFORE INCOME TAXES                 (2,788,462)         1,352,689

INCOME TAXES CURRENT                                    --               93,315

DEFERRED                                              22,725             22,725
                                               -------------      -------------

NET INCOME (LOSS) BEFORE MINORITY
  INTEREST                                        (2,811,187)         1,236,649

MINORITY INTEREST                                    297,197           (175,480)
                                               -------------      -------------


NET INCOME (LOSS) ATTRIBUTABLE TO
  SHAREHOLDERS                                 $  (2,513,990)         1,061,169
                                               =============      =============


NET INCOME (LOSS) PER SHARE -
  BASIC AND DILUTED                            $        (.31)     $        (106)
                                               =============      =============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING                                      8,057,851             10,000
                                               =============      =============



                                      F-5
<PAGE>
<TABLE>
<CAPTION>

             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                FOR THE FOUR MONTHS ENDED APRIL 30, 2004 AND 2003


                                                                          Additional
                                                Share Capital               paid-in                    Accumulated
                                             Share        Par Value         capital       Reserves        Losses           Total
                                         ------------    ------------    ------------   ------------   ------------    ------------
<S>                                      <C>             <C>             <C>            <C>            <C>             <C>
Balance at December 31, 2003                   10,000    $        100    $ 12,731,114   $    957,656   $ (2,193,496)   $ 11,495,374

Issued 25,000,000 share at $0.001
  each 25                                  25,000,000          25,000         390,000           --             --           415,000

Net income                                       --              --              --             --       (2,513,990)     (2,513,990)

Shares of Subsidiary Eliminated in
  Recapitalization                            (10,000)           (100)           --             --             --              (100)
                                         ------------    ------------    ------------   ------------   ------------    ------------

Balance at April 30, 2004                  25,000,000    $     25,000    $ 13,121,114   $    957,656   $ (4,707,486)   $  9,396,284
                                         ============    ============    ============   ============   ============    ============

                                                                          Additional
                                                Share Capital               paid-in                    Accumulated
                                             Share        Par Value         capital       Reserves        Losses           Total
                                         ------------    ------------    ------------   ------------   ------------    ------------

Balance at December 31, 2002
  (Issued 10,000 share at $0.01 each)          10,000    $          1    $ 10,815,467   $    579,788   $ (3,367,319)   $  8,027,937

Net income                                       --              --              --             --        1,061,169       1,061,169

Transfer to reserve                              --              --              --             --         (198,761)           --
                                         ------------    ------------    ------------   ------------   ------------    ------------

Balance at April 30, 2003                      10,000    $          1    $ 10,815,467   $    579,788   $ (2,504,911)   $  9,089,106
                                         ============    ============    ============   ============   ============    ============
</TABLE>













                                      F-6
<PAGE>

             HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARY
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                            STATEMENTS OF CASH FLOWS
                FOR THE FOUR MONTHS ENDED APRIL 30, 2004 AND 2003

                                                       2004            2003
                                                   ------------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                       $ (2,811,187)   $  1,236,649
  Adjustments to reconcile net income to net cash
    provide by operating activities:
  Provision for doubtful accounts                     1,284,750         174,904
  Depreciation                                          105,820         104,542
  (Increase)/decrease in assets:
    Inventory                                           203,599         (22,351)
    Trade receivables, net of provisions                348,971          65,722
    Prepayment                                            4,422        (294,465)
    Due from related parties, net of provisions        (188,802)        471,524
    Due from directors                                  (42,613)           --
    Deferred taxes                                       22,725          22,724
  Increase/(decrease) in liabilities:
    Accounts payable and accrued expenses               297,098         173,725
    Deposit received from customers                       8,789          58,186
    Taxes payable                                          --            93,315
    Due to directors                                       --            41,377
    Dividend payable                                       --          (289,878)
    Due to related parties                                 --            88,590
    Subscription received                             1,848,410            --
                                                   ------------    ------------

Net cash from operating activities                    1,081,982       1,924,564
                                                   ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment             --            (1,459)
  Additions to construction in progress                (656,042)           --
  Disposal of investment                                   --           602,410
                                                   ------------    ------------

Net cash from investing activities                     (656,042)        600,951
                                                   ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock                            415,000       6,024,097
  Repayment of bank loans/shareholders loan          (6,024,097)       (240,964)
                                                   ------------    ------------

Net cash from financing activities                   (5,609,097)      5,783,133
                                                   ------------    ------------

NET CHANGE IN CASH AND CASH EQUIVALENT               (5,183,157)      8,308,648

  Cash and cash equivalents, beginning of period     11,037,780       3,628,862
                                                   ------------    ------------

  Cash and cash equivalents, end of period         $  5,854,623    $ 11,937,510
                                                   ============    ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                    $    732,228    $    778,128
                                                   ============    ============

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


                                      F-7
<PAGE>

                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.
          (INCORPORATED IN THE STATE OF NEVADA WITH LIMITED LIABILITY)
                   (FORMERLY KNOWN AS PROCESS EQUIPMENT, INC.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             APRIL 30, 2004 AND 2003


1. ORGANIZATION AND PRINCIPAL ACTIVITIES

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 HQ. As a result of that  transaction,  Hainan Quebec is presently our main
operating subsidiary.

The principal activities of HQ are engaged in the vertically integrated business
of aquaculture through  co-operative supply channels,  ocean product harvesting,
and processing and sales of farm-bred and ocean harvested aquatic products.

The principal  products of HQ 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 in the PRC.

2. BASIS OF PRESENTATION

The consolidated  financial statements include the accounts of HQSM and HQ ("The
Group").  All  material   inter-company  accounts  and  transactions  have  been
eliminated.

The consolidated financial statements are prepared in accordance with generally
accepted accounting principles used in the United States of America.

3. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

A.       CASH AND CASH EQUIVALENTS

The Group considers cash and cash equivalents to include cash on hand and demand
deposits with banks with an original maturity of three months or less.

B.       TRADE RECEIVABLE


In order to determine the value of the Group's  accounts  receivable,  the Group
records a provision  for doubtful  accounts to cover  estimated  credit  losses.
Management  reviews and adjusts this allowance  periodically based on historical
experience and its  evaluation of the  collectibility  of  outstanding  accounts
receivable.  The Group  evaluates  the credit  risk of its  customers  utilizing
historical data and estimates of future performance.


C.       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 Group 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.


D.       PROPERTY, PLANT AND EQUIPMENT

Property,  plant and  equipment  are  carried at cost.  The cost of repairs  and
maintenance is expensed as incurred;  major  replacements  and  improvements are
capitalized.

When assets are retired or disposed  of, the cost and  accumulated  depreciation
are removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition.



                                      F-8

<PAGE>

Depreciation  is calculated on a straight-line  basis over the estimated  useful
life of the assets. The percentages applied are:

            Buildings and leasehold improvement                     4% - 9%
            Plant and machinery                                     9% - 18%
            Motor vehicles                                          18%
            Office equipment and furnishings                        18%

E.       FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  value  of  financial  instruments  including  cash,  receivables,
accounts payable and accrued expenses and debt, approximates their fair value at
April  30,  2004 and  2003  due to the  relatively  short-term  nature  of these
instruments.

F.       CONSTRUCTION IN PROGRESS

Construction in progress represents buildings,  machinery and other fixed assets
under construction or installation,  which is stated at cost less any impairment
losses,  and is not  depreciated.  Cost  comprises the direct costs of purchase,
construction and  installation.  Construction in progress is reclassified to the
appropriate  category of fixed  assets  when  completed  and ready for use.  The
management is of the opinion that no impairment loss is considered  necessary at
year-end.

G.       INCOME TAXES


Taxes are calculated in accordance with taxation principles  currently effective
in the PRC.  The Group  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 in 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.


H.       GOVERNMENT SUBSIDIES

Subsidies  from the government are recognized at their fair values when received
or there is reasonable  assurance  that they will be received,  and all attached
conditions are complied with.

I.       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.

J.       FOREIGN CURRENCY TRANSLATION

The Group maintains its books and accounting  records in Renminbi  ("RMB"),  the
PRC's currency,  being the functional currency.  Translation of amounts from RMB
in United States dollars ("US$") has been made at the single rate of exchange of
US$1.00:RMB8.30.  No  representation is made that RMB amounts could have been or
could be, converted into US dollar at that rate.

On January 1, 1994, the PRC  government  introduced a single rate of exchange as
quoted daily by the People's Bank of China (the "Unified  Exchange  Rate").  The
quotation of the  exchange  rates does not imply free  convertibility  of RMB to
other foreign  currencies.  All foreign exchange  transactions  continue to take
place either through the Bank of China or other banks authorized to buy and sell
foreign  currencies at the exchange  rates quoted by the People's Bank of China.
Approval of foreign currency payments by the Bank of China or other institutions
requires   submitting  a  payment  application  form  together  with  supplier's
invoices, shipping documents and signed contracts.


                                      F-9

<PAGE>

K.       USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  in the United States of America  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.

L.       REVENUE RECOGNITION

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

The  Group  does not  always  receive  revenue  for  shipping  and  handling  to
customers.  Shipping and  handling  expenses  incurred by the Group  amounted to
$3,234 and $5,294 for the four months ended April 30, 2004 and 2003 respectively
and are  included in selling  and  administrative  expenses in the  accompanying
consolidated statements of income.

M.       EMPLOYEES' BENEFITS


Mandatory contributions are made to the Government's health,  retirement benefit
and  unemployment  schemes at the  statutory  rates in force  during the period,
based on gross  salary  payments.  The cost of these  payments is charged to the
statement of income in the same period as the related salary cost.


N.       SEGMENTS

No business or geographical  segment  analysis is provided,  as less than 10% of
consolidated  revenues and less than 10% of consolidated  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.



O.       COMPREHENSEICVE INCOME/(LOSS)

The Group has  adopted the  provisions  of  Statement  of  Financial  Accounting
Standards No. 130, "Reporting  Comprehensive  Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for the reporting and display of comprehensive income,
its  components  and  accumulated  balances  in a full  set of  general  purpose
financial  statements.  SFAS No.  130  defines  comprehensive  income  (loss) to
include all changes in equity except those resulting from  investments by owners
and   distributions  to  owners,   including   adjustments  to  minimum  pension
liabilities,  accumulated foreign currency translation,  and unrealized gains or
losses on marketable securities.

P.       CONCENTRATION OF CREDIT RISK

Financial   instruments  that  potentially  subject  the  Group  to  significant
concentrations  of credit risk consist  primarily of trade accounts  receivable.
The Group  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 Group's  accounts  receivable,  the Group  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.

Q.       RECENT PRONOUNCEMENTS

In  April  2002,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards ("SFAS") No.145,  Rescission of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical


                                      F-10

<PAGE>

Corrections.  SFAS 145  rescinds  the  provisions  of SFAS  No. 4 that  requires
companies  to classify  certain  gains and losses from debt  extinguishments  as
extraordinary  items,  eliminates  the  provisions  of  SFAS  No.  44  regarding
transition  to the Motor  Carrier Act of 1980 and amends the  provisions of SFAS
No. 13 to require that certain lease  modifications be treated as sale leaseback
transactions.  The  provisions  of SFAS 145  related to  classification  of debt
extinguishments  are  effective for fiscal years  beginning  after May 15, 2002.
Earlier application is encouraged.

In July 2002,  the FASB  issued  SFAS No.  146,  "Accounting  for  Restructuring
Costs." SFAS 146 applies to costs  associated  with an exit activity  (including
restructuring)  or with a disposal of long-lived  assets.  Those  activities can
include  eliminating  or  reducing  product  lines,  terminating  employees  and
contracts and  relocating  plant  facilities  or personnel.  Under SFAS 146, the
Company will record a liability for a cost  associated  with an exit or disposal
activity when that liability is incurred and can be measured at fair value. SFAS
146 will require the Company to disclose information about its exit and disposal
activities,  the related  costs,  and changes in those costs in the notes to the
interim and annual financial statements that include the period in which an exit
activity  is  initiated  and in any  subsequent  period  until the  activity  is
completed.  SFAS 146 is effective  prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged.  Under SFAS
146, a company cannot restate its previously issued financial statements and the
new statement  grandfathers  the accounting for  liabilities  that a company had
previously recorded under Emerging Issues Task Force Issue 94-3.


In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation-Transition and Disclosure - an amendment of SFAS Statement No. 123,
"Accounting for Stock Based Compensation" which provides alternative methods for
accounting  for a change by  registrants  to the fair value method of accounting
for  stock-based  compensation.  Additionally,  SFAS 148 amends  the  disclosure
requirements  of SFAS 123 to require  disclosure in the  significant  accounting
policy footnote of both annual and interim financial statements of the method of
accounting for stock  based-compensation  and the related pro forma  disclosures
when the intrinsic value method continues to be used. The statement is effective
for fiscal  years  beginning  after  December  15,  2002,  and  disclosures  are
effective for the first fiscal quarter beginning after December 15, 2002.


In April 2003,  the FASB issued SFAS No. 149,  "Amendment  of  Statement  133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies  financial  accounting  and  reporting  for  derivative   instruments,
including   certain   derivative   instruments   embedded  in  other   contracts
(collectively  referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".

The  changes in SFAS No. 149  improve  financial  reporting  by  requiring  that
contracts  with  comparable  characteristics  be accounted for  similarly.  This
statement is effective  for  contracts  entered into or modified  after June 30,
2003 and all of its provisions should be applied prospectively.


In May 2003,  the FASB issued SFAS No. 150,  "Accounting  For Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity".  SFAS No. 150
changes the accounting for certain financial instruments with characteristics of
both liabilities and equity that, under previous  pronouncements,  issuers could
account for as equity.  The new  accounting  guidance  contained in SFAS No. 150
requires that those  instruments  be classified  as  liabilities  in the balance
sheet.


SFAS No. 150 affects the  issuer's  accounting  for three types of  freestanding
financial  instruments.  One type is  mandatory  redeemable  shares,  which  the
issuing company is obligated to buy back in exchange for cash or other assets. A
second type includes put options and forward purchase contracts,  which involves
instruments  that do or may require the issuer to buy back some of its shares in
exchange  for cash or other  assets.  The  third  type of  instruments  that are
liabilities under this SFAS is obligations that can be settled with shares,  the
monetary  value of which is fixed,  tied solely or  predominantly  to a variable
such as a market  index,  or varies  inversely  with the  value of the  issuers'
shares.  SFAS No.  150  does  not  apply to  features  embedded  in a  financial
instrument that is not a derivative in its entirety.


                                      F-11

<PAGE>

Most of the  provisions  of  Statement  150 are  consistent  with  the  existing
definition  of  liabilities  in FASB  Concepts  Statement  No. 6,  "Elements  of
Financial Statements". The remaining provisions of this SFAS are consistent with
the FASB's proposal to revise that definition to encompass  certain  obligations
that a reporting entity can or must settle by issuing its own shares.  This SFAS
shall be effective for financial  instruments entered into or modified after May
31, 2003 and otherwise  shall be effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatory  redeemable financial
instruments of a non-public entity, as to which the effective date is for fiscal
periods beginning after December 15, 2004.

In January 2003, and as revised in December 2003, the FASB issued Interpretation
No. 46, "Consolidation of Variable Interest Entities"  "Interpretation No. 46"),
an interpretation of Accounting Research Bulletin ("ARB") No. 51", "Consolidated
Financial Statements". Interpretation No. 46 addresses consolidation by business
enterprises  of  variable  interest  entities,  which  have  one or  both of the
following  characteristics:  (i) the equity investment at risk is not sufficient
to permit the entity to finance its activities without  additional  subordinated
support from other parties, which is provided through another interest that will
absorb  some or all of the  expected  losses  of the  entity;  (ii)  the  equity
investors  lack  one or more of the  following  essential  characteristics  of a
controlling financial interest: the direct or indirect ability to make decisions
about the entity's  activities  through voting rights or similar rights;  or the
obligation  to absorb the  expected  losses of the entity if they  occur,  which
makes it possible for the entity to finance its activities; the right to receive
the  expected  residual  returns  of the  entity  if they  occur,  which  is the
compensation for the risk of absorbing the expected losses.

Interpretation  No. 46, as revised,  also requires  expanded  disclosures by the
primary  beneficiary  (as  defined)  of a  variable  interest  entity  and by an
enterprise  that holds a significant  variable  interest in a variable  interest
entity but is not the primary beneficiary.

Interpretation  No. 46, as revised,  applies to small business  issuers no later
than the end of the first  reporting  period that ends after  December 15, 2004.
This effective date includes those entities to which  Interpretation  No. 46 had
previously  been  applied.   However,  prior  to  the  required  application  of
Interpretation  No. 46, a public  entity that is a small  business  issuer shall
apply  Interpretation  No.  46 to  those  entities  that  are  considered  to be
special-purpose  entities  no later  than as of the end of the  first  reporting
period that ends after December 15, 2003.

Interpretation  No. 46 may be  applied  prospectively  with a  cumulative-effect
adjustment  as of  the  date  on  which  it is  first  applied  or by  restating
previously   issued   financial   statements  for  one  or  more  years  with  a
cumulative-effect adjustment as of the beginning of the first year restated.


In June 2003,  the FASB  issued an Exposure  Draft for  proposed  SFAS  entitled
"Qualifying  Special  Purpose  Entities  ("QSPE") and  Isolation of  Transferred
Assets", an amendment of SFAS No. 140 ("The Exposure Draft"). The Exposure Draft
is a proposal that is subject to change and as such,  is not yet  authoritative.
If the proposal is enacted in its current  form,  it will amend and clarify SFAS
140. The Exposure  Draft would prohibit an entity from being a QSPE if it enters
into an agreement that obliged a transferor of financial assets, its affiliates,
or its  agents  to  deliver  additional  cash or other  assets  to  fulfill  the
special-purposes entity's obligation to beneficial interest holders.


Management does not expect these recent pronouncements to have a material impact
on the Company's consolidated financial position or results of operations.


4. TRADE RECEIVABLE

The Group's trade receivable at April 30, 2004 and 2003 are summarized as
follows:

                                                            2004         2003
                                                         ----------   ----------
Trade receivable                                         $4,721,411   $2,875,990
Less: Allowance for doubtful accounts                     2,353,047       15,663
                                                         ----------   ----------
                                                         $2,368,364   $2,860,327
                                                         ==========   ==========



                                      F-12

<PAGE>

The activity in the Group's  allowance for doubtful  accounts during the periods
ended April 30, 2004 and 2003 is summarized as follows:

                                                            2004         2003
                                                         -----------------------
Balance at beginning of year                             $  829,716   $    4,211
Add: amounts provided during the year                     1,523,331       11,452
Less: amounts written off during the year                      --           --
                                                         -----------------------
Balance at end of year                                   $2,353,047   $   15,663
                                                         =======================


5. PROPERTY, PLANT AND EQUIPMENT

                                                            2004         2003
                                                         -----------------------

Cost :
Buildings and leasehold improvement                      $   61,254   $   61,254
Plant and machinery                                       3,038,046    3,022,994
Motor vehicles                                               65,493       65,493
Office equipment and furnishings                             48,793       44,696
                                                         -----------------------
                                                          3,213,586    3,194,437

Less Accumulated depreciation:
Buildings and leasehold improvement                          37,196       26,171
Plant and machinery                                         892,133      607,396
Motor vehicles                                               45,463       33,674
Office equipment and furnishings                             27,161       18,482
                                                         -----------------------
                                                          1,001,953      685,723
                                                         -----------------------
Property, plant and equipment, net                       $2,211,633   $2,508,714
                                                         =======================

Depreciation expenses relating to property, plant and equipment was $105,820 and
$104,542 for the four months ended April 30, 2004 and 2003, respectively.


6.       INVENTORIES

                                                            2004         2003
                                                         -----------------------

Raw materials                                            $   44,588   $   34,319
Finished goods                                               34,939      290,336
                                                         -----------------------
Total Inventories                                        $   79,527   $  324,655
                                                         =======================




7.       PREPAYMENT

Prepayment represents advances to suppliers.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at April 30, 2004 and 2003 are summarized
as follows:

                                                            2004         2003
                                                         -----------------------

Accounts payable                                         $   97,148   $   92,590
Accrued expenses                                          1,405,961    1,195,928
                                                         -----------------------
                                                         $1,503,109   $1,288,518
                                                         =======================


                                      F-13

<PAGE>

9. BANK LOANS

In April  2002,  HQ  entered  into one  year,  renewable  loans  with a bank for
$2,289,157 and $963,855.  The loans bear interest at 6.372% per annum.  In April
2003,  the loans  were  renewed  for  $2,048,193  and  $963,855.  The loans bear
interest  at 6.588% per annum.  The loans were  secured by the pledge of certain
fixed assets held by HQ.

In April 2004,  the above loans expired and HQ had yet to repay.  As of the date
of this report,  HQ is in  negotiation  with the banker to extend and expects to
have the loans extended for not less than one year to April 2005.

In addition,  in March 2003,  HQ also entered into a one-year  loan with another
bank for  $6,024,097.  The loan is  unsecured  and bears  interest at 4.779% per
annum. The loan was fully repaid in January 2004.

The  amount  due on the  loans at April  30,  2004 and 2003 was  $3,012,048  and
$9,036,145, respectively.

10. INCOME TAXES

HQ  registered  in the PRC is subject to state and local income taxes within the
PRC at the  applicable  tax rate on the taxable  income as reported in their PRC
statutory  financial  statements in accordance with the relevant income tax laws
applicable to foreign  enterprises.  HQ was subject to a tax rate of 7.5% during
2003.  HQ is entitled to a two-year  tax holiday from 2001  commencing  with the
first profit-making year.

The  reconciliation  of the  effective  income  tax rate of the  Company  to the
statutory income tax rate in the PRC for the four months ended April 30, 2004 is
as follows:

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


The Group's (loss)/income before income taxes was comprised of the following for
the four months ended April 30, 2004 and 2003:

                                                          2004           2003
                                                      --------------------------

United States                                         $      --      $      --
PRC                                                    (2,788,462)     1,352,689
                                                      --------------------------
                                                      $(2,788,462)   $ 1,352,689
                                                      ==========================

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

The provisions for income taxes for each of the four months ended April 30, 2004
and 2003 are summarized as follows:

PRC only:                                                  2004          2003
                                                       -------------------------

Current                                                $      --     $    93,315
Deferred tax                                                22,725        22,725
                                                       -------------------------
                                                       $    22,725   $   116,040
                                                       =========================



                                      F-14
Tax (recoverable)/payable comprise the following:

                                                          2004           2003
                                                      -----------    -----------

Balance at beginning of 1st January                   $   (81,602)   $      --
Income tax provided for the period                           --           93,315
                                                      -----------    -----------
As at 30th April                                      $   (81,602)   $    93,315
                                                      ===========    ===========

Deferred tax assets comprise the following:

                                                          2004           2003
                                                      --------------------------

Balance at beginning of 1st January                   $ 1,426,334    $ 1,494,508
Deferred tax written off for the period                    22,725         22,725
                                                      --------------------------
Balance at end of 30th April                          $ 1,403,609    $ 1,471,783
                                                      ==========================


Deferred  taxation  is  calculated  under the  liability  method in  respect  of
taxation  effect  arising from all timing  differences,  which are expected with
reasonable probability to crystallize in the foreseeable future.

11. CONVERTIBLE NOTES

In  December   2002,  the  Company   entered  into  a  subscription   agreement,
non-interest  bearing,  with an accredited investor,  for the sale of a $255,422
principal amount of convertible  notes, in a private  placement,  to assist with
the financing of operations in PRC. The notes shall be repayable  after 9 months
of the  agreement  should  the  private  placement  be  failed.  In May 2004,  a
supplementary  agreement was signed as the private placement was no longer being
pursed. The notes are to be due in May 2005.


12. SHARE CAPITAL

                                                           2004          2003
                                                       -------------------------
Authorized :-
25,000,000 shares of $0.001 each
  (2003: 50,000 shares of $1 each)                     $    25,000   $    10,000
                                                       =========================

Issued and fully paid :-
25,000,000 shares of $ 0.001 each
  (2003: 1 share of $ 1 each)                          $    25,000   $         1
                                                       =========================


During  March  2003,  the  Group  effected  a 100  to 1  forward  split  of  its
outstanding  and existing  shares of common stock,  thus  increasing  the 49,999
shares of common stock outstanding at that time to 4,999,900 shares and increase
the 1 share of existing share of common stock at that time to 100 shares.

In May 2003,  8,406 and 1,494 shares of $0.01 each were allotted at par and at a
premium of $1,915,647,  respectively,  for cash to investors in order to broaden
the company's capital base.


13.      RESERVES

The reserve funds are comprised of the following:

                                                           2004          2003
                                                       -------------------------

Statutory surplus reserve fund                         $   681,877   $   519,033
Public welfare fund                                    $   275,779   $   259,516
                                                       -------------------------
                                                       $   957,656   $   778,549
                                                       =========================



                                      F-15

<PAGE>

Pursuant to the relevant  laws and  regulations  of  Sino-foreign  joint venture
enterprises,  the  profits  of the HQ,  which are  based on their PRC  statutory
financial  statements,  are  available  for  distribution  in the  form  of cash
dividends  after they have satisfied all the PRC tax  liabilities,  provided for
losses  in  previous  years,  and  made  appropriations  to  reserve  funds,  as
determined at the  discretion  of the board of directors in accordance  with the
PRC accounting standards and regulations.


As stipulated by the relevant laws and regulations for enterprises  operating in
the PRC,  the Jade  Profit's  Sino-foreign  joint  ventures are required to make
annual appropriations to two reserve funds,  consisting of the statutory surplus
and public welfare funds.  In accordance  with the relevant PRC  regulations and
the articles of  association  of the  respective  companies,  the  companies are
required to allocate a certain  percentage of their profits after  taxation,  as
determined in accordance  with the PRC  accounting  standards  applicable to the
companies,  to the statutory  surplus  reserve until such reserve reaches 50% of
the registered capital of the companies.

Net income as reported in the US GAAP financial  statements differs from that as
reported in the PRC  statutory  financial  statements.  In  accordance  with the
relevant laws and regulations in the PRC, the profits available for distribution
are based on the  statutory  financial  statements.  If HQ has foreign  currency
available  after  meeting  its  operational   needs,  HQ  may  make  its  profit
distributions  in foreign  currency to the extent foreign currency is available.
Otherwise,  it is necessary to obtain approval and convert such distributions at
an authorized bank.

14. SIGNIFICANT CONCENTRATION

The Group grants credit to its  customers,  generally on an open account  basis.
HQ's five largest  customers  accounted for 100.0% of the consolidated  sales in
2004, in which all customers are in excess of 10% of  consolidated  sales,  with
38.0%,  20.6%,  20.1%, 10.8% and 10.5% of consolidated sales, or an aggregate of
100% of consolidated sales.

At April  30,  2004,  approximately  5% of trade  receivables  were  from  trade
transactions with the aforementioned five customers.

15. RELATED PARTY TRANSACTIONS

The Group sold goods to a related  company,  Hainan  Jiahua  Marine  Bioproducts
Company Limited, amounting to $0 and $51,743 for the four months ended April 30,
2004 and 2003,  respectively.  These transactions were consummated under similar
terms as those with the Group's  customers.  Trade  receivable  from the related
company was nil at April 30, 2004 and 2003.

The above related company is a company incorporated in the PRC, of which certain
directors can execute significant influence in HQSM and HQ.

16.      WARRANTIES

The Group did not incur any  warranty  costs in for the four months  ended April
30, 2004 and 2003.

17. COMMITMENTS AND CONTINGENCIES

A.       CAPITAL COMMITMENTS


As of April 30, 2004 HQ has no  significant  capital  commitments  required  for
disclosure.


B.       LEGAL PROCEEDINGS

The  Group  is  not  currently  a  party  to any  threatened  or  pending  legal
proceedings.



                                      F-16

<PAGE>

18. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The Group faces a number of risks and challenges since its operations are in the
PRC. The Group's operations in the PRC are subject to special considerations and
significant  risks not typically  associated with companies in North America and
Western Europe.  The Group's results may be adversely affected by changes in the
political  and social  conditions  in the PRC,  and by  changes in  governmental
policies  with  respect  to laws and  regulations,  anti-inflationary  measures,
currency  conversion and remittance  abroad,  and rates and methods of taxation,
among other things.

19. SUBSEQUENT EVENTS

In April of 2004,  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 June 15, 2004, the company signed a non-binding letter of intent to acquire a
California  based  processor  of seafood  products.  The  purchase  price of the
potential  acquisition  requires  a  combination  of cash  and  common  stock of
approximately $6.6 million.































                                      F-17


<PAGE>

     ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

         As disclosed in our Current  Report on Form 8-K filed May 18, 2004,  in
view of the merger among Process Equipment,  Inc., Process Equipment Acquisition
Corporation and Jade, as more fully described in the Registrant's Form 8-K filed
on March 17, 2004, and Process  Equipment,  Inc.'s newly  acquired  subsidiary's
operations  in China,  the  Board of  Directors  believed  that a firm with more
international  auditing  experience  should be engaged  to perform  work for the
company.  As a  result,  the  Board of  Directors  approved  the  engagement  of
Rotenberg & Co., LLP  ("Rotenberg")  as the  principal  accountant  to audit our
financial  statements,  effective May 12, 2004, to replace Baum & Company,  P.A.
("Baum").  No audit  committee  exists  other  than the  members of the Board of
Directors.

         The principal  accountant's report of Baum on our financial  statements
for  either  of the past  two  years  did not  contain  an  adverse  opinion  or
disclaimer of opinion,  nor was it modified as to the uncertainty,  audit scope,
or accounting principles.

         During our two most  recent  fiscal  years and any  subsequent  interim
period  through the date of the principal  accountant's  resignation  on May 12,
2004,  there were no  disagreements  with the former  accountant,  Baum,  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure,  which, if not resolved to the former  accountant's
satisfaction,  would have caused it to make  reference to the subject  matter of
the disagreement(s) in connection with its report.

         We provided Baum with a copy of the statements made above and requested
Baum to furnish a letter  addressed to the  Securities  and Exchange  Commission
stating whether or not Baum agrees with the statements and, if not,  stating the
respects in which it does not agree. A copy of this letter,  dated May 18, 2004,
is filed as an exhibit to the Form 8-K filed May 18, 2004.

         We have not consulted  with  Rotenberg,  our new principal  independent
accountant,  during the last two years or  subsequent  interim  period up to and
including the date we engaged  Rotenberg on either the application of accounting
principles or type of opinion Rotenberg might issue on our financial statements.



Item 8A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures.

         As of the end of the period  covered by this  report  (the  "Evaluation
Date"),  we  carried  out an  evaluation,  under  the  supervision  and with the
participation  of our  management,  including  our Chief  Executive  Officer and
President,  and our Acting 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 (the  "Exchange  Act").
Based upon this  evaluation,  our Chief  Executive  Officer and our Acting Chief
Financial  Officer  concluded  that, as of the  Evaluation  Date, our disclosure
controls and procedures were effective under Rule 13a-15.

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

(b)      Changes in Internal Controls.

         There were no changes in our internal controls or in other factors that
could  significantly  affect these internal  controls  subsequent to the date of
their evaluation.


<PAGE>
<TABLE>
<CAPTION>

                                    PART III


ITEM 9 DIRECTORS,  EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT


         Directors And Executive Officers

         The  following  table  sets  forth the  names  and ages of our  current
directors and executive officers,  their principal offices and positions and the
date each such person  became our director or executive  officer.  The executive
officers are all full time employees of HQSM.

         The directors and executive officers of HQSM are as follows:

    NAME               AGE    POSITION                                    DATEE OF APPOINTMENT
---------------        ---    -----------------------------------------   ---------------------------
<S>                     <C>   <C>                                         <C>
Lillian Wang Li         47    Director/Chairman of Board of               March 25, 2004 as director;
                              Directors//Acting Chief Financial           April 13, 2004 as executive
                              Officer/Secretary                           officer
Harry Wang Hua          41    Director/Chief Operating Officer            March 25, 2004
Norbert Sporns          50    Director/Chief Executive Officer/President  March 25, 2004
Jacques Vallee          52    Director                                    June 15, 2004
Fred Bild               67    Director                                    June 15, 2004
Jean-Pierre Dallaire    55    Financial Controller                        April 13, 2004
He Jian Bo              37    Manager Finance Dept.                       April 13, 2004
Liam Haniffy            37    Sales and Quality Production Manager        April 13, 2004
Wang Fu Hai             60    Chief Production Controller                 April 13, 2004
</TABLE>


         Our directors are  generally  elected until the next annual  meeting of
shareholders  and until their  successors  are elected and  qualified,  or until
their earlier  resignation or removal.  We have recently appointed Fred Bild and
Jacques Vallee as independent non-executive directors,  effective as of June 15,
2004, pursuant to Independent  Non-Executive Director Agreements we entered into
with each of them. In consideration for their services, we agreed to pay each of
Bild and Vallee an annual salary of $15,000 and an annual bonus of not less than
$15,000 payable in shares of our common stock.

         Our officers are generally  elected  annually by the board of directors
and hold  office for a term of one year and until a  successor  is  elected  and
qualified,   or  until  their  earlier  resignation  or  removal.  All  officers
identified above serve at the discretion of our board of directors.

Family Relationships

         Lillian  Wang Li and Harry Wang Hua are brother and sister and Ms. Wang
is married to Norbert Sporns.

         Set forth  below  are the  brief  descriptions  of the  background  and
experience of each of our officers and directors:

         Lillian  Wang  Li -  Chairman  of  Board  of  Directors,  Acting  Chief
Financial Officer and Secretary

         Lillian  Wang Li,  age 47,  is one of the  founders  of HQSM and is the
chairman  of  our  board  of  directors.  She is  responsible  for  the  general
administration,  strategic  planning and financial  management of HQSM. Ms. Wang
graduated  from  the  Beijing  University   majoring  in  European  and  Chinese
Literature  and holds a certificate  in business  administration  from Concordia
University,  Canada.  She has over twenty-five years experience in management of
China and Canadian businesses, particularly with respect to financial matters.


<PAGE>

Harry Wang Hua - Director and Chief Operating Officer

         Harry  Wang Hua,  age 41, is one of the  founders  of HQSM,  and is our
director and chief operating officer. He is responsible for the establishment of
the production  facilities and their  operation in HQSM. He attended the Beijing
Industrial  University majoring in civil engineering.  Mr. Wang has over fifteen
years'  experience in managing  startup  companies in China and in Canada and in
training middle managers in China to Western standards.

Norbert Sporns - Director, Chief Executive Officer and President

         Norbert  Sporns,  age 50, is one of the  founders  of HQSM,  and is our
director,  chief executive officer and president. He has extensive experience in
project development and investment consultancy. He graduated from the University
of British Columbia, Canada, majoring in Philosophy. He also holds a Bachelor of
Civil Law degree  and a Bachelor  of  English  Common  Law  degree  from  McGill
University and a Certificate of Tax Law, a Certificate in Condominium  Law and a
Diploma of Notarial Law from the University of Montreal.  Mr. Sporns joined HQSM
in 1997.

Jacques Vallee -Director

         Jacques Vallee, age 52, is our independent  non-executive  director. He
is currently in charge of Business  Development  and Financing with the Altitude
Consulting Group. In addition to an M.B.A. from the University of Sherbrooke and
an advanced  Certificate  in Business  Administration  from the  Univerisite  de
Quebec a Trois Rivieres, Mr. Vallee also holds a post-graduate level Advertising
Management Diploma from the Ecole des Hautes Etudes Commerciales, France. He has
over 30 years of management  experience at such notable Canadian institutions as
the Bank of  Montreal,  La  Federation  des  Caisses  Populaires  Desjardins  de
Richelieu-Yamaska,  Le  Fonds de  Solidarite  des  Travailleurs  du  Quebec  and
Altitude  Consulting  Group.  While Mr.  Vallee was an executive  officer of Les
Controles   Sixtronic  Inc.,  that  company  became  involved  in  a  bankruptcy
proceeding in 2000.

Fred Bild - Director

         Fred Bild, age 67, is currently Visiting Professor at the University of
Montreal's Centre of East Asian Studies and is a private consultant on political
and economic relations with China and East Asia.  Professor Bild received a B.A.
in Philosophy and Sociology from Sir George  Williams  University,  a Diploma in
International Law from University  College,  London, and a Diplome de Stage from
the Ecole National  d'Administration in Paris. Over the past nearly forty years,
Mr. Bild has served the Canadian Embassy in various functions including Cultural
Attache  (Tokyo),  Economic  Counsel and Deputy Chief (Paris) and  Ambassador to
Thailand and China.

Jean-Pierre Dallaire - Financial Controller

         Jean-Pierre  Dallaire,  age 55, is the financial controller of HQSM. He
has  experience  with  Canada's  largest   engineering   company  where  he  was
responsible for cash flow  projections  and project  financial  supervision.  He
holds a Master  degree in  Administration  (Accounting)  from the  University of
Sherbrooke, Canada. He joined HQSM in 2000.

He Jian Bo - Manager Finance Department

         He Jian Bo, age 37, is the manager of the finance  department  of HQSM.
He holds a Bachelor's  and a Master  degree in Economics  from the  Southwestern
University of Finance and Economics, the PRC. He joined HQSM in 1999.

Liam Haniffy - Sales and Quality Product Manager

         Liam Haniffy, age 37, is the international sales and quality production
manager of HQSM. He holds a bachelor's  degree in business  administration  from
the University of Gonzaga, U.S.A. and a certificate in fisheries (processing and
preservation  techniques) from Dalhousie  University,  Canada. He joined HQSM in
2001.


<PAGE>
<TABLE>
<CAPTION>

Wang Fu Hai - Director and Chief Accounting and Finance Officer

         Wang Fu Hai, age 60, is the Chief Production Controller and Engineer of
HQSM.  He  graduated  from Post  College in 1966.  He was the manager of Project
Department  Hainan Jiahua Ocean  Organism  Co., Ltd. He has solid  experience in
production coordination and control. He joined HQSM in 1997.


         Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the Exchange Act  requires our  directors,  executive
officers  and  persons  who own more than 10% of a required  class of our equity
securities,  to file with the SEC initial  reports of  ownership  and reports of
changes in ownership of common stock and other equity securities of our company.
Officers,  directors  and  greater  than 10%  shareholders  are  required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.

         To our  knowledge,  based upon a review of the  copies of such  reports
furnished to us and based upon  written  representations  that no other  reports
were  required,  all  Section  16(a)  filing  requirements   applicable  to  our
officers',  directors and greater than 10% beneficial  owners were complied with
during the fiscal tear ended April 30, 2004 and subsequently.


         Code of Ethics

         In July  2004,  our board of  directors  adopted a code of ethics  that
applies to all of our officers and employees,  including our principal executive
officer,   principal  financial  officer,   principal   accounting  officer  and
controller. The code of ethics will establish standards and guidelines to assist
our  directors,  officers and  employees in  complying  with both our  corporate
policies and with the law. It has been posted at our website: WWW.HQFISH.COM.


ITEM 10 EXECUTIVE COMPENSATION

         The  following  table sets forth  certain  information  concerning  the
compensation  paid to our chief executive  officer and our two other most highly
compensated  executive  officers who earned at least $100,000 during the periods
described below:

Name and
Principal Position              Annual Compensation                               Long-Term Compensation
------------------  ----------------------------------------   ------------------------------------------------------------
                                                                            Awards                         Payouts

                                                                 Annual   Quarterly
                                                                 Stock      Stock                                    All Other
                                                                Options    Options                        LTIP Pay      Com-
                    Year(1)   Salary(2)    Bonus(2)    Other   (2) (3)     (2) (3)     Exercise Price    -outs ($)   pensation
                    -------   ---------    --------    -----   --------   ---------  -----------------   ---------   ---------
<S>                 <C>       <C>          <C>         <C>     <C>        <C>        <C>                 <C>
Harry Wang,         2001      $0           $0           $0                                               $0          $0
Chief Operating     2002      $0           $0           $0                                               $0          $0
Officer             2003      $0           $0           $0                                               $0          $0
                    2004      $100,000     $100,000             20%       5%         fair market value   $0          $0


<PAGE>

Lillian Wang Li,    2001      $0           $0           $0                                               $0          $0
Chairman of the     2002      $0           $0           $0                                               $0          $0
Board/Acting        2003      $0           $0           $0                                               $0          $0
Chief Financial     2004      $150,000     $100,000     $0      20%       5%         fair market value   $0          $0
Officer/
Secretary

Norbert Sporns,     2001      0            $0           $0                                               $0          $0
Chief Executive     2002      $0           $0           $0                                               $0          $0
Officer/ President  2003      $0           $0           $0                                               $0          $0
                    2004      $100,000     $50,000      $0      20%       5%         fair market value   $0          $0
</TABLE>


(1)  During  the years  2001,  2002 and 2003 and until our merger  with  Process
     Equipment in 2004, which is described  elsewhere in this annual report, all
     of the  persons  named in this table were  employed  by the  Chinese  Joint
     Venture Hainan Quebec Ocean Fishing Co., Ltd., a predecessor of Jade.
(2)  For more information  about the employment  agreements we entered into with
     Mr. Wang, Mr. Sporns and Ms. Wang Li, please see  "Management--  Employment
     Agreements."
(3)  The  percentage  stated is of the fully diluted shares of our voting common
     stock made available  under our 2004 Stock  Incentive  Plan, at the time of
     the grant.

         Director Compensation

         Unless otherwise  restricted by the certificate of  incorporation,  our
members of board of  directors  have the  authority to fix the  compensation  of
directors.  The directors may be paid their  expenses,  if any, of attendance at
each  meeting  of the  board  of  directors  and  may be  paid a  fixed  sum for
attendance  at each  meeting  of the board of  directors  or a stated  salary as
director.  No  such  payment  shall  preclude  any  director  from  serving  the
corporation in any other capacity and receiving compensation  therefor.  Members
of special or standing committees may be allowed like compensation for attending
committee meetings.

         Please  also  refer  to  the  above  description  of  our  compensation
arrangements  with each of our two  non-executive  independent  directors  under
"--Directors and Executive Officers."


         Audit Committee Financial Expert

         As stated above, we recently  appointed two  independent  non-executive
directors  to our  board  of  directors.  We  consider  one  of our  independent
directors,  Mr. Vallee,  to be an audit  committee  financial  expert within the
meaning  of  the  applicable   Securities  and  Exchange  Commission  rules  and
regulations.


ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.


(a) and (b) Ownership of Certain Beneficial Owners and Management

         The following table sets forth certain information regarding beneficial
ownership  of common stock as of May 28,  2004,  and after giving  effect to our
recent merger described elsewhere in this annual report, by:

         each  person  known to us to own  beneficially  more  than  5%,  in the
aggregate, of the outstanding shares of our common stock;


<PAGE>
<TABLE>
<CAPTION>

         o        each director;

         o        each of our  chief  executive  officer  and our other two most
                  highly compensated executive officers; and

         o        all executive officers and directors as a group.

The number of shares  beneficially  owned and the percent of shares  outstanding
are  based on  63,809,437  shares  outstanding  as of May 28,  2004.  Beneficial
ownership is determined  in  accordance  with the rules of the SEC and generally
includes  voting or  investment  power  with  respect to  securities.  Except as
otherwise noted below,  the address of each of the  shareholders in the table is
c/o HQ  Sustainable  Maritime  Industries,  Inc.,  Wall Street  Center,  14 Wall
Street, 20th Floor, New York, New York 10005.

                                              Shares of Common Stock Beneficially Owned
Beneficial Owner                                  Number                     Percent
<S>                                               <C>                        <C>
Barron Partners LP                                6,660,000(1)               10.44%

Norbert Sporns                                    9,885,422(2)               15.49%

Lillian Wang                                      10,297,314(2)              16.14%

Harry Wang                                        21,006,522(2)              32.92%

Jacques Vallee                                    --(3)                      --

Fred Bild                                         --(3)                      --

All such directors and executive officers as a    41,189,258                 64.55%
group (10 persons)
</TABLE>


(1)  Consists of 3,700,000  shares of our common stock that are currently  owned
     beneficially;  1,480,000 shares of common stock underlying a Class C common
     stock purchase  warrant that may be exercised within 60 days; and 1,480,000
     shares of common stock  underlying a Class D common stock purchase  warrant
     that may be exercised  within 60 days.  Barron  Partners LP's address is to
     the attention of Andrew Barron Worden,  Managing Partner, 730 Fifth Avenue,
     9th Floor, New York, NY 10019.
(2)  Beneficially  owns the shares  indicated,  which are owned of record by Red
     Coral  Group  Limited.  Each of Mr.  Sporns,  Ms.  Wang and Mr.  Wang  own,
     respectively, 24%, 51% and 25% of the issued capital of Red Coral and share
     voting and investment power over the shares held by Red Coral.
(3)  Please see  "Management--Directors and Executive Officers" regarding future
     option awards we plan to be granting to these independent directors.

(c)      No Change of Control Arrangements

         We know of no plans or  arrangements  that  will  result in a change of
control at our company.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.


         The  Group  sold  goods to a  related  company,  Hainan  Jiahua  Marine
Bioproducts Company Limited, amounting to $0 and $51,743 for the four months end
April 30, 2004 and 2003, respectively. These transactions were consummated under
similar terms as those with the Group's  customers.  Trade  receivable  from the
related  company was nil at April 30, 2004 and 2003.  Some of its  directors are
also directors of Jade and Hainan Quebec.  The above transactions we consummated
under terms similar to those we extend to our third party customers.


<PAGE>

         In addition, as stated in the Current Form 8-K filed on March 17, 2004,
Jade is the parent and  management  company  that owns 84.42% of Hainan  Quebec.
Lillian Li Wang , who owns 21.27% of Jade and Norbert Sporns, who owns 20.41% of
Jade are husband and wife.  Lillian Li Wang and Harry Wang Hua,  who owns 43.38%
of Jade, are brother and sister, and Wang Fu Hai, one of our executive officers,
is their uncle.  Their father,  who does not own any shares of Jade,  indirectly
owns 14.02% in Hainan Quebec.  The remaining  minority equity interest in Hainan
Quebec is owned by an unrelated party residing in the PRC.


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits Pursuant to Item 601 of Regulation S-B:

Exhibit Number    Title
--------------    -----

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

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

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

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

16                Letter,  dated May 18,  2004 from Baum &  Company,  P.A.,  the
                  Registrant's former principal  accountants,  to the Securities
                  and  Exchange   Commission   pursuant  to  Item  304(a)(3)  of
                  Regulation  S-B  (incorporated  by  reference to the Report on
                  Form  8-K of  Process  Equipment,  Inc.  (Commission  File No.
                  0-18980), filed with the Commission on May 18, 2004).

21                Subsidiaries of the Registrant

23.1              Consent of Rotenberg & Co., L.L.P.

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

31.2              Certification of Lillian Wang,  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.

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

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



<PAGE>

(b)      Reports on Form 8-K.

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

(1)      Current report on Form 8-K filed with the Commission on March 17, 2003

         In this report,  we disclosed the principal terms of the March 14, 2004
Agreement and Plan of Merger pursuant to which Process Equipment,  Inc., through
its wholly-owned subsidiary, Process Equipment Acquisition Corporation, acquired
Jade Profit  Investment  Limited,  and 84.42% ownership in its subsidiary Hainan
Quebec in exchange  for shares of Process  Equipment,  Inc.'s  common  stock and
warrants to acquire  additional  shares of common stock.  Principal terms of the
Agreement and Plan of Merger were also set forth,  as well as description of the
business of Process  Equipment,  Inc.  and Jade Profit  Investment  Limited.  In
addition,  a  change  in our  fiscal  year  from  April  30 to  December  31 was
announced.

(2)      Current report on Form 8-K filed with the Commission on April 2, 2004

         This report  disclosed  consummation  of the  transaction  on March 25,
2004, pursuant to above Agreement and Plan of Merger,  which was first announced
in the Form 8-K filed on March 17,  2003.  Pursuant to the  consummation  of the
Agreement and Plan of Merger,  Process Equipment Acquisition  Corporation merged
with and into Jade Profit Investment Limited.  The separate existence of Process
Equipment  Acquisition  Corporation  ceased and Jade Profit  Investment  Limited
became a wholly owned subsidiary of Process Equipment, Inc. The share conversion
and exchange ratio was also set forth in that report.




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES



(a)      Audit Fees

         Our principal  accountant,  Rotenberg & Co.,  LLP,  billed us aggregate
fees in the amount of  approximately  $ 110,000 for the fiscal years ended April
30, 2004 and 2003.  These  amounts were billed for  professional  services  that
Rotenberg provided for the audit of our annual financial  statements,  review of
the  financial  statements  included  in our Form 8-K filed  earlier  this year,
review of our securities  offerings and other services  typically provided by an
accountant in connection  with statutory and  regulatory  filings or engagements
for those fiscal years.

(b)      Audit-Related Fees

         Rotenberg  billed us aggregate fees in the amount of  approximately $ 0
for the fiscal  years  ended  April 30,  2004 and 2003,  and for  assurance  and
related services that were reasonably related to the performance of the audit or
review of our financial statements.

(c)      Tax Fees

         Rotenberg  billed us aggregate fees in the amount of  approximately $ 0
for the fiscal years ended April 30, 2004 and 2003, and for tax compliance,  tax
advice, and tax planning.

(d)      All Other Fees

         Rotenberg  billed us aggregate fees in the amount of  approximately $ 0
for the fiscal years ended April 30, 2004 and 2003, and for all other fees.


<PAGE>

(e)      Audit Committee's Pre-Approval

         Section  10A(i) of the  Securities  Exchange Act prohibits our auditors
from performing  audit services for us as well as any services not considered to
be "audit services" unless such services are pre-approved by the audit committee
of the board of  directors,  or unless  the  services  meet  certain  de minimis
standards.  In the fiscal years ended April 30, 2004 and 2003, Rotenberg has not
performed for us any services not considered to be "audit services."

         The  percentage  of the fees for  audit,  audit-related,  tax and other
services were as set forth in the following table:


                                   Percentage of total fees paid to Rotenberg
                                ------------------------------------------------
                                Fiscal Year 2003         Fiscal Year 2004
                                ----------------------   -----------------------
Audit fees                      100%                     0%
Audit-related fees              0%                       0%
Tax fees                        0%                       0%
All other fees                  0%                       0%

















<PAGE>
<TABLE>
<CAPTION>

                                   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  TECHNOLOGIES, INC.


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

                                 Date: July 29, 2004


In  accordance  with the Exchange  Act, this report has been signed below by the
following  person on behalf of the  registrant  and in the capacities and on the
dates indicated.



SIGNATURE              TITLE                                             DATE
---------              -----                                             ----
<S>                    <C>                                               <C>


---------------------  Chief Executive Officer, President and Director   July 29, 2004
/s/ Norbert Sporns     (Principal Executive Officer)
Norbert Sporns


---------------------  Chairman of the Board of Directors and            July 29, 2004
/s/ Lillian Wang       Acting Chief Financial Officer
Lillian Wang           (Principal Financial and Accounting Officer)


/s/ Harry Wang         Chief Operating Officer and Director              July 29, 2004
---------------------
Harry Wang


/s/ Jacque Vallee      Director                                          July 29, 2004
---------------------
Jacque Vallee


/s/ Fred Bild          Director                                          July 29, 2004
---------------------
Fred Bild

</TABLE>



<PAGE>

                                  EXHIBIT INDEX
                    HQ SUSTAINABLE MARITIME INDUSTRIES, INC.

         The following exhibits are included as part of this Annual Report.

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

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

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

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

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

16                Letter,  dated May 18,  2004 from Baum &  Company,  P.A.,  the
                  Registrant's former principal  accountants,  to the Securities
                  and  Exchange   Commission   pursuant  to  Item  304(a)(3)  of
                  Regulation  S-B  (incorporated  by  reference to the Report on
                  Form  8-K of  Process  Equipment,  Inc.  (Commission  File No.
                  0-18980), filed with the Commission on May 18, 2004).

21                Subsidiaries of the Registrant

23.1              Consent of Rotenberg & Co., L.L.P.

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

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

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

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