UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                [GRAPHIC OMITTED]
                                      -37-
                                   FORM 10-KSB
                                   (MARK ONE)
          [ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

        [X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
         For the transition period from May 1, 2004 to December 31, 2004

                           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                              (I.R.S. Employer
 incorporation or 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  eight  months  ended  December  31,  2004 were
$20,782,264.


The  aggregate   market  value  of  the   registrant's   common  stock  held  by
non-affiliates as of December 2004 was approximately $ 6,589,962.08.


State the number of shares outstanding of each of the issuer's classes of equity
securities,  as of the  latest  practicable  date:  95,055,123  shares of Common
Stock, $0.001 par value per share, outstanding as of December 31, 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", "Company"
or "our company" refers to HQ Sustainable Maritime  Industries,  Inc. and all of
its subsidiaries and affiliated  companies including Hainan Quebec Ocean Fishing
Co. Ltd.,  or "HQOF" and Hainan  Jiahua Marine  Bio-Product  Company  Limited or
"Jiahua Marine".

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 HQOF. As a result of
that transaction, HQOF became our main operating subsidiary.

In April of 2004,  pursuant to the above agreement and plan of merger, the board
of  directors  of Process  Equipment,  Inc.  and a majority of the  stockholders
approved a name change and change of domicile of that  company to Delaware via a
merger with the newly formed wholly-owned  Delaware  subsidiary,  HQSM. The name
change,  change of domicile and merger  became  effective on May 19, 2004,  with
HQSM being the  surviving  entity in the merger and acquiring all the assets and
liabilities of Process Equipment, Inc.

On May 19, 2004, in order to effect a  reincorporation  from Nevada to Delaware,
Process  Equipment,  Inc.,  a Nevada  corporation,  was merged  with and into HQ
Sustainable  Maritime  Industries,  Inc., a Delaware  corporation.  Prior to the
effective time of the reincorporation,  HQ Sustainable Maritime Industries, Inc.
had been a  wholly-owned  subsidiary  corporation  of  Process  Equipment,  Inc.
organized  for the purposes of effecting the  reincorporation.  At the effective
time of the reincorporation, HQ Sustainable Maritime Industries, Inc. became the
surviving  entity  of the  merger  pursuant  to which  the  reincorporation  was
completed,  as well as the registrant  for reporting  purposes under the federal
securities  laws.  The  merged  entity  is  governed  by  the  Delaware  General
Corporation  Law  and  the  certificate  of  incorporation   and  bylaws  of  HQ
Sustainable Maritime Industries, Inc.

The  reincorporation  was completed  pursuant to an Agreement and Plan of Merger
dated  as of May  19,  2004,  by and  between  Process  Equipment,  Inc.  and HQ
Sustainable  Maritime  Industries,  Inc.,  and was  approved  by the  holders of
approximately  73% of  the  issued  and  outstanding  common  stock  of  Process


                                       2
<PAGE>

Equipment,  Inc.  by  written  consent  in  lieu  of a  special  meeting  of the
stockholders  of Process  Equipment,  Inc.  (all as more fully  described in the
Information Statement).

At the  effective  time of the  reincorporation,  the  directors  and  executive
officers of Process Equipment,  Inc. became the directors and executive officers
of HQ Sustainable Maritime Industries,  Inc. HQ Sustainable Maritime Industries,
Inc.'s business,  mailing  address,  principal  executive  offices and telephone
number are the same as those of Process Equipment, Inc.

At the effective time of the  reincorporation,  each outstanding share of common
stock, par value $.001 per share of Process  Equipment,  Inc. was  automatically
converted  into one  share of  common  stock,  par  value  $.001 per share of HQ
Sustainable  Maritime  Industries,  Inc.  Outstanding  options  and  warrants to
purchase shares of Process  Equipment,  Inc. were  automatically  converted into
options and  warrants to  purchase  the same number of shares of HQ  Sustainable
Maritime  Industries,  Inc.  Each  employee  stock  plan and any other  employee
benefit  plan to which  Process  Equipment,  Inc. was a party were assumed by HQ
Sustainable Maritime Industries, Inc. and, to the extent any such plans provided
for the issuance or purchase of Process Equipment, Inc. common stock, such plans
now provide for the issuance or purchase of HQ Sustainable  Maritime Industries,
Inc. common stock.

It was not and is not  necessary for  stockholders  to exchange  their  existing
Process Equipment stock certificates for new certificates bearing the name of HQ
Sustainable Maritime Industries,  Inc. Shares of Process Equipment,  Inc. common
stock,  traded under the symbol  "PEQM.OB"  on the OTC  Bulletin  Board prior to
reincorporation,  continue  to be traded  on the OTC  Bulletin  Board  under the
symbol "HQSM.OB" as HQ Sustainable Maritime  Industries,  Inc. common stock. The
OTC Bulletin Board and HQ Sustainable Maritime Industries, Inc.'s transfer agent
will  consider  the existing  Process  Equipment,  Inc.  stock  certificates  as
constituting "good delivery" in  post-reincorporation  transactions involving HQ
Sustainable  Maritime Industries,  Inc.'s common stock. In addition,  the merged
company was also assigned a new CUSIP number.  The new CUSIP number is 40426A 10
9.

The foregoing  description of the reincorporation is not intended to be complete
and is qualified in its entirety by the complete text,  including  exhibits,  of
the Information Statement.

On August 17, 2004, we entered into a Purchase  Agreement with Sino-Sult  Canada
(S.S.C.) Limited, a Canadian limited liability  corporation ("SSC"),  whereby we
acquired  Sealink  Wealth  Limited  ("Sealink"),  SSC's wholly owned  subsidiary
incorporated in the British Virgin Islands. That purchase agreement was filed as
an exhibit to our current report on Form 8-K filed with the Commission on August
18, 2004.  Sealink is the sole owner of Hainan  Jiahua Marine  Bio-Products  Co.
Ltd., a limited  liability  company existing in China ("Jiahua Marine") which is
primarily  engaged  in the  production  and  sales of  marine  bio-products  and
healthcare products in the PRC, as described in more detail in the above current
report. Also as previously  disclosed,  in the same current report, SSC is owned


                                       3
<PAGE>

by three of our current directors and executive officers who are also, together,
indirect   beneficial   owners  of  the  majority  of  our  capital  stock.  The
consideration  of the  acquisition is $20 million in terms of 12,698,078  shares
(equivalent  to  $8,888,655),   $11,011,345   promissory  note   convertible  to
15,732,493  Class A shares and $100,000  promissory note  convertible to 100,000
Series A  preferred  stock with par value at $0.001 per share.  Both  promissory
notes accrue interest at the rate of 5% per annum. 12,698,078 shares were issued
to SSC on  August  17,  2004  after  the  Purchase  Agreement  was  signed.  And
$11,011,345 of promissory  notes were converted to 15,732,493  Class A shares on
November 18, 2004.

Further,  as previously  disclosed in the above current  report,  effective from
August 17, 2004, HQSM caused Jade Profit  Investment  Limited,  its wholly-owned
subsidiary,  to acquire the minority  equity  interest equal to 15.58% that Jade
did not already own in Hainan  Quebec  Ocean  Fishing  Company  Limited,  HQSM's
principal operating  subsidiary.  This purchase was effected by Jade pursuant to
the Purchase  Agreement,  dated as of August 17,  2004,  between Jade and Hainan
Fuyuan Investment Company Limited, the holder of the minority equity interest of
HQOF  being  acquired  by  Jade.  Jade has  previously  obtained  all  requisite
governmental  approvals in the PRC in order to consummate this transaction.  The
consideration of $5,695,145 was fully paid in cash on October 31, 2004.

On April 16, 2004, HQ Sustainable Maritime Marketing Inc. ("HQSM Marketing") was
formed and registered in USA, wholly owned by HQSM. This new subsidiary is being
dormant during the year.

On June 15, 2004, HQ Sustainable Maritime Marketing (Canada) Inc ("HQSM Canada")
was  formed  in  Canada  and is  wholly  owned by HQSM.  HQSM  Canada  commenced
operations in June 2004, and performs business development,  sales and marketing
in the Canadian market.

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 arrangements,  ocean product harvesting,
and processing and sales of farm-bred and ocean harvested aquatic  products,  as
well as the production and sale of marine bio-products and healthcare  products.
The Group is committed to providing a variety of high quality  aquatic  products
and health 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  recognized  standards  of  hygiene.  Since the  Group  acquired
Sealink Wealth Limited ("Sealink" hereafter),  The Group has also engaged in the
production and sale of marine  bio-products and healthcare  products in the PRC.
The principal products of Hainan Jiahua Marine Bio-Product Company Limited (100%
owned  subsidiary of Sealink) are Shark Cartilage  Capsule,  Shark Liver Oil and
Shark Liver (Soft gel). The major market is in the PRC.



                                       4
<PAGE>

The Group has developed a co-operative supply network in Hainan Province,  China
(for aquaculture product),  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.

Manufacturing

Aquaculture Product

The Group's aquatic products  processing plant is a Canadian  designed  facility
and is  located  in  Hainan,  the PRC.  Prior to May  2004,  the  Group  had two
production  lines in aggregate and they are located in the same processing plant
in Hainan.  From January to May,  2004 the plant was expanded to six  production
lines.  These six lines  include  two  filleting  lines,  two whole  round  fish
processing lines  (principally  Tilapia which is gutted,  scaled and gilled) and
two shrimp processing lines. The facility is capable of processing an average of
approximately  10,000 tons per year of whole round fish  (principally  Tilapia),
3,000  tons per year of fillet  and  3,000  tons per year of  shrimp.  The plant
operates in two shifts for a total of 17 hours.

The Group's products have been awarded HACCP Certification for exporting aquatic
products  to  the US  and  Japan.  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 science based 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,
combined  with  excellent  quality  control  and  hygiene  practices,  which can
minimize the occurrence of a hazard in a finished product.

Apart from the HACCP Certification,  the Group has also been assigned an EU Code
for  exporting  aquatic  products  to the EU.  The EU has  designated  only  two
producers  in Hainan  Province.  The code is highly  coveted  since very few new
attributions of code are being  accepted.  This increases the value of export to
the EU since buyers routinely pay more than their US counterparts. 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 the Canadian
International  Development  Agency  (CIDA).  CIDA is an agency  of the  Canadian
Government  that maintains  programs of direct  government to government aid for
developing  countries and also has programs which support private  investment in
developing countries which meet stringent  environmental and social criteria. It
provided early stages development  support through the transfer of technology to
aquaculture  operations,  fish  processing and ocean  harvesting  operations.  A
pre-condition  to the receipt of this  support was the  preparation  of detailed
environmental  and social  (gender)  impact  studies.  It is these studies which


                                       5
<PAGE>

amount to an environmental  and Fair Trade  appreciation of the activities of HQ
and can be described as an eco-friendly certification. This 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.

Health and Bio-product

Our production  workshops  consist of two production  lines: the powder line and
the oil line. We have raw material  treatment  workshops,  such as an extraction
workshop, a freezing and drying workshop,  a powder distillation  workshop and a
finished product workshop in powder line. We also have pre-treatment  workshops,
such as a cooling and filtration workshop, a molecular  distillation workshop, a
supplemental  stuff workshop and a capsule  workshop in oil line. The production
lines are equipped  with a complete set of imported and domestic  made  devices,
including:  a vacuum  frozen dryer for  bio-products,  a molecular  distillation
device, a micro-disintegrator, a packing machine and test instruments, etc.

The Products

The following are a brief description of our 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



                                       6
<PAGE>
<TABLE>
<CAPTION>

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.

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.

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.

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 2004,  more than 175
million USD of Tilapia was sold in the United States representing almost 250,000
metric  tons  of  live   weight   (See   American   Tilapia   Association   (See
http://ag.arizona.edu/azaqua/ata.html).  Due to limited resources in domestic US
tilapia production, tilapia imports to the US are expected to increase. Imported
tilapia already  accounts for around 90% of total  consumption of tilapia in the
US. We believe that the largest demand for tilapia in the world will continue to
be the US.

TABLE 6

Top ten species groups in aquaculture production: quantity and growth

Species group                                   2000          2002     Share of 2002    APR
                                                                            total
                                                     (tonnes)                  (percent)
<S>                                           <C>          <C>              <C>        <C>
Top ten species groups in terms of quantity
Carps and other cyprinids                     15 451 646   16 692 147       41.9        3.9
Oysters                                       3 997 394    4 317 380        10.8        3.9
Miscellaneous marine molluscs                 2 864 199    3 739 702         9.4       14.3
Clams, cockles, arkshells                     2 633 441    3 430 820         8.6       14.1
Salmons, trouts, smelts                       1 545 149    1 799 383         4.5        7.9
Tilapias and other cichlids                   1 274 389    1 505 804         3.8        8.7
Mussels                                       1 370 953    1 444 734         3.6        2.7
Miscellaneous marine molluscs                 1 591 813    1 348 327         3.4       -8.0
Shrimps, prawns                               1 143 774    1 292 476         3.2        6.3
Scallops, pectens                             1 154 470    1 226 568         3.1        3.1



                                       7
<PAGE>

Top ten species groups in terms of growth
Cods, hakes, haddocks                           169         1 445                     192.4
Misc. demersal fishes                         8 701        15 302                      32.6
Misc. marine crustaceans                      34 202       52 377                      23.7
Flounders, halibuts, soles                    26 309       38 909                      21.6
Tunas, bonitos, billfishes                    6 447        9 445                       21.0
Freshwater crustaceans                        411 458      591 983                     19.9
Crabs, sea-spiders                            140 235      194 131                     17.7
Freshwater molluscs                           10 220       13 414                      14.6
Misc. freshwater fishes                       2 864 199    3 739 702                   14.3
Clams, cockles, arkshells                     2 633 441    3 430 820                   14.1
</TABLE>

Note: Data exclude aquatic plants.  APR refers to the average annual  percentage
growth rate for 2000-2002.

(Source State of The World  Fisheries and  Aquaculture  (FAO) 2004 Report Part 1
table 6 See http://www.fao.org/sof/sofia/index_en.htm)

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 from the
PRC has also  increased.  We believe that tilapia has great potential for market
growth.

Fresh Water Shrimp Products

Shrimp is a favorite  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  of  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.


                                       8
<PAGE>

Health products

The  acquisition  of Jiahua Marine  provides HQ with the capacity to manufacture
nutraceuticals  to enrich feed formulations for tilapia and shrimp farmed in the
Hainan area. These ingredients are directed at improving general health, growth,
feed  conversion  and meat quality of fish and shrimp.  Such products  boost the
immune  system  of  shrimp  to ward  off  common  viruses  and  deliver  various
functional  food nutrients to humans through the fish and shrimp they eat. HQ is
working with leading technology providers throughout the world, in particular in
the United States, to deliver these new nutraceutical  additives to the fish and
shrimp farming industry.

Jiahua Marine is also engaged in the production and sales of marine bio-products
and  healthcare  products in the PRC. It currently  operates two  activities,  a
marine bio-products  factory and research and development  activity.  The marine
bio-products  factory is located in  Wenchang  City of Hainan  Province,  with a
ground  floor  area  of  16,667  square  meters  and  a  construction   area  of
approximately  8,000  square  meters.  It operates  two  production  lines:  the
powder-product  line and the  oil-product  line.  The  bio-products  factory has
obtained  HACCP  certification  from the CIQ (China  Entry-Exit  Inspection  and
Quarantine Bureau).  Jiahua Marine currently sells healthcare products under the
brand name "Jiahua." Sales for its fiscal year ended December 31, 2003 were over
$7 million and after-tax  net profit was  approximately  $2.7 million.  Sales in
2004 presently outpace those of 2003.

Jiahua  Marine's  second  activity is related to  research  and  development  in
association with Marine Organism Research Institute,  which is headed by a group
of experts specializing in the research and development of products derived from
marine  organisms in China.  Clinical  trials and  laboratory  testing on Jiahua
Marine's various  healthcare  products have resulted in National  Certification.
These  products  currently sold  throughout  China,  are naturally  derived from
ocean-harvested  byproducts and are winners of Science and  Technology  Progress
Awards in China.  Jiahua Marine also has  established  a long-term  relationship
with  the  Qingdao  University  of  Oceanography  for   production-research  and
training.

Jiahua  Marine  production  lines are  ideally  suited  for the  manufacture  of
nutraceutical components.  The plant is equipped with specific gravity molecular
separator and accessory equipment for the manufacture of nutraceutical  products
that can serve as feed  additives in the production of feed,  including  tilapia
and shrimp feed.

Jiahua Marine products provide leading  ocean-sourced raw materials processed at
its own plant. Patented, laboratory and clinically tested products have resulted
from years of research and development  administered  through a partnership with
Qingtao Ocean University and its Marine Bioengineering  Research Institute.  Two
products are  produced  from refined  shark  cartilage  and two from shark liver
(harvested from  non-endangered  shark  species).  These products are more fully
described below:

*    Patent Number 460000X340-2001 -- Shark cartilage is highly alkalescent;  it
     contains  chondroitin  sulfate  and  calcium  and  impacts  the human  body
     positively in the following ways:



                                       9
<PAGE>

               --   Increases  efficiency of immune  system,  activates NK cells
                    associated with combating cancer (sharks are cancer free);
               --   Reduces blood acidity improving
               --   Blood pressure
               --   Apoplexy
               --   Heart disease
               --   Fertility
               --   Osteoporosis

*    Patent   Number   460000X131-2001   --  Shark   cartilage   also   contains
     glycosaminoglycan,  Amino  Acids,  and  collagen  proteins  which have been
     specially processed for absorption into the skin and impacts the human body
     positively in the following ways:

               --   Increases subcutaneous water content
               --   Reduces wrinkles
               --   Slows the visible effects of aging

*    Patent  Number  460000X338-2001  -- Shark Liver oil is rich in squalene and
     other  nutrients,  to which we add  vitamins D and E, and impacts the human
     body positively in the following ways:

               --   Improves   absorption   of  oxygen  in  the  body  which  is
                    particularly  important for the brain which  consumes 23% of
                    the oxygen used in the body
               --   Eliminates fatigue
               --   Improves health

*    Patent  Number  460000X342-2001  -- Shark liver oil contains 100 times more
     Alkoxy-Glyceryl  (AKGS) than mothers  milk. It is also rich in omega 3 oils
     recommended for nursing  mothers,  and impacts the human body positively in
     the following ways:

               --   Improves resistance to disease;
               --   Improves phosphate for brain cell production

The above products have been shown to be effective.

In 2003,  Jiahua Marine commenced a sales strategy,  which it believes will lead
to strong  growth in the current and future  years.  A unique  direct  marketing
campaign has been  introduced in  conjunction  with large scale tours  organized
throughout  China  in prime  tourist  destinations  --  Sanya,  Beihai  (China's
premiere tropical leisure vacation centers) and the Three Gorges project.  These
tours are captive  audiences  learning  the health  advantages  of the  products
during an outing associated with their leisure activities.  In addition, in 2003
sales have begun in Hualian  Supermarket Co. Ltd., (one of the largest specialty
chains in China with well over 1200 outlets and sales of US$2 billion, the first
publicly listed supermarket  retailer in China) as well as in health product and
pharmaceutical outlets throughout China.

In March 2005, the Group  finalised with American River  Nutrition Inc. (ARN) an
agreement  providing HQSM with leading  nutraceutical  technology for its health
products and nutraceutically  enriched  aquaculture feed products business.  The
Agreement also sets the stage for  distribution of Health  products  produced by
HQSM in the United States as well as introducing ARN  nutraceuticals  into China
through HQSM's marketing network there.



                                       10
<PAGE>

ARN has cutting edge technology to develop unique nutraceuticals for aquaculture
feeds. These ingredients are directed at improving general health,  growth, feed
conversion  and meat quality of fish and shrimp.  ARN is currently  developing a
product that can boost the immune  system of shrimp to ward off common  viruses.
The impact of access to these new  technologies  will be a significant  boost in
developing proprietary technology within the company and an expected significant
boost in sales and  profitability.  Furthermore,  the  agreement  will begin the
process of selling HQSM health products in the United States as well as the sale
of ARN  products  through  HQSM's  distribution  network in China.  The relevant
health  products  markets in both  countries  represent a  multi-billion  dollar
business and is expected to lead to the  development  and sale of many more such
products for these  markets.  Currently  HQSM produces and sells shark liver oil
and shark  cartilage  products and sells these through a unique direct sales and
retail   sales   system  in  China.   Currently   ARN  produces  and  sells  its
patent-protected DeltaGold(R) vitamin E, primarily in the USA and Canada.

ARN will  work with HQSM to  develop  and  validate  relevant  technologies  and
coordinate the application of  nutraceutical  feed  ingredients in feed products
for Tilapia and Shrimp particularly  developing  Nutraceutical feed additives in
HQSM's Nutraceutical plant that are health oriented and environmentally sound.

Marketing

Our  sales  and  marketing  team  consists  of nine  members  and is  under  the
supervision  of Mr.  Harry  Wang,  our Chief  Operating  Officer.  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.

We believe that HQOF, one of our principal operating  subsidiaries,  is the only
vertically  integrated  PRC-based producer present at the International  Seafood
Shows.  This enables HQOF 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.



                                       11
<PAGE>

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.


All health and  bio-products of the group are sold in this geographic  region. A
North  American  marketing  initiative  has been  commenced  by the signing of a
marketing and  distribution  agreement with American River Nutrition in March of
2005.  The first  step in this  process is the  re-testing  of the  products  by
American  laboratories to reproduce Chinese results and to make additional tests
to support more claims regarding the products.

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 HQOF 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 possess,  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


                                       12
<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:

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 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
our overseas and local customers.

Good quality  control.  Safe and hygienic  processing of aquatic  products is 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 costs 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



                                       13
<PAGE>

aquatic  products.  In December 2001, HQOF, our main operating  subsidiary,  was
recognized  as  a  "Leading   Agriculture   Enterprise"  by  Hainan   Provincial
Government,  and in April  2001  HQOF  was  recognized  as a New and  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 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,  the Company was  recognized  as a
"Leading Agriculture  Enterprise" by Hainan Provincial Government,  and in April
2001, the Company was awarded the "New/high tech Enterprise of Hainan  Province"
by Hainan Provincial  Technology  Authorities.  In January 2003, the Company was
awarded the  Industrial  Enterprise  of the Province.  In 2002,  The Company 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.  In  March  2005,  the  Company  was  awarded  the  prestigious  China
Excellence  Award,  for  health  product  excellence  and  advancement  of China
business practices,  by the China Association of Entrepreneur Foreign Investment
(CAEFI),  a branch of the China Ministry of Commerce of the People's Republic of
China.

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.


                                       14

<PAGE>

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 the following patents on its products.

*   Patent Number  460000X340-2001 -- Shark cartilage is highly alkalescent;  it
    contains  chondroitin  sulfate  and  calcium  and  impacts  the  human  body
    positively in the following ways:

                --  Increases  efficiency of immune  system,  activates NK cells
                    associated with combating cancer (sharks are cancer free);
                --  Reduces blood acidity improving
                --  Blood pressure
                --  Apoplexy
                --  Heart disease
                --  Fertility
                --  Osteoporosis

*   Patent   Number   460000X131-2001   --   Shark   cartilage   also   contains
    glycosaminoglycan,  Amino  Acids,  and  collagen  proteins  which  have been
    specially  processed for absorption into the skin and impacts the human body
    positively in the following ways:

                --  Increases subcutaneous water content
                --  Reduces wrinkles
                --  Slows the visible effects of aging

*   Patent  Number  460000X338-2001  -- Shark Liver oil is rich in squalene  and
    other  nutrients,  to which we add  vitamins D and E, and  impacts the human
    body positively in the following ways:

                --  Improves   absorption   of  oxygen  in  the  body  which  is
                    particularly  important for the brain which  consumes 23% of
                    the oxygen used in the body
                --  Eliminates fatigue
                --  Improves health

*   Patent  Number  460000X342-2001  -- Shark liver oil  contains 100 times more
    Alkoxy-Glyceryl  (AKGS) than mothers  milk.  It is also rich in omega 3 oils
    recommended  for nursing  mothers,  and impacts the human body positively in
    the following ways:

                --  Improves resistance to disease;
                --  Improves phosphate for brain cell production.




                                       15
<PAGE>

Employees

Through  HQOF and  Jiahua  Marine,  our  principal  operating  subsidiaries,  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.

ITEM 2. PROPERTIES

The Group operates its aquaculture  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 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 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 HQOF had issued a confirmation letter on 23
September 2002 to undertake all rental  payable and other  conditions set out in
the Lease Agreement.)

The Group  operates  its health and  bio-product  processing  activities  in its
production  base  located  on the East side of Wen Qing Road,  Wenchang,  Hainan
Province, the PRC. The land-use-right cost is $81,154. and the term of the right
is 50 years, which commenced in December 2000.

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 on the Over-The-Counter Bulletin Board system and the
National  Association  of Securities  Dealers (NASD)  Electronic  Bulletin Board
under the symbol  "HQSM.OB."


                                       16
<PAGE>

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)

2003   First Quarter (May 2003 - July 2003)                    $0.17      $0.16
       Second Quarter (August 2003 - October 2003)             $0.25      $0.16
       Third Quarter (November 2003 - January 2004)            $0.5       $0.17
       Fourth Quarter (February 2004 - April, 2004)            $2.8       $0.15

Fiscal Year Ended December 31

2004   First Quarter (May 2004 - June 2004)                    $1.15      $0.56
       Second Quarter (July 2004 - September 2004)             $0.95      $0.27
       Third Quarter (October 2004 - December 2004)            $0.38      $0.18

Period following December 31, 2004
       January 2005                                            $0.31      $0.22
       February 2005                                           $0.31      $0.22
       March 2005                                              $0.31      $0.21

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

On December 31, 2004, the closing bid price of our common stock was $0.26.

As of December 31, 2004, there were 1,012 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:

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

(b) 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  instead  of  shares  due to the lack of  sufficient
authorized   numbers  of  shares  of  common  stock,  which  were  issued  after
shareholders  approval was  obtained.  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 after the  shareholders  approved the increase of the authorized  shares of
common stock.



                                       17
<PAGE>

On May 28,  2004,  we issued  18,600  shares  of our  common  stock and  150,000
warrants to purchase  shares of our common  stock to  Consulting  for  Strategic
Growth 1, Ltd., in consideration of the public relations services rendered to us
by that firm. In consideration  of the same services,  we also issued 900 shares
to Bonnie Barrett Stretch,  a related party of Consulting for Strategic  Growth.
All of  these  securities  were  issued  in  reliance  upon the  exemption  from
registration provided in Section 4(2) of the Securities Act.

On August  17,  2004,  we  entered  into a  Purchase  Agreement  ("Nutraceutical
Purchase  Agreement") with Sino-Sult Canada (S.S.C.) Limited, a Canadian limited
liability  corporation  ("SSC"),  and Sealink Wealth  Limited,  a British Virgin
Islands limited liability corporation ("Sealink"),  whereby we acquired Sealink,
SSC's wholly owned subsidiary, on the terms and conditions as specified therein.
The Nutraceutical  Purchase Agreement has been filed as an exhibit to the report
we filed on Form 8-K on August 18, 2004.

The consideration is payable by HQSM in the following manner:

(i) On August 27, 2004,  $8,888,655 in the form of  12,698,078  shares of HQSM's
common stock,  $0.001 par value per share,  up to but not exceeding 19.9% of the
outstanding  shares of HQSM's  common stock,  on a  fully-diluted  basis,  to be
delivered to SSC at closing; and

(ii)  the  remaining  balance  of  $11,111,345  to be  payable  in the form of a
convertible promissory note issued by HQSM to SSC. The note will accrue interest
at the rate of 5% per annum and is convertible into: first, one hundred thousand
US Dollars  (US$100,000)  for 100,000 shares of HQSM's Series A preferred stock,
$0.001 par value per share,  the proposed terms of which are described below and
are  fully  subject  to  receipt  of  all  necessary  shareholder  consents  and
approvals,  and thereafter,  the remaining principal amount of the note equal to
US$11,011,345  into  15,732,493  shares of HQSM's common stock.  On November 18,
2004,  the  $11,011,345  promissory  note was converted to 15,732,493  shares of
HQSM's common stock.

On August 31, 2004, we issued 35,411 shares of our common stock to three parties
in consideration of $24,508.

In  October,  2004,  we issued  570,351  shares of our common  stock to nineteen
parties in consideration of $217,340.

In November,  2004, we issued  641,169  shares of our common stock to twenty-six
parties in consideration of $177,737.

On November 18, 2004,  we issued  89,285 shares of our common stock to our three
independent  non-executive directors Jacques Vallee, Fred Bild and Daniel Too in
consideration of $25,000 of their salaries.

In December,  2004, we issued  919,964 shares of our common stock to twenty-nine
parties in consideration of $285,286.



                                       18
<PAGE>

On December 1, 2004,  we issued  18,600 shares of our common stock to Consulting
for Strategic Growth 1, Ltd., in consideration of the public relations  services
rendered to us by that firm,  amounting at $5,394.  In consideration of the same
services,  we also issued 900 shares to Bonnie Barrett Stretch,  a related party
of Consulting for Strategic Growth in consideration of $261.

On  December  1, 2004,  we issued  520,685  shares of our  common  stock to John
O'Shea,  Henry S. Krauss,  Daniel Luskind and Marika Xirouhakis in consideration
of their  services  rendered  to us as  financial  advisors  in our Spring  2004
reverse merger.

On December 22,  2004,  we issued  18,750  shares of our common stock and 50,000
warrants to purchase  shares of our common  stock to  Consulting  for  Strategic
Growth 1, Ltd., in consideration of the public relations services rendered to us
by that firm, amounting at $6,562.50.

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 eight months ended  December 31, 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

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



                                       19
<PAGE>

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

General Overview

The following Management's  Discussion and Analysis ("MD&A") is intended to help
the reader understand our group. MD&A is provided as a supplement to, and should
be read in conjunction with, our financial statements and the accompanying notes
("Notes").

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.

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

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

On August 17, 2004, we filed a Current  Report on Form 8-K  reporting  that HQSM
acquired a subsidiary Sealink Wealth Limited together with its subsidiary Hainan
Jiahua Marine Bio-product  Company Limited ("Jiahua Marine").  In addition,  the
Company also caused Jade Profit Investment Limited, our wholly-owned subsidiary,
to acquire  the  minority  equity  interest  equal to 15.58%  that Jade does not
already own in HQ Ocean Fishing Company Limited.

Thereafter,  our principal activity became manufacturing and selling aquatic and
health products.

Critical Accounting Policies And Estimates

The Company  prepares its consolidated  financial  statements in accordance with
accounting  principles  generally accepted in the United States of America.  The
preparation  of these  financial  statements  requires the use of estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amount of revenues and expenses during the reporting


                                       20
<PAGE>

period.  Management  periodically  evaluates the  estimates and judgments  made.
Management  bases its estimates and  judgments on historical  experience  and on
various  factors that are  believed to be  reasonable  under the  circumstances.
Actual  results  may  differ  from  these  estimates  as a result  of  different
assumptions or conditions.

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

Inventories

Inventories  are stated at the lower of cost or net  realizable  value.  Cost is
calculated  on the  moving-average  basis and  includes all costs to acquire and
other costs incurred in bringing the  inventories to their present  location and
condition.  The 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.

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.

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 eight
months ended December 31, 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.



                                       21
<PAGE>

Management  reviews and adjusts this allowance  periodically based on historical
experience and its  evaluation of the  collectibility  of  outstanding  accounts
receivable.

Recent Developments

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

On August  17,  2004,  we  entered  into a  Purchase  Agreement  ("Nutraceutical
Purchase  Agreement") with Sino-Sult Canada (S.S.C.) Limited, a Canadian limited
liability  corporation  ("SSC"),  whereby we  acquired  Sealink  Wealth  Limited
("Sealink"),  SSC's wholly owned  subsidiary  incorporated in the British Virgin
Islands.  The  Nutraceutical  Purchase  Agreement was filed as an exhibit to our
Current Report on Form 8-K filed with the Commission on August 18, 2004. Sealink
is the sole owner of Hainan  Jiahua  Marine  Bio-Products  Co.  Ltd.,  a limited
liability company existing in China ("Jiahua Marine") which is primarily engaged
in the production and sales of marine  bio-products  and healthcare  products in
the PRC.  SSC is owned by Harry  Wang Hua  (51%),  Lillian  Wang Li  (25%),  and
Norbert Sporns (24%) (collectively, the "SSC Owners"). Lillian Wang Li and Harry
Wang Hua are brother and sister.  Lillian Wang Li is married to Norbert  Sporns.
The SSC Owners are current directors and executive officers of HQSM, as well as,
collectively, indirect beneficial owners of the majority of its capital stock.

Under the terms of the Purchase Agreement,  HQSM agreed to purchase SSC's entire
interest in Sealink,  thus acquiring all of Sealink's interest in Jiahua Marine,
in exchange for a total purchase price of  $20,000,000.  This amount  represents
approximately  a 15% discount on the value of Sealink,  based on an  independent
valuation equal to RMB 198.2 million  (approximately  US$23.8 million,  based on
currency  exchange  rate of 8.30 RMB = 1 US$),  which was  carried out by Vigers
Appraisal & Consulting  Limited.  The Vigers  Appraisal and  Consulting  Limited
report was filed as an exhibit to our Current Report filed on Form 8-K on August
18, 2004. Consideration was paid by HQSM in the following manner:  $8,888,655 in
the form of  12,698,078  shares of HQSM's  common  stock,  $0.001  par value per
share, up to but not exceeding 19.9% of the outstanding  shares of HQSM's common
stock, on a fully-diluted basis, to be delivered to SSC at closing, and (ii) the
remaining  balance of  $11,111,345  to be  payable in the form of a  convertible
promissory note issued by HQSM to SSC. The note will accrue interest at the rate
of 5% per annum and is convertible into:  first,  $100,000 for 100,000 shares of
HQSM's Series A preferred stock,  $0.001 par value per share, the proposed terms
of which are  described  below and are fully subject to receipt of all necessary
shareholder  consents and approvals,  and  thereafter,  the remaining  principal
amount of the note equal to $11,011,345 into 15,730,493  shares of HQSM's common
stock.

Subject to receipt of all necessary  shareholder  consents and approvals,  under
the proposed terms of the  certificate of designation for the Series A preferred
stock  of HQSM,  a form of  which is  included  as an  exhibit  to the  Purchase
Agreement,  the board of directors of HQSM  designated  100,000 shares of HQSM's
capital stock as its Series A preferred stock. As currently proposed, the holder
of each share of the Series A preferred stock would have the right to the voting
power equal to that of one  thousand  shares of HQSM's  common  stock,  and with
respect to such vote,  each such holder would have full voting rights and powers
equal to the  voting  rights  and  powers of the  holders  of common  stock.  In



                                       22
<PAGE>

addition,  a vote or  consent  of a  majority  of the  holders  of the  Series A
preferred stock is proposed to be required for the following  corporate  actions
of HQSM: (1) authorize,  create or issue,  or increase the authorized  number of
shares of any class or series of  capital  stock  ranking  prior to or on parity
with the Series A preferred stock;  (2) authorize,  create or issue any class or
series  of  common   stock  other  than  common   stock;   (3)   authorize   any
reclassification of the Series A preferred stock; (4) authorize, create or issue
any securities  convertible  into or exercisable for capital stock prohibited by
(1) or (2) above;  (5) amend the terms of the Series A preferred  stock;  or (6)
enter into any  disposal,  merger or  reorganization  involving 20% of the total
capitalization of HQSM. In addition, it is proposed that holders of the Series A
preferred stock would have the right to convert it into common stock as provided
in the certificate of designation for the Series A preferred stock.

HQSM  believes  that its  acquisition  of Sealink and Jiahua Marine will give it
access to nutraceutically  enriched shrimp and tilapia feed, allowing it to farm
and market,  through its cooperative farms,  nutraceutically  enriched products.
The  processes  used by Jiahua  Marine are natural and can be part of an organic
certified tilapia and shrimp product production strategy.

In addition,  effective  August 17, 2004, we also caused Jade Profit  Investment
Limited,  our wholly-owned  subsidiary,  to acquire the minority equity interest
equal to 15.58% that Jade does not already own in Hainan  Quebec  Ocean  Fishing
Company Limited,  our (then) principal operating  subsidiary.  This purchase was
effected by Jade  pursuant  to the  Purchase  Agreement,  dated as of August 17,
2004, between Jade and Hainan Fuyuan Investment  Company Limited,  the holder of
the minority  equity interest of HQOF being acquired by Jade. That Agreement has
been filed as an exhibit to this report.  Jade has  previously  obtained all the
requisite  governmental  approvals  in  the  PRC in  order  to  consummate  this
transaction.

The Company  conducts  its  operations  through two wholly  owned  subsidiaries,
Hainan Quebec Ocean Fishing  Company  Limited  ("HQOF") and Hainan Jiahua Marine
Bio-product Company Limited ("Jiahua Marine").

HQOF was  incorporated  in Hainan  Province  of the  People's  Republic of China
("China"  or the "PRC") on December  28,  1997,  and has an  approved  operating
period through December 27, 2022. HQOF manufactures aquatic products. HQOF sells
its products  primarily in the PRC and North  America.  HQOF's sales are to both
import and export  company,  retail seller and under its own brand name.  HQOF's
facilities are located in Wenchang, Hainan Province, PRC.

Jiahua Marine was  incorporated  in Hainan Province of the China on December 17,
1999, and has an approved  operating  period through  December 26, 2019.  Jiahua
Marine  manufactures  health and bio-products.  Jiahua Marine sells its products
primarily in the PRC.  Jiahua Marine's sales are to both retail seller and under
its own brand.  Jiahua  Marine's  facilities  are  located in  Wenchang,  Hainan
Province, PRC.



                                       23
<PAGE>

Both HQOF and  Jiahua  Marine  face a number of risks and  challenges  since its
operations  are  located  in the PRC.  The  Company's  consolidated  results  of
operations  and  financial  condition  may be adversely  affected by changes in,
among other  factors,  the  political  and social  conditions in the PRC, and by
changes  in the  government  policies  with  respect  to laws  and  regulations,
anti-inflationary  measures,  currency exchange rates,  currency  conversion and
remittance abroad, and rates and methods of taxation.

For this  transitional  Form 10-KSB Report (the prior fiscal year ended on April
30, 2004) and for comparative and analytical purposes,  the following section is
based on an audited  Eight  Months  Results  ended  December  31,  2004 and 2003
respectively.

Results of  Operations - Eight months Ended  December 31, 2004 Compared to Eight
Months Ended December 31, 2003

Segments.  During the eight  months  ended  December  31,  2004,  we acquired an
operating subsidiary,  Hainan Jiahua Marine Bio-product Company Limited ("Jiahua
Marine"),  which  engages  in the  manufacturing  and  selling of health and bio
products. This new business segment contributed $3,242,288 to the total turnover
of the Group since it was  acquired.  The gross profit ratio for the new segment
was around 83% and the major expense for this segment was advertising, which was
about 52% of the  turnover.  The net  income  contributed  by this  segment  was
$1,005,557 from August 17, 2004, the date of acquisition.

The original  principal  activity of the Group remained to be manufacturing  and
selling of aquatic  products.  The  turnover  contributed  by this  segment  was
$17,539,976  and  $10,780,448  for the eight months ended  December 31, 2004 and
2003,  respectively.  The gross profit ratio of this segment was 14% and 31% for
the eight months ended December 31, 2004 and 2003. This segment  contributed net
profit of $2,811,434  and $490,522 for the eight months ended  December 31, 2004
and 2003, respectively.

Sales.  Total sales for the eight  months  ended  December 31, 2004 and 2003 was
$20,782,264  as compared to  $10,780,448  representing  an increase of 92%.  The
aquatic  factory was under major  renovation  from January  through May 2004 and
consequently,  productions  ceased  during  that  period.  That  growth  in 2004
compared to 2003 was due to increased  activities in the aquatic product segment
(62.7% or $6,759,528) and the recently  acquired health and bio-product  segment
(30% or $3,242,288) from August 17, 2004. After production  resumed in June 2004
and the sales and  marketing  functions  were  back to normal in July  2004,  we
lowered the gross profit ratio to attract more customers to push up the turnover
we lost during the renovation period from January to May 2004.

Cost of Sales.  Cost of sales for the eight months  ended  December 31, 2004 and
2003 was  $15,637,756  or 75% of total  turnover and  $7,456,045 or 69% of total
turnover,  respectively.  The gross profit margin for aquatic products decreased
in 2004 as the supply from local fishermen dropped significantly due to frequent
bad weather in Hainan Province leading to higher supply costs.

Gross Profit.  A gross profit of $5,144,508 and $3,324,403,  an increase of 54%,
was  recorded  for  the  eight  months  ended,  2004  and  2003,   respectively,
corresponding  to a  margin  of 25% and 31% for  December  31,  2004  and  2003,


                                       24
<PAGE>

respectively.  In 2004,  the  gross  profit  originated  from the two  operating
entities,  HQOF for eight  months  and  Jiahua  Marine  from  August  17,  2004.
Furthermore, the effect of the renovations made in 2004 brought back the regular
level of activities of the fish processing plant in July 2004 only. Although the
fish processing gross profit was reduced in 2004 compared to 2003 for reasons of
limited supply from fishermen due to bad weather and marketing policy to attract
more  customers,  that  reduction was  compensated  by the gross profit from the
health and bio-products acquired in August 2004.

Selling and Distribution Expenses. The selling and distribution expenses for the
eight  months  ended  December  31, 2004 and 2003 were  $331,379  and  $474,231,
respectively.  Selling and distributing expenses represented  approximately 1.6%
and 4.4% of sales  for the  eight  months  ended  December  31,  2004 and  2003,
respectively.  The overall decrease in selling and distributing  expenses during
2004 resulted primarily from a decrease in transportation expenses from $344,402
in 2003 to $169,868 in 2004. The decrease in  transportation  expenses  resulted
primarily from an increase in domestic sales whereby transportation expenses are
paid directly by the customers.

Advertising.  The  advertising  expenses was $1,674,988 or 8.06% of the turnover
for the eight  months  ended  December  31, 2004  compared to zero for the eight
months ended December 31, 2003. All of the advertising  expenses incurred during
the period were due to the health and  bio-product  activity  acquired in August
2004, which is an essential expenses in this particular segment.

General and Administrative Expenses. The general and administrative expenses for
the eight months ended  December 31, 2004 and 2003 were  $1,871,275 or 9% of the
turnover and $672,681 or 6% of the  turnover,  respectively.  The major cause of
the increase in 2004  resulted from  expenses  incurred in  connection  with our
becoming listed as a public company. Such costs which were not incurred in 2003.
Depreciation.

Depreciation  for the eight months ended December 31, 2004 and 2003 was $509,300
and $210,411,  respectively.  The increase was due to HQOF acquiring  additional
assets during the current period and  additional  assets  purchased  through the
acquisition of Jiahua Marine in mid-August 2004.

Provision for Bad and Doubtful  Debts.  Provision for bad and doubtful debts for
trade receivables for the eight months ended December 31, 2004 and 2003 was zero
and $800,264,  respectively.  Since the production ceased for reconstruction and
expansion  of  production  facilities  from January to May 2004,  the  operating
entity could not supply goods to its customers.  During the shutdown period, the
company  experienced  slow  collection of its  receivables  from its  customers.
According to the provision policies previously adopted, we previously considered
whether  a further  provision  for bad debts  was  required.  However,  when the
factory  resumed  operations and became normal in July 2004, all the outstanding
debts were fully  recovered by the end of 2004 and the trade  receivables  as at
December 31, 2004 were current. Therefore, no further provision for bad debts is
required for the current period.

Income from Operations.  Income from operations  showed a profit of $757,566 and
$1,166,816 for the eight months ended December 31, 2004 and 2003, respectively.


                                       25
<PAGE>

The main  reasons  for that  reduction  were higher  general and  administrative
expenses in 2004 as well as new advertising costs as described above.

Finance  Costs.  Finance costs for the eight months ended  December 31, 2004 and
2003 was $400,064  and  $304,344,  respectively.  The increase was mainly due to
financing  costs related to the purchase of Jiahua  Marine in August  ($142,158)
and incremental cash required to finance increased activities in the second half
of the year.

Other Income. Other income for the eight months ended December 31, 2004 and 2003
was $2,340,895 and $94,984. The increase was mainly from a large recovery of bad
debts in the current  period  which had been  provided  for in  previous  fiscal
years.

Other  Expenses.  Other  expenses  decreased  from $188,296 for the eight months
ended  December 31, 2003 to $139,525  for the eight  months  ended  December 31,
2004, a decrease of $48,711.  Other expenses  mainly included losses on disposal
of fixed assets.

Income Before Income Taxes.  Income before income taxes  increased by $1,789,712
from $769,160 for the eight months ended December 31, 2003 to $2,558,872 for the
eight months ended December 31, 2004.  This increase  resulted from higher gross
profits and  recovery of bad debts  recorded in the current  period,  offsetting
increased  general  administrative  and marketing costs  incurred,  as described
above.

Income Taxes.  Current  income tax for both periods was zero as the Group had no
assessable  profit earned for PRC taxation  purposes and our deferred income tax
for the eight months ended December 31, 2004 and 2003 was $193,819 and $120,511,
respectively.  Deferred  taxes  increased  due to  the  timing  difference  from
provision for bad debts which was  eliminated  subsequent to the recovery of bad
debts during the eight months ended December 31, 2004.

Net Income Before Minority  Interest.  Net income before  minority  interest was
$2,365,053  and $648,649 for the eight months ended  December 31, 2004 and 2003,
respectively.  The increase  resulted  from higher gross profits and recovery of
bad  debts  recorded  in  the  current  period,   offsetting  increased  general
administrative and marketing costs incurred, as described above.

Minority  Interests.  Minority  interest was $235,006 and $158,127 for the eight
months ended December 31, 2004 and 2003, respectively.  The company acquired the
remaining  minority  interests in August 2004.  Prior to that date, the minority
interest  accounted for 15.58% of the net profit of the aquatic  product segment
of HQOF.

Net  Income  Attributable  to  Shareholders.  The  net  income  attributable  to
shareholders was $2,130,047 and $490,522 for the eight months ended December 31,
2004 and 2003,  respectively.  The increase is  attributable  to a 93% growth in
turnover of the aquatic product segment in 2004 and the additional  sales of the
newly acquired health and bio-product  segment.  The resulting  additional gross
profit  added to the recovery of bad debts in 2004 was  partially  offset by new
marketing  costs in the health and  bio-products  segment and new overhead costs
incurred as a newly listed public company.



                                       26
<PAGE>

Liquidity and Capital Resources

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

The current ratio decreased from 1.30  (8,660,583/$6,656,441)  at April 30, 2004
to 1.16 times  (10,686,199/$9,214,238)  at December 31,  2004.  The decrease was
mainly due to the purchase of the minority interest in HQOF in August 2004 for a
cash consideration of $5,695,145.

Cash Flow

Period-to-period  fluctuations in various cash-flow category line items were the
result of  several  factors,  including  the  decrease  in net  income and gross
margins that resulted during the period of  construction  of our factory,  which
took place during the current period.  Since the conclusion of the construction,
the  Group's  operation  has  returned  to normal and  management  believes  the
operation production will grow.

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 used for
reporting purposes,  significant fluctuations of individual line item cash flows
period-over-period are apparent.

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  indicative of any material trend with
regard to the substantive performance or financial condition of the company.

Risk Factors

In addition 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.



                                       27
<PAGE>

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 have 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,  HQOF 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.



                                       28
<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, 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,


                                       29
<PAGE>

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.

Risks Relating To The Aquaculture Industry

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

The Company 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  the  Company,  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.

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.



                                       30
<PAGE>

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.

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


                                       31
<PAGE>

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.

During late 2004,  the USA  government  imposed  heavy  tariffs of more than 100
percent to some Chinese shrimp exporters.  This action was intended to avoid the
dumping of Chinese  exporters and goods.

The decisions were seen as a victory by the domestic shrimp industry,  which has
suffered in recent  years as cheap shrimp  imports  from Latin  America and Asia
have increased supplies and dropped prices in the United States.

Foreign exporters and American  importers argue that imported shrimp,  which are
farm-raised rather than netted as most U.S. shrimp are, are simply produced more
efficiently.  American  shrimpers say their  competitors are cheating by dumping
their product and selling it below cost to drive U.S. producers out of business.

Last  December,  the  alliance,  which  represents  shrimpers in eight  Southern
states,  petitioned the Commerce  Department to investigate  possible dumping of
shrimp from China,  Vietnam,  Brazil,  Ecuador,  India and Thailand.  Dumping is
illegal in the United  States and is punished  with  tariffs to put  law-abiding
companies on equal footing.

In July 2004, the Commerce  Department issued  preliminary  anti-dumping  tariff
determinations for the six countries, which last year provided 90 percent of the
shrimp  consumed in the United States.  While the U.S.  shrimp  industry and its
lawyers  accurately  predicted the Chinese  tariffs last summer,  the Vietnamese
tariffs were far below the roughly 90 percent rate they expected.

The United State may impose hefty tariff on other aqua  products,  but since the
direct  export  sales of the  Group is less  than 5% of the  total  sales of the
Group, the potential negative effect on the Group will not be material.

Risks Relating To The Health and Bio-product Industry

We may have difficulty defending our intellectual property from infringement

Since effective trademark, patent and trade secret protection may be unavailable
in  every  country  in  which we do or plan to do  business,  protection  of our
intellectual property rights is uncertain and we may be unable to prevent others
from  developing  similar  products  or using our marks.  We regard our  service


                                       32
<PAGE>

marks,  trademarks,  trade secrets, patents and similar intellectual property as
critical to our success.  We rely on trademark,  patent and trade secret law, as
well as confidentiality  and license  agreements with our employees,  customers,
partners  and  others  to  protect  our  proprietary  rights.  We have  received
trademark  and patent  protection  for our products in the People's  Republic of
China.  While presently we sell our products mainly in China and Eastern Europe,
we  intend  to enter  the  markets  in the  United  States  and  possibly  other
countries.  However, effective trademark,  service mark, patent and trade secret
protection  may not be available in every country in which we sell or may in the
future sell our products due to our foreign currency constraint.  Therefore, the
measures  we take to protect our  proprietary  rights may be  inadequate  and we
cannot  give you any  assurance  that  our  competitors  will not  independently
develop formulations and processes that are substantially equivalent or superior
to  our  own.  We  intend  to  take  necessary  actions  toward  protecting  our
intellectual  property  rights  upon  the  resolution  of our  foreign  currency
constraints.

Intense  competition  from  existing and new entities may  adversely  affect our
revenues and profitability

We compete with  companies,  many of whom are  developing  or can be expected to
develop  products  similar  to ours.  Our  market  is a large  market  with many
competitors.  Many of our competitors are more established than we are, and have
significantly greater financial,  technical,  marketing and other resources than
we presently possess.  Some of our competitors have greater name recognition and
a larger customer base. These competitors may be able to respond more quickly to
new or  changing  opportunities  and  customer  requirements  and may be able to
undertake more extensive promotional activities,  offer more attractive terms to
customers,  and adopt  more  aggressive  pricing  policies.  We intend to create
greater brand awareness for our brand name so that we can  successfully  compete
with our  competitors.  We  cannot  assure  you that we will be able to  compete
effectively with current or future competitors or that the competitive pressures
we face will not harm our business.

The products and the processes we use could expose us to substantial liability

Product  liability  could  arise  from  claims  by users of our  products  or of
products manufactured by processes we developed, or from manufacturers or others
selling our products,  either directly or as a component of other  products.  To
date, we have not  experienced  any problems  associated with claims by users of
our products.  For this reason, we do not have any insurance  coverage for these
risks at this time. Depending on our experience, we may decide to seek this type
of insurance coverage.  When, and if, we acquire product liability insurance, we
cannot give you any assurance that it will be adequate to protect us or that the
insurance coverage will continue to be available to us on reasonable terms.

Unexpected  Changes in the  regulatory  environment  may  negatively  impact our
business

The regulatory environment involving our products is subject to changes that may
be  introduced  either by the relevant  governmental  regulatory  agencies or by


                                       33
<PAGE>

virtue of new regulation. Such changes may have a positive or negative impact on
the sale of our products.  Such regulatory  environment also covers any existing
or potential trade barriers in the form of import tariff and taxes that may make
it  difficult  for us to import our products to certain  countries,  which would
limit our international expansion.

We may suffer from  political  and economic  instability  in countries  where we
operate

We are currently operating mainly in China,  however, we expect to begin selling
our  products  in  other  countries  in  the  future.   Political  and  economic
instability  in the  countries in which we presently  operate and may operate in
the future may negatively affect our sales, revenues and business operations.

We may experience currency fluctuation and longer exchange rate payment cycles

The local currencies in the countries in which we operate may fluctuate in value
in relation to other  currencies.  Such fluctuations may affect the costs of our
products  sold and the value of our  local  currency  profits.  While we are not
conducting  any  meaningful  operations  in  countries  other  than China at the
present  time,  we may expand to other  countries and may then have an increased
risk of exposure of our business to currency fluctuation.

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 is transitioning  from a planned economy to a market 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


                                       34
<PAGE>

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.

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.  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.


                                       35
<PAGE>

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.

HQOF and Jiahua  Marine,  our principle  operating  subsidiaries,  are a FIEs 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.



                                       36
<PAGE>

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

Eight Months Ended December 31, 2004 and Eight Months Ended December 31, 2003


                                  December, 2004      December, 2003

Sales                             $   20,782,264      $   10,780,448
Gross Profit                      $    5,144,508      $    3,324,403
Net Income                        $    2,130,047      $      490,552
Net Income Per Share              $         0.03                 N/A

Summary of Balance Sheets of HQSM

                                  December 31, 2004     April 30, 2004

Working Capital                   $       1,471,961   $       2,004,142
Total Assets                      $      20,925,662   $      15,654,815
Stockholders' Equity              $      11,611,424   $       9,396,284




















                                       37
<PAGE>

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

               CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004

INDEX TO FINANCIAL STATEMENTS

Independent Auditors' Report                                          F-2

Consolidated Balance Sheets as of December 31, 2004 and
April 30, 2004                                                        F-3 - F-4

Consolidated Statements of Income for the eight months ended
December 31, 2004 and 2003                                            F-5

Consolidated Statements of Changes in Shareholders' Equity
for the eight months ended December 31, 2004 and 2003                 F-6 - F-7

Consolidated Statements of Cash Flows for the eight months ended
December 31, 2004 and 2003                                            F-8

Notes to Consolidated Financial Statements                            F-9 - F-21

















                                      F-1


<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
HQ Sustainable Maritime Industries, Inc. and Subsidiaries in State of Delaware

We have audited the accompanying  consolidated  balance sheets of HQ Sustainable
Maritime Industries, Inc. and Subsidiaries as of December 31, 2004 and April 30,
2004,   and  the  related   consolidated   statements  of  income,   changes  in
shareholders'  equity,  and cash flows for the eight months  ended  December 31,
2004 and 2003. 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 Subsidiaries as of December 31, 2004
and April 30, 2004, and the results of their  consolidated  operations and their
consolidated  cash flows for the eight months ended  December 31, 2004 and 2003,
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
March 16, 2005






                                      F-2
<PAGE>


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

                           CONSOLIDATED BALANCE SHEETS
                   AS OF DECEMBER 31, 2004 AND APRIL 30, 2004

                                     ASSETS
                                     ------


                                                     December 31,     April 30,
                                                         2004           2004
                                                     ------------   ------------
CURRENT ASSETS
  Cash and cash equivalents                          $  4,551,505   $  5,854,623
  Trade receivables, net of provision                   5,406,172      2,368,364
  Inventory                                               228,564         79,527
  Prepayments                                               1,932         45,052
  Due from related parties, net of provision              388,506        188,802
  Due from directors                                         --           42,613
  Advance to employee                                      27,918           --
  Tax recoverable                                          81,602         81,602
                                                     ------------   ------------
  TOTAL CURRENT ASSETS                                 10,686,199      8,660,583
                                                     ------------   ------------

OTHER ASSETS
  Deferred taxes                                        1,209,790      1,403,609
                                                     ------------   ------------

PROPERTY, PLANT AND EQUIPMENT, NET                      9,029,673      2,211,633
                                                     ------------   ------------
CONSTRUCTION IN PROGRESS, NET                                --        3,378,990
                                                     ------------   ------------

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

TOTAL ASSETS                                   $ 20,925,662   $ 15,654,815
                                               ============   ============







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

                                      F-3
<PAGE>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
         (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                           CONSOLIDATED BALANCE SHEETS
                   AS OF DECEMBER 31, 2004 AND APRIL 30, 2004

                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                   December 31,      April 30,
                                                       2004            2004
                                                   ------------    ------------
CURRENT LIABILITIES
  Accounts payable and accrued expenses            $  4,204,630    $  1,503,109
  Deposit received from customers                          --            37,452
  Bank loans                                          4,457,831       3,012,048
  Amount due to related parties                          86,994            --
  Due to directors                                      209,361            --
  Convertible notes                                     255,422         255,422
  Subscription received                                    --         1,848,410
                                                   ------------    ------------
  TOTAL CURRENT LIABILITIES                           9,214,238       6,656,441
                                                   ------------    ------------

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

TOTAL LIABILITIES                                     9,314,238       6,656,441

MINORITY INTEREST                                          --          (397,910)

SHAREHOLDERS' EQUITY
  Share capital                                          95,055          25,000
  Additional paid-in capital                         13,099,205      13,121,114
  Reserves                                            1,146,316         957,656
  Accumulated losses                                 (2,729,152)     (4,707,486)
                                                   ------------    ------------

TOTAL SHAREHOLDERS' EQUITY                           11,611,424       9,396,284
                                                   ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
  EQUITY                                           $ 20,925,662    $ 15,654,815
                                                   ============    ============








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

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
         (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                              STATEMENTS OF INCOME
              FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004 AND 2003

                                                   May 1, 2004 to       May 1, 2003 to
                                                 December 31, 2004    December 31, 2003
                                                 -----------------    -----------------
<S>                                              <C>                  <C>
SALES                                            $      20,782,264    $      10,780,448

COST OF SALES                                           15,637,756            7,456,045
                                                 -----------------    -----------------
GROSS PROFIT/(LOSS)                                      5,144,508            3,324,403

SELLING AND DISTRIBUTION EXPENSES                          331,379              474,231

ADVERTISING                                              1,674,988                 --

GENERAL AND ADMINISTRATIVE EXPENSES                      1,871,275              672,681

DEPRECIATION                                               509,300              210,411

PROVISION FOR DOUBTFUL DEBTS                                  --                800,264
                                                 -----------------    -----------------
INCOME/(LOSS) FROM OPERATIONS                              757,566            1,166,816

FINANCE COSTS                                              400,064              304,344

OTHER INCOME                                            (2,340,895)             (94,984)

OTHER EXPENSES                                             139,525              188,296
                                                 -----------------    -----------------

INCOME/(LOSS) BEFORE INCOME TAXES                        2,558,872              769,160

INCOME TAXES
  CURRENT                                                     --                   --
  DEFERRED                                                 193,819              120,511
                                                 -----------------    -----------------
NET INCOME/(LOSS) BEFORE MINORITY INTEREST               2,365,053              648,649

MINORITY INTEREST                                         (235,006)            (158,127)
                                                 -----------------    -----------------
NET INCOME/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS   $       2,130,047    $         490,522
                                                 =================    =================
NET INCOME/(LOSS) PER SHARE
  BASIC AND DILUTED                              $             .03    $             N/A
                                                 =================    =================

WEIGHTED AVERAGE COMMON SHARE OUTSTANDING               69,770,366                  N/A
                                                 =================    =================
</TABLE>

The  accompanying  notes  are in  integral  part of the  consolidated  financial
statement

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

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
         (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2004


                                                                         Additional
                                                 Share capital             paid-in                     Accumulated
                                              Share       Par value        capital        Reserves        losses           Total
                                          ------------   ------------   ------------    ------------   ------------    ------------
<S>                                       <C>            <C>            <C>             <C>            <C>             <C>


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

Issued 70,055,123 share at $0.001 each      70,055,123         70,055     22,533,644            --             --        22,603,699

Net income for the period of 8 months             --             --             --              --        2,130,047       2,130,047

Transfer to reserve                               --             --             --           151,713       (151,713)           --

Capital reserve accrued during the period         --             --             --            36,947           --            36,947

Adjustment from acquisition of Assets
under cost basis                                  --             --      (22,555,553)           --             --       (22,555,553)

                                          ------------   ------------   ------------    ------------   ------------    ------------
Balance at December 31, 2004                95,055,123   $     95,055   $ 13,099,205    $  1,146,316   $ (2,729,152)   $ 11,611,424
                                          ============   ============   ============    ============   ============    ============
</TABLE>








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

                                      F-6

<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
         (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                  STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                  FOR THE EIGHT MONTHS ENDED DECEMBER 31, 2003


                                                                     Additional
                                              Share capital           paid-in                   Accumulated
                                           Share       Par value      capital      Reserves        losses         Total
                                        -----------   -----------   -----------   -----------   -----------    -----------
<S>                                     <C>           <C>           <C>           <C>           <C>            <C>


Balance at April 30, 2003                    10,000           100    12,731,114       778,550    (2,504,912)    11,004,852
                                        -----------   -----------   -----------   -----------   -----------    -----------

Net income for the period of 8 months          --            --            --            --         490,522        490,522

Transfer to reserve                            --            --            --         179,106      (179,106)          --

                                        -----------   -----------   -----------   -----------   -----------    -----------
Balance at December 31, 2003                 10,000   $       100   $12,731,114   $   957,656   $(2,193,496)   $11,495,374
                                        ===========   ===========   ===========   ===========   ===========    ===========
</TABLE>














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

                                      F-7

<PAGE>
<TABLE>
<CAPTION>

            HQ SUSTAINABLE MARITIME INDUSTRIES, INC. AND SUBSIDIARIES
         (INCORPORATED IN THE STATE OF DELAWARE WITH LIMITED LIABILITY)
                            STATEMENTS OF CASH FLOWS
                           FOR THE EIGHT MONTHS ENDED
                           DECEMBER 31, 2004 AND 2003

                                                             May 1, 2004 to       May 1, 2003 to
                                                           December 31, 2004    December 31, 2003
                                                           -----------------    -----------------
<S>                                                        <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income / (loss)                                      $       2,130,047    $         490,522
  Adjustments to reconcile net income to net cash
  provided by operating activities :
  Increase/(decrease) in  provision for doubtful account          (2,535,047)          (2,535,047)
  Goodwill adjusted for reorganization process                   (22,555,553)                --
  Depreciation                                                       509,300              210,411
  (Increase)/decrease in assets:
    Inventory                                                         36,176               41,529
    Trade receivables, net of provisions                           3,821,544            1,393,289
    Prepayment                                                       296,398              253,396
    Advance to employee                                              (27,918)                --
    Taxation                                                            --               (174,917)
    Deferred taxes                                                   193,819               45,449
  Increase/(decrease) in liabilities:
    Accounts payables and accrued expenses                            84,054              (82,507)
    Deposit received from customers                                  (37,452)             (35,547)
    Promissory note                                                  100,000                 --
  Subscription received                                                 --                   --
                                                           -----------------    -----------------
Net cash used in operating activities                            (17,984,632)            (393,442)
                                                           -----------------    -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property, plant and equipment                      (409,000)          (2,742,198)
  Additions to construction in progress                                 --                   --
   Capital expenditure                                            (5,966,633)                --
  Cash received from acquisition                                   1,205,193                 --
                                                           -----------------    -----------------
Net cash used in investing activities                             (5,170,440)          (2,742,198)
                                                           -----------------    -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from common stock                                      20,755,288            1,915,746
  Received from/(payment to) directors                               251,975              (52,956)
  Received from/(payment to) related parties                         687,745              214,973
  Purchase of minority interest from shareholders                    397,910              158,127
  Repayment of bank loan                                            (240,964)                --

                                                           -----------------    -----------------
Net cash provided by financing activities                         21,851,954            2,235,890
                                                           -----------------    -----------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                           (1,303,118)            (899,730)

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

  Cash and cash equivalents, end of period                 $       4,551,505    $      11,037,780
                                                           =================    =================
SUPPLEMENTARY CASH FLOWS DISCLOSURES
  Interest paid                                            $         225,661    $         387,395
                                                           =================    =================
  Taxes paid                                               $            --      $         249,979
                                                           =================    =================
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Note payable in connection with acquisition
  of Jiahua Marine                                         $         100,000    $            --
                                                           =================    =================
</TABLE>


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

                                      F-8

<PAGE>

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      DECEMBER 31, 2004 AND APRIL 30, 2004

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 HQOF.  As a result of that  transaction,  HQOF  became our main  operating
subsidiary.  In April of  2004,  pursuant  to the  above  agreement  and plan of
merger, the board of directors of Process Equipment,  Inc. and a majority of the
stockholders  approved a name change and change of  domicile of that  company to
Delaware via a merger with the newly formed  wholly-owned  Delaware  subsidiary,
HQSM. The name change, change of domicile and merger became effective on May 19,
2004,  with HQSM being the surviving  entity in the merger and acquiring all the
assets and  liabilities of Process  Equipment,  Inc. On August 17, 2004, we have
entered into a Purchase  Agreement with Sino-Sult  Canada  (S.S.C.)  Limited,  a
Canadian  limited  liability  corporation  ("SSC"),  whereby we acquired Sealink
Wealth Limited  ("Sealink"),  SSC's wholly owned subsidiary  incorporated in the
British Virgin Islands.  That purchase agreement has been filed as an exhibit to
our  current  report on Form 8K filed with the  Commission  on August 18,  2004.
Sealink is the sole owner of Hainan  Jiahua  Marine  Bio-Products  Co.  Ltd.,  a
limited liability company existing in China ("Jiahua Marine") which is primarily
engaged  in the  production  and sales of  marine  bio-products  and  healthcare
products in the PRC, as  described in more detail in the above  current  report.
Also as previously disclosed,  in the same current report, SSC is owned by three
of our current directors and executive officers who are also, together, indirect
beneficial owners of the majority of our capital stock.

Further, as previously  disclosed in the above current report,  effective August
17,  2004,  HQSM  caused  Jade  Profit  Investment  Limited,   its  wholly-owned
subsidiary,  to acquire the minority  equity  interest equal to 15.58% that Jade
did not already own in Hainan  Quebec  Ocean  Fishing  Company  Limited,  HQSM's
principal operating  subsidiary.  This purchase was effected by Jade pursuant to

                                      F-9

<PAGE>

the Purchase  Agreement,  dated as of August 17,  2004,  between Jade and Hainan
Fuyuan Investment Company Limited, the holder of the minority equity interest of
HQOF  being  acquired  by  Jade.  Jade has  previously  obtained  all  requisite
governmental approvals in the PRC in order to consummate this transaction.

The Group is  principally  engaged  in the  vertically  integrated  business  of
aquaculture through  co-operative  supply agreements,  ocean product harvesting,
and processing and sales of farm-bred and ocean harvested aquatic products.  The
principal  products of HQOF are  cross-bred  hybrid of tilapia and  white-legged
shrimp exporting,  directly and indirectly,  to the United States, Canada, Japan
and European countries. The major market is for export.

The Group has also engaged in the  production  and sales of marine  bio-products
and  healthcare  products in the PRC. The  principal  products of Hainan  Jiahua
Marine  Bio-Product  Company Limited (100% hold subsidiary of Sealink) are Shark
Cartilage Capsule,  Shark Liver Oil and Shark Liver (Soft gel). The major market
is domestic in the PRC.

2. BASIS OF PRESENTATION

The consolidated  financial  statements include the accounts of HQSM and all its
subsidiaries ("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.



                                      F-10

<PAGE>

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.

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

            Buildings and leasehold improvement         2.25% - 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
December 31, 2004 and April 30, 2004 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.


                                      F-11

<PAGE>

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.

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.



                                      F-12

<PAGE>
<TABLE>
<CAPTION>

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
$175,065 and  $290,023  for the eight  months ended  December 31, 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 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.

Business segment for the eight months ended December 31, 2004

                                 Aquaculture      Health and      Unallocated
                                   products      bio-products        items       Consolidated
                                 ------------    ------------    ------------    ------------
<S>                              <C>             <C>             <C>             <C>

 Sales to external customers     $ 17,539,976    $  3,242,288    $       --      $ 20,782,264
                                 ============    ============    ============    ============

 General and administrative
    expenses                             --              --        (1,871,275)     (1,871,275)
 Depreciation
 Selling expenses                    (303,171)        (28,208)           --          (331,379)
 Advertising                             --        (1,674,988)           --        (1,674,988)
 Finance costs                       (155,627)        (50,088)       (194,349)       (400,064)
 Profit before taxation             3,240,259       1,005,557      (1,686,944)      2,558,872
 Taxation                            (193,819)           --              --          (193,819)
 Profit for the year             $  2,811,434    $  1,005,557    $ (1,686,944)   $  2,130,047
                                 ============    ============    ============    ============

 Segment assets                  $ 13,412,191    $  7,452,718    $     60,753    $ 20,925,662
                                 ============    ============    ============    ============

 Segment liabilities             $  4,809,501    $  2,932,717    $  1,572,020    $  9,314,238
                                 ============    ============    ============    ============

 Other segment items
   Depreciation                  $   (380,933)   $   (124,068)   $     (4,299)   $   (509,300)
   Capital expenditure           $    377,117    $        325    $     31,558    $    409,000
                                 ============    ============    ============    ============
</TABLE>



                                      F-13

<PAGE>

O. COMPREHENSIVE 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 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


                                      F-14

<PAGE>

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.

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.


                                      F-15

<PAGE>

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  December  31,  2004 and April 30,  2004 are
summarized as follows:

                                           December 31, 2004     April 30, 2004
                                           -----------------   -----------------
Trade receivable                           $       5,406,172   $       4,721,411
Less: Allowance for doubtful accounts                   --             2,353,047
                                           -----------------   -----------------
                                           $       5,406,172   $       2,368,364
                                           =================   =================

The activity in the Group's  allowance  for doubtful  accounts  during the eight
months  ended  December 31, 2004 and for the four months ended April 30, 2004 is
summarized as follows:


                                          December 31, 2004      April 30, 2004
                                          -----------------    -----------------
Balance at beginning of year              $       2,353,047    $         829,716
Add: amounts provided during the year                  --              1,523,331
Less: amounts written off during the year        (2,353,047)                --
                                          -----------------    -----------------
Balance at end of year                    $            --      $       2,353,047
                                          =================    =================
5. PROPERTY, PLANT AND EQUIPMENT
                                          December 31, 2004      April 30,2004
                                          -----------------    -----------------
Cost :
Buildings and leasehold improvement       $       2,817,990    $          61,254
Plant and machinery                               8,461,585            3,038,046
Motor vehicles                                       68,580               65,493
Office equipment and furnishings                    126,470               48,793
                                          -----------------    -----------------
                                                 11,474,625            3,213,586





                                      F-16

<PAGE>

Less Accumulated depreciation:
Buildings and leasehold improvement                 273,479               37,196
Plant and machinery                               2,050,400              892,133
Motor vehicles                                       55,228               45,463
Office equipment and furnishings                     65,845               27,161
                                          -----------------    -----------------
                                                  2,444,952            1,001,953

                                          -----------------    -----------------
Property, plant and equipment, net        $       9,029,673    $       2,211,633
                                          =================    =================

Depreciation expenses relating to property, plant and equipment was $509,300 and
$210,411 for the eight months ended December 31, 2004 and 2003, respectively.

6. INVENTORIES
                                           December 31, 2004     April 30, 2004
                                           -----------------   -----------------

Raw materials                              $          84,569   $          44,588
Work-in-progress                                      82,609                --
Finished goods                                        61,386              34,939

                                           -----------------   -----------------
Total Inventories                          $         228,564   $          79,527
                                           =================   =================
7. PREPAYMENT

Prepayment represents advances to suppliers.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts  payable and accrued  expenses at December  31, 2004 and April 30, 2004
are summarized as follows:

                                           December 31, 2004     April 30, 2004
                                           -----------------   -----------------

Accounts payable                           $         146,026   $          97,148
Accrued expenses                                   4,058,604           1,405,961

                                           -----------------   -----------------
                                           $       4,204,630   $       1,503,109
                                           =================   =================


9. BANK LOANS

As at December 31, 2004,  the Group has 3 expired  loans from banks at an amount
of $1,807,229,  $963,855 and 1,686,747 bearing an interest of 6.588%, 6.588% and
5.04% per annum,  respectively.  As at the date of the  report,  the Group is in
negotiation  with the bankers to extend and  expects to have the loans  extended
for not less than one year to  December  2005.  The loans  were  secured  by the
pledge of certain fixed assets held by the Group and its subsidiaries.



                                      F-17
10. INCOME TAXES

HQOF 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. HQOF was subject to a tax rate of 7.5% during
2003.  HQOF is entitled to a two-year tax free and three-year  half tax holidays
from 2001  commencing  with the first  profit-making  year.  Further,  the newly
acquired  subsidiary  Jiahua Marine enjoys the two-year tax free and  three-year
half-tax holidays from 2003 commencing with the first  profit-marking  year. The
reconciliation  of the effective income tax rate of the Company to the statutory
income tax rate in the PRC for the eight  months  ended  December 31, 2004 is as
follows:

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

The Group's  income  before  income taxes was comprised of the following for the
eight months ended December 31, 2004 and 2003, respectively:

                                          December 31, 2004    December 31, 2003
                                          -----------------    -----------------

United States                             $      (1,694,305)   $            --
PRC                                               4,253,177              769,160

                                          -----------------    -----------------
                                          $       2,558,872    $         769,160
                                          =================    =================

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 the eight months ended December 31, 2004 and
2003, respectively,are summarized as follows:

PRC only:                                  December 31, 2004   December 31, 2003
                                           -----------------   -----------------

Current                                    $            --     $            --
Deferred tax                                         193,819             120,511

                                           -----------------   -----------------
                                           $         193,819   $         120,511
                                           =================   =================



                                      F-18

<PAGE>

11. INCOME TAXES (CONT'D)

Tax recoverable comprise the following:

                                           December 31, 2004     April 30, 2004
                                           -----------------   -----------------

Balance at beginning of the period         $          81,602   $          81,602
Income tax provided for the period                      --                  --
                                           -----------------   -----------------
As at the end of the period                $          81,602   $          81,602
                                           =================   =================

Deferred tax assets comprise the following:
                                           December 31, 2004     April 30, 2004
                                           -----------------   -----------------

Balance at beginning of the period         $       1,403,609   $       1,426,334
Deferred tax written off for the period              193,819              22,725

                                           -----------------   -----------------
As at the end of the period                $       1,209,790   $       1,403,609
                                           =================   =================

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.


12. 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. . In May 2004, a supplementary agreement was
signed to extend the maturity date of the notes to May 2005.

13. RESERVES

The reserve funds are comprised of the following:

                                           December 31, 2004    April 30, 2004
                                           -----------------   -----------------

Statutory surplus reserve fund             $         739,580   $         681,877
Public welfare fund                                  369,790             275,779
Capital reserve                                       36,946                --

                                           -----------------   -----------------
                                           $       1,146,316   $         957,656
                                           =================   =================

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.



                                      F-19

<PAGE>

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 HQOF has foreign currency
available  after  meeting  its  operational  needs,  HQOF 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. EMPLOYEE STOCK OPTION PLAN

On December 2, 2004,  our board of directors  ratified  grants of  non-qualified
stock options to purchase shares of our common stock under our Stock Option Plan
(the  "Plan") to some of our  executive  officers and  directors,  as well as to
several of our  employees,  as further  detailed in this current  report on Form
8-K.  Each of these new stock  options has up to a ten-year  term, is subject to
the terms and conditions of the Plan, and is priced at $0.28,  which  represents
the fair market value as of the initial grant date of November 23, 2004.

Specifically,  Norbert  Sporns,  our  Chief  Executive  Officer,  President  and
director,  received  500,000 stock  options.  Lillian Wang,  the Chairman of our
board of  directors,  received  500,000  stock  options.  Harry Wang,  our Chief
Operating  Officer,  director and brother of Ms. Wang,  received  500,000  stock
options;  and Fusheng Wang,  our director,  Honorary  Chairman and father of Ms.
Wang, received 1,000,000 stock options. Together, Norbert Sporns, Harry Wang and
Lillian Wang also indirectly  control the majority of capital stock of HQSM. The
stock options  granted to each of them,  as well as to Fusheng Wang,  were fully
vested when  granted.  In addition,  our Chief  Financial  Officer,  Jean-Pierre
Dallaire,  received  200,000 stock options.  Mr.  Dallaire's  options are vested
immediately  as to 50% of the grant,  with the remaining 50% vesting as follows:
1/3 on June 16, 2005,  1/3 on June 16, 2006,  and the  remaining 1/3 on June 16,
2007.

Further,  our board of directors  ratified  grants of stock  options to thirteen
other employees of HQSM. These stock options are vested immediately as to 50% of
each individual  grant,  with the remaining 50% vesting as follows:  1/3 on June
16, 2005,  1/3 on June 16, 2006,  and the remaining 1/3 on June 16, 2007. In the
case of one of the employees, the stock options were fully vested when granted.



                                      F-20

<PAGE>

Our board of directors  believes  that these stock  option  grants will help our
company to continue to attract, retain and incentivize our employees,  directors
and executive officers.  In connection with these grants, our board of directors
reserved 5,000,000 shares for issuance under the Plan. In addition,  pursuant to
the provisions of the Plan, our board of directors  delegated the full power and
authority  to  administer  the  Plan,  in  accordance  with  its  terms,  to our
Compensation  Committee  presently  consisting of Norbert Sporns,  Fred Bild, an
independent director, and Daniel Too, also an independent director of HQSM.

15. SIGNIFICANT CONCENTRATION

The Group grants credit to its  customers,  generally on an open account  basis.
The Group's five largest customers accounted for 57.4% of the consolidated sales
for the eight months ended  December 31,  2004,  in which all  customers  are in
excess of 10% of consolidated sales, with 15.9%, 12.0% and 10.6% of consolidated
sales, or an aggregate of 38.5% of consolidated sales.

At December 31, 2004,  approximately  43.3% of trade receivables were from trade
transactions with the aforementioned five customers.

16. WARRANTIES

The Group did not incur any warranty  costs for the eight months ended  December
31, 2004 and for the four months ended April 30, 2004.

17. COMMITMENTS AND CONTINGENCIES

A. CAPITAL  COMMITMENTS

As of  December  31,  2004,  the Group 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.

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.



                                      F-21

<PAGE>
<TABLE>
<CAPTION>

19. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

The accompanying  Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 2004 and 2003 and the  Unaudited Pro Forma  Condensed  Consolidated
Statements  of Income for the Eights  Months  ended  December 31, 2004 and 2003,
have been prepared to reflect the acquisition as if it had occurred as of May 1,
2003 the first day of the earliest period presented in the financial statements.

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

                                          May 1 to Dec 31, 2004     May 1 to Dec 31, 2003
                                               (USD `000)                    (USD `000)
<S>                                                      <C>                       <C>

Turnover                                                 22,383                    16,409

Income from operations                                    2,893                     2,477

Net income attributable to shareholders                   4,156                     1,729
                                                         ======                    ======



                                      F-22

<PAGE>

Total assets                                             23,340                    31,117
                                                         ======                    ======

Total liabilities                                        11,306                    14,879
                                                         ======                    ======
</TABLE>

















                                      F-23
<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 Current Report
on 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").  Our audit committee is headed by Mr. Vallee, one of our
three independent non-executive 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 Current Report on 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
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure  controls and procedures pursuant to Rule 13a-15 under the Securities
Exchange  Act of  1934,  as  amended  (the  "Exchange  Act").  Based  upon  this
evaluation,  our  Chief  Executive  Officer  and  our  Chief  Financial  Officer
concluded  that,  as  of  the  Evaluation  Date,  our  disclosure  controls  and
procedures were effective under Rule 13a-15.



                                       38
<PAGE>
<TABLE>
<CAPTION>

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.

PART III

ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE

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                               DATE OF APPOINTMENT           DATE OF RESIGN
---------------       ---   ------------------------------------   ---------------------------   -----------------
<S>                   <C>   <C>                                    <C>                           <C>
Lillian Wang Li       47    Director/Chairman of Board of          March 25, 2004 as director;
                            Directors/ Secretary officer           April 13, 2004 as executive
                            Acting Chief Financial Officer         April 13, 2004                September 1, 2004
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    Independent Non-executive Director     June 15, 2004
Fred Bild             67    Independent Non-executive Director     June 15, 2004
Jean-Pierre Dallaire  53    Financial Controller                   April 13, 2004
                            Chief Financial Officer                September 1, 2004
He Jian Bo            37    Manager Finance Dept.                  April 13, 2004
Liam Haniffy          37    Sales and Quality Production Manager   April 13, 2004                February 8, 2005
Wang Fu Hai           60    Chief Production Controller            April 13, 2004
Fusheng Wang          71    Honorary Chairman and Director         August 17, 2004
Daniel Too            52    Independent Non-executive Director     September 2, 2004
</TABLE>



                                       39
<PAGE>

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,
Jacques Vallee and Daniel Too as independent non-executive directors,  effective
as of June 15, 2004, June 15, 2004 and September 2, 2004, respectively, 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 Fred Bild,
Daniel Too and Jacques 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 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.

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 51, 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



                                       40
<PAGE>

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 -Independent Non-executive Director

Jacques  Vallee,  age  52,  is  an  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 University de Quebec
a Trois  Rivieres,  Mr.  Vallee  also holds a  post-graduate  level  Advertising
Management Diploma from the Ecole des Hautes Etudes Commerciales,  Montreal.  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.

Fred Bild - Independent Non-executive 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.

Daniel Too - Independent Non-executive Director

Mr. Too, a graduate  of Hong Kong  University  and  Polytechnic,  has  extensive
business  experience  in Asia and brings a keen  understanding  of the  business
difficulties  associated  with working in China.  He is  currently  the Managing
Director of Delta  Elevator  Far East and serves as  Director of Voker  Chemical
Paint  Limited.  He has been named to the  compensation  committee  with another
Independent Non-Executive Director, Mr. Fred Bild, and the CEO, Norbert Sporns.

Jean-Pierre Dallaire - Financial Controller and Chief Financial Officer

Jean-Pierre  Dallaire,  age 53, is the financial  controller and CFO 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.



                                       41
<PAGE>

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.

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.

Compliance with Section 16(a) of the Exchange Act

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 year
ended December 31, 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
of our  chief  executive  officer  and our two  other  most  highly  compensated
executive  officers who earned at least  $100,000  during the eight months ended
December 31, 2004:

Name and
Principal Position              Annual Compensation       Long-Term Compensation
------------------              -------------------       ----------------------
Norbert Sporns                  $150,000                  500,000 Options
(Chief Executive Officer)

Lillian Wang Li
(Chairman of Board)             $187,500                  500,000 Options

Harry Wang Hua
(Chief Operating Officer)       $150,000                  500,000 Options



                                       42
<PAGE>

Director Compensation

Unless otherwise restricted by the certificate of incorporation,  the 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  thereafter.  Members of special or standing
committees  may be  allowed,  like,  for  example,  compensation  for  attending
committee meetings.

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

Audit Committee Financial Expert

As stated above, we recently appointed three independent non-executive directors
to our board of directors.  We consider one of our  independent  directors,  Mr.
Jacques 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.

On December 2, 2004,  our board of directors  ratified  grants of  non-qualified
stock options to purchase shares of our common stock under our Stock Option Plan
(the  "Plan") to some of our  executive  officers and  directors,  as well as to
several of our employees,  as further detailed in our Current Report on Form 8-K
filed on December 3, 2004.  Each of these new stock options has up to a ten-year
term,  is  subject  to the terms and  conditions  of the Plan,  and is priced at
$0.28,  which  represents  the fair market value as of the initial grant date of
November 23, 2004.

Specifically,  Norbert  Sporns,  our  Chief  Executive  Officer,  President  and
director,  received  500,000 stock  options;  Lillian Wang,  the Chairman of our
board of  directors,  received  500,000  stock  options;  Harry Wang,  our Chief
Operating  Officer,  director and brother of Ms. Wang,  received  500,000  stock
options;  and Fusheng Wang,  our director,  Honorary  Chairman and father of Ms.
Wang, received 1,000,000 stock options. Together, Norbert Sporns, Harry Wang and
Lillian Wang also indirectly  control the majority of capital stock of HQSM. The
stock options  granted to each of them,  as well as to Fusheng Wang,  were fully
vested when  granted.  In addition,  our Chief  Financial  Officer,  Jean-Pierre
Dallaire,  received  200,000 stock options.  Mr.  Dallaire's  options are vested
immediately  as to 50% of the grant,  with the remaining 50% vesting as follows:
1/3 on June 16, 2005,  1/3 on June 16, 2006,  and the  remaining 1/3 on June 16,
2007.



                                       43
<PAGE>

Further,  our board of directors  ratified  grants of stock  options to thirteen
other employees of HQSM. These stock options are vested immediately as to 50% of
each individual  grant,  with the remaining 50% vesting as follows:  1/3 on June
16, 2005,  1/3 on June 16, 2006,  and the remaining 1/3 on June 16, 2007. In the
case of one of the employees, the stock options were fully vested when granted.

Our board of directors  believes  that these stock  option  grants will help our
company to continue to attract, retain and incentivize our employees,  directors
and executive officers.  In connection with these grants, our board of directors
reserved 5,000,000 shares for issuance under the Plan. In addition,  pursuant to
the provisions of the Plan, our board of directors  delegated the full power and
authority  to  administer  the  Plan,  in  accordance  with  its  terms,  to our
Compensation  Committee  presently  consisting of Norbert Sporns,  Fred Bild, an
independent director, and Daniel Too, also an independent director of HQSM.

Security Ownership of Certain Beneficial Owners and Management

The  following  table  sets  forth  certain  information   regarding  beneficial
ownership of common stock as of December  31, 2004,  and after giving  effect to
our recent merger described elsewhere in this annual report, by:

     o    each  person  known to us to own  beneficially  more  than 5%,  in the
          aggregate, of the outstanding shares of our common stock;
     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 95,055,123 shares  outstanding as of December 31, 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
----------------                    ----------------------    ------------------
Barron Partners LP                   3,407,000(1)              3.6%

Norbert Sporns                      16,708,759(2)             17.6%

Lillian Wang Li                     17,404,957(2)             18.3%




                                       44
<PAGE>



Harry Wang Hua                      35,506,113(2)             37.3%

Jacques Vallee                      35,714                    0.03%

Fred Bild                           35,714                    0.03%

Daniel Too                          17,857                    0.02%

All such directors and executive
officers as a group (6 persons)     69,709,114                73.28%

(1) Consists of 3,407,000  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 and Sino-Sult Canada (S.S.C.)  Limited.  Each of Mr. Sporns,
Ms. Wang and Mr. Wang own, respectively,  24%, 25% and 51% of the issued capital
of Red Coral and share voting and  investment  power over the shares held by Red
Coral and Sino-Sult Canada.

Changes in Control

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

No related parties transaction has been made for the both period.

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

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

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

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).



                                       45
<PAGE>

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
                  (commission File Number 0-18980), filed with the Commission on
                  April 28, 2004).

10.1              Form of Stock Option Grant Notice  (incorporated  by reference
                  to the Report on Form 8-K  (commission  File Number  0-18980),
                  filed with the Commission on December 3, 2004).

10.2              Form of Option  Agreement  (incorporated  by  reference to the
                  Report on Form 8-K  (commission  File Number  0-18980),  filed
                  with the Commission on December 3, 2004).

10.3              Form of Exercise  Agreement  (incorporated by reference to the
                  Report on Form 8-K  (commission  File Number  0-18980),  filed
                  with the Commission on December 3, 2004).

10.4              Agreement,   dated  as  of  November   4,  2004,   between  HQ
                  Sustainable  Maritime  Industries,  Inc. and Sino-Sult  Canada
                  (S.S.C.)  Limited  (incorporated by reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on November 15, 2004).

10.5              Independent  Non-Executive  Director  Agreement,  dated  as of
                  September 2, 2004, between HQ Sustainable  Maritime Industries
                  Inc. and Daniel Too  (incorporated  by reference to the Report
                  on Form 10-QSB  (Commission file No. 0-18980),  filed with the
                  Commission on November 15, 2004).

10.6              Employment  Agreement,  dated as of September 1, 2004, between
                  HQ  Sustainable   Maritime  Industries  Inc.  and  Jean-Pierre
                  Dallaire  (incorporated  by  reference  to the  Report on Form
                  10-QSB   (Commission  file  No.   0-18980),   filed  with  the
                  Commission on November 15, 2004).

10.7              Purchase  Agreement,  dated as of August  17,  2004,  among HQ
                  Sustainable  Maritime   Industries,   inc.,  Sino-Sult  Canada
                  (S.S.C.)  Limited and Sealink Wealth Limited  (incorporated by
                  reference  to the Report on Form 8-K  (commission  File Number
                  0-18980), filed with the Commission on August 18, 2004).


                                       46
<PAGE>

10.8              Purchase Agreement, dated as of August 17, 2004, between Jade
                  Profit Investment Limited and Hainan Fuyuan Investment Company
                  Limited (incorporated by reference to the Report on Form 8-K
                  (commission File Number 0-18980), filed with the Commission on
                  August 18, 2004).

10.9              Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ  Sustainable  Maritime  Industries,  Inc. and Harry
                  Wang  (incorporated  by reference to the Report on Form 10-QSB
                  (commission File Number 0-18980), filed with the Commission on
                  August 13, 2004).

10.10             Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Lillian
                  Wang Li  (incorporated  by  reference  to the  Report  on Form
                  10-QSB  (commission  File  Number  0-18980),  filed  with  the
                  Commission on August 13, 2004).

10.11             Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Norbert
                  Sporns (incorporated by reference to the Report on Form 10-QSB
                  (commission File Number 0-18980), filed with the Commission on
                  August 13, 2004).

10.12             Form of Independent Non-Executive Director Agreement, dated as
                  of June 15, 2004, between HQ Sustainable  Maritime  Industries
                  Inc. and Fred Bild (incorporated by reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on August 13, 2004).

10.13             Independent Non-Executive Director Agreement, dated as of June
                  15, 2004, between HQ Sustainable  Maritime Industries Inc. and
                  Jacques  Vallee  (incorporated  by  reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on August 13, 2004).

10.14             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ Sustainable Maritime  Industries,  Inc. and Norbert
                  Sporns.

10.15             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ Sustainable Maritime  Industries,  Inc. and Lillian
                  Wang.

10.16             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ  Sustainable  Maritime  Industries,  Inc. and Harry
                  Wang.

14                Code of Ethics

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  (commission  File  Number  0-18980),  filed with the
                  Commission on May 18, 2004).

21                Subsidiaries of the Registrant

23                Consent of Rotenberg & Co. LLP

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



                                       47
<PAGE>

31.2              Certification  of Chief  Financial  Officer of HQ  Sustainable
                  Maritime    Industries,    Inc.,   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.

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.

(b) Reports on Form 8-K

1. Current report on Form 8-K filed with the SEC on December 3, 2004

In this  report we  disclosed  that our board of  directors  ratified  grants of
non-qualified  stock  options to purchase  shares of out common  stock under our
Stock Option Plan (the "Plan") to some of our executive  officers and directors,
as well as to thirteen of our employees.

2. Current report on Form 8-K filed with the SEC on October 18, 2004

In this report we disclosed the financial statement of Sealink Wealth Limited, a
British Virgin Islands liability  corporation  ("Sealink") and certain pro forma
financial  information  for HQSM,  consistent  with our August 18, 2004  current
report  filed  on Form 8-K  wherein  we  disclosed  that we had  entered  into a
Purchase Agreement,  dated as of August 17, 2004, with Sino-Sult Canada (S.S.C.)
Limited, a Canadian limited liability corporation ("SSC"), and Sealink,  whereby
we acquired Sealink, SSC's wholly owned subsidiary,  on the terms and conditions
specified in the Purchase Agreement.

3. Current report on Form 8-K filed with the SEC on August 18, 2004

In this report we disclosed that, on August 17, 2004, we entered into a Purchase
Agreement  ("Nutraceutical  Purchase  Agreement") with Sino-Sult Canada (S.S.C.)
Limited ("SSC") and Sealink Wealth Limited,  whereby we acquired Sealink,  SSC's
wholly  owned  subsidiary,   on  the  terms  and  condition   specified  in  the
Nutraceutical Purchase Agreement. The Nutraceutical Purchase Agreement was filed
as an exhibit to the report.  We also  disclosed a description  of Hainan Jiahua
Marine Bio-Products Co. Ltd, a wholly owned subsidiary of Sealink. The financial
statement of Sealink and the pro forma financial  information was not filed with
the report, but the Registrant  undertook to file such financial  statements and
information within 60 days of the closing of the transaction contemplated by the
Nutraceutical Purchase Agreement.

4. Current report on Form 8-K filed with the SEC on June 28, 2004



                                       48
<PAGE>

In this report we advised  regarding a June 15,  2004 press  release  announcing
that we, through our wholly owned subsidiary,  HQ Sustainable Maritime Marketing
Inc.,  entered  into a Letter  of Intent  for the  acquisition  of Tomich  Bros.
Seafood  Inc.,  a  California  company.  This  report  disclosed  the  financial
statements  of Tomich  Bros.  Seafood  Inc.  and  related  pro  forma  financial
information.

We also  advised  regarding a June 17, 2004 press  release  announcing  that the
appointment of Mr. Jacques Vallee and Mr. Fred Bild as independent non-executive
directors  and  advised  that Mr.  Vallee  with also act as head of our Board of
Directors' Audit Committee.

5. Current report on Form 8-K filed with the SEC on May 24, 2004

In this report we disclosed that Process  Equipment,  Inc. changed its corporate
name to HQ Sustainable Maritime Industries,  Inc. and its state of incorporation
to  Delaware,  by means of a merger  with and into a new  wholly-owned  Delaware
corporation called HQ Sustainable  Maritime  Industries,  Inc. We also announced
that our new over-the-counter trading symbol, HQSM.OB, would take effect May 25,
2004, and announced 40426A 10 9 as our new CUSIP number.

We also  disclosed the Audited  Financial  statement for year ended December 31,
2002 and 2003 of Jade Profit Investment Limited.

6. Current report on Form 8-K filed with the SEC on May 18, 2004

This report  disclosed that the  accounting  firm Rotenberg and Co. LLP replaced
Baum and Company, P.A. as the auditor for Process Equipment, Inc.

7. Current report on Form 8-K filed with the SEC on April 2, 2004

In this report we disclosed  that, on March 25, 2004,  the  Registrant,  Process
Equipment Acquisition  Corporation ("PEAC"),  and Jade Profit Investment Limited
("Jade"),  as the parent and  management  company of Hainan Quebec Ocean Fishing
Co. Ltd. ("HQ"),  consummated the transactions contemplated by the Agreement and
Plan of Merger executed on March 17, 2004.

Pursuant  to the  Agreement  and  Plan of  Merger,  PEAC  merged  with  and into
Registrant  and the  separate  existence of PEAC ceased and Jade became a wholly
owned subsidiary of the Registrant.

We also  disclosed  that it was  impracticable  that  that time to  provide  the
financial  statements  of the  business  acquired  and other  required pro forma
financial  information,  but  the  Registrant  undertook  to file  the  required
financial statements and information as soon as practicable.



                                       49
<PAGE>

8. Current report on Form 8-K filed with the SEC on March 17, 2004

In this report we disclosed  that process  Equipment,  Inc.,  Process  Equipment
Acquisition  Corporation,  and jade Profit Investment  Limited ("Jade"),  as the
parent and  management  company of Hainan Quebec Ocean Fishing Co. Ltd.  ("HQ"),
entered into an Agreement  and Plan of Merger  pursuant to which the  Registrant
acquired Jade and 84.42%  ownership in its  subsidiary HQ in exchange for shares
of the Registrant's common stock (the "Merger").

We also disclosed  certain  information  concerning  the principal  terms of the
Merger and the business of the Registrant and Jade.

We also  disclosed  that the Board of  Directors  will  change the  Registrant's
fiscal year end from April 30 to December 31.

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  $440,000  and  $110,000  for the  fiscal  years  ended
December 31, 2004 and April 30, 2004,  respectively.  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 Current
Report filed on Form 8-K on October 18, 2004, 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 $0 for the  fiscal  years
ended  December  31,  2004 and April 30,  2004,  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 $0 for the  fiscal  years
ended December 31, 2004 and April 30, 2004, and for tax compliance,  tax advice,
and tax planning.

(d) All Other Fees

Rotenberg  billed us  aggregate  fees in the amount of $0 for the  fiscal  years
ended December 31, 2004 and April 30, 2004, and for all other fees.

(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



                                       50
<PAGE>

the  board of  directors,  or  unless  the  services  meet  certain  de  minimis
standards.  In the fiscal  years ended  December  31,  2004 and April 30,  2004,
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 April 2004     Fiscal Year December 2004
                            ----------------------     -------------------------
Audit fees                      100%                       100%
Audit-related fees                0%                         0%
Tax fees                          0%                         0%
All other fees                    0%                         0%



















                                       51
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
and Exchange Act, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.

                                        HQ Sustainable Maritime Industries, Inc.


                                        By: /s/ Norbert Sporns
                                           -------------------------------------
                                           Norbert Sporns
                                           Chief Executive Officer and President
                                        Date:  April 11, 2005

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this Report has been signed below by the  following  persons on behalf of
the Registrant and in the capacities and on the dates indicated.

SIGNATURE                    TITLE                                DATE
---------                    -----                                ----

 /s/ Norbert Sporns          Chief Executive Officer, President   April 11, 2005
-------------------------    and Director
Norbert Sporns               (Principal Executive Officer)


 /s/ Lillian Wang            Secretary, Chairman of the Board     April 11, 2005
-------------------------    of Directors, and Director
Lillian Wang

 /s/ Harry Wang              Chief Operating Officer and          April 11, 2005
-------------------------    Director
Harry Wang

 /s/ Jacque Vallee           Director                             April 11, 2005
-------------------------
Jacque Vallee

/s/ Fred Bild                Independent Non-executive Director   April 11, 2005
-------------------------
Fred Bild

 /s/ Daniel Too              Independent Non-executive Director   April 11, 2005
-------------------------
Daniel Too

 /s/ Jean-Pierre Dallaire    Chief Financial Officer and          April 11, 2005
-------------------------    Financial Controller
Jean-Pierre Dallaire         (Principal Financial Officer)

 /s/ Fusheng Wang            Honorary Chairman and Director       April 11, 2005
-------------------------
Fusheng Wang







                                       52
<PAGE>

                                    EXHIBITS

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

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
                  (commission File Number 0-18980), filed with the Commission on
                  April 28, 2004).

10.1              Form of Stock Option Grant Notice  (incorporated  by reference
                  to the Report on Form 8-K  (commission  File Number  0-18980),
                  filed with the Commission on December 3, 2004).

10.2              Form of Option  Agreement  (incorporated  by  reference to the
                  Report on Form 8-K  (commission  File Number  0-18980),  filed
                  with the Commission on December 3, 2004).

10.3              Form of Exercise  Agreement  (incorporated by reference to the
                  Report on Form 8-K  (commission  File Number  0-18980),  filed
                  with the Commission on December 3, 2004).

10.4              Agreement,   dated  as  of  November   4,  2004,   between  HQ
                  Sustainable  Maritime  Industries,  Inc. and Sino-Sult  Canada
                  (S.S.C.)  Limited  (incorporated by reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on November 15, 2004).

10.5              Independent  Non-Executive  Director  Agreement,  dated  as of
                  September 2, 2004, between HQ Sustainable  Maritime Industries
                  Inc. and Daniel Too  (incorporated  by reference to the Report
                  on Form 10-QSB  (Commission file No. 0-18980),  filed with the
                  Commission on November 15, 2004).



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<PAGE>

10.6              Employment  Agreement,  dated as of September 1, 2004, between
                  HQ  Sustainable   Maritime  Industries  Inc.  and  Jean-Pierre
                  Dallaire  (incorporated  by  reference  to the  Report on Form
                  10-QSB   (Commission  file  No.   0-18980),   filed  with  the
                  Commission on November 15, 2004).

10.7              Purchase  Agreement,  dated as of August  17,  2004,  among HQ
                  Sustainable  Maritime   Industries,   inc.,  Sino-Sult  Canada
                  (S.S.C.)  Limited and Sealink Wealth Limited  (incorporated by
                  reference  to the Report on Form 8-K  (commission  File Number
                  0-18980), filed with the Commission on August 18, 2004).

10.8              Purchase Agreement,  dated as of August 17, 2004, between Jade
                  Profit Investment Limited and Hainan Fuyuan Investment Company
                  Limited  (incorporated  by reference to the Report on Form 8-K
                  (commission File Number 0-18980), filed with the Commission on
                  August 18, 2004).

10.9              Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ  Sustainable  Maritime  Industries,  Inc. and Harry
                  Wang  (incorporated  by reference to the Report on Form 10-QSB
                  (commission File Number 0-18980), filed with the Commission on
                  August 13, 2004).

10.10             Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Lillian
                  Wang Li  (incorporated  by  reference  to the  Report  on Form
                  10-QSB  (commission  File  Number  0-18980),  filed  with  the
                  Commission on August 13, 2004).

10.11             Form of Employment  Agreement,  effective as of April 1, 2004,
                  between HQ Sustainable Maritime  Industries,  Inc. and Norbert
                  Sporns (incorporated by reference to the Report on Form 10-QSB
                  (commission File Number 0-18980), filed with the Commission on
                  August 13, 2004).

10.12             Form of Independent Non-Executive Director Agreement, dated as
                  of June 15, 2004, between HQ Sustainable  Maritime  Industries
                  Inc. and Fred Bild (incorporated by reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on August 13, 2004).

10.13             Independent Non-Executive Director Agreement, dated as of June
                  15, 2004, between HQ Sustainable  Maritime Industries Inc. and
                  Jacques  Vallee  (incorporated  by  reference to the Report on
                  Form  10-QSB  (Commission  file No.  0-18980),  filed with the
                  Commission on August 13, 2004).

10.14             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ Sustainable Maritime  Industries,  Inc. and Norbert
                  Sporns.

10.15             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ Sustainable Maritime  Industries,  Inc. and Lillian
                  Wang.

10.16             Amendment No. 1 to Employment Agreement, dated April 11, 2005,
                  between HQ  Sustainable  Maritime  Industries,  Inc. and Harry
                  Wang.

14                Code of Ethics

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  (commission  File  Number  0-18980),  filed with the
                  Commission on May 18, 2004).



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<PAGE>

21                Subsidiaries of the Registrant

23                Consent of Rotenberg & Co. LLP

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

31.2              Certification  of Chief  Financial  Officer of HQ  Sustainable
                  Maritime    Industries,    Inc.,   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.

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.














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