Question: Can you give a more in-depth overview of your company's business?

Norbert Sporns, CEO of HQSM ("NS"): We are a wholly foreign owned company that is the leading producer of quality tilapia fish exports from China to the U.S. Tilapia consumption in the U.S. has risen from less than $20 million in 1992 to nearly $400 million in 2005.

(See American Tilapia Association at http://ag.arizona.edu/azaqua/ista/markets.htm).

According to the American Tilapia Association, China produces a dominant 47 percent of the world's tilapia products, and HQ is benefiting from the market's expansion. Current demand is growing and increasingly our focus is turning to branding of our superor highest quality products under the TiLoveYa, zero-toxin label.

Question: That sounds like an exciting opportunity. How do you plan to accomplish that?

NS: We have a two-pronged strategy to expand both vertically and horizontally. Vertically, we are creating a proprietary organic feed plant to control the quality of feed provided to our supplier fish farmers in Hainan and to consolidate our relationship with them. We are also developing new lines of fish products that are totally organic. This will allow us to obtain international organic certification and become a major player in a niche market that commands premium price margins.

Horizontally, we plan to expand our capacity by merging with or acquiring various competitor processing companies that cannot keep pace with our level of profitability. We will choose such companies carefully to ensure that they can be upgraded cost-effectively to HQ standards.

Question: Tell us about your location in China.

NS: Our Global Head Office is in Seattle however our base of operations is in Wenchang, the centre of the fish farming operations in Hainan Province a tropical Island Province located in the South China Sea. Hainan Province benefits from Ecological protection as the Central Government in China has limited economic activity to Tourism and Agrifood, thus eliminating sources of air-borne and water pollution which could otherwise be generated by heavy industry.

Question: What is aquaculture and what is the potential of this industry?

NS: Aquaculture is the farming and harvesting of animals and plants that live in water, primarily fish. The global ocean catch has not increased for five years and cannot keep pace with a growing demand for healthy seafood products. The shortfall is being met by aquaculture production, and China is the world's leading producer. HQ is one of the Chinese quality leaders in supplying tilapia fish and shrimp to world markets.

Question: What is the size of the market you address?

Tilapia imports into the USA have been growing by an impressive average 25% per year over the past five years. Thus, 2005 saw a new record of 135 000 tonnes imports. While frozen whole tilapia is still the main product form imported into the USA, it is not showing any growth. Most of the increase is coming from frozen fillets, while also fresh fillets imports are soaring. In 2005, tilapia fillets accounted for 58% of total tilapia imports into the USA, thus for the first time overtaking whole tilapia. This trend will continue in the years to come.

Fresh tilapia fillet imports into USA during the first three months were on a par with the 2005 figures, putting a sudden break to a market that had seen strong growth in recent years. Lower supplies from Latin America were the main reason, with drought in Ecuador which has led to slower growth and higher mortality; and lower output in northern Costa Rica and Nicaragua due to disease related problems. Tilapia producers in Asia took advantage of the problems of Latin America, and managed to expand their exports to the US market by 9% for whole frozen products and by 22% for frozen fillets. Overall tilapia imports into the USA in the first three months of 2006 grew by 13% to reach 35 000 tonnes. 2000 and 2001, world consumption of tilapia rose from 45,000 tons with a value of $1.01 billion to 52,000 tons with a value of $1.2 billion, an increase of 15 percent. The U.S. is the world's largest consumer of tilapia, and it imports 97 percent of what it consumes"

Question: Is there a difference between “tilapia” and “quality tilapia”?

NS: Very much so. Fish that are farmed in ponds where water quality and feed quality are not carefully controlled can be harmful to humans, and poor farming conditions can be harmful to the overall environment, ultimately impacting the ability to raise sufficient consumable seafood to meet world demand. HQ is committed to the highest quality international standards for sustainable aquaculture, both because it is the socially responsible approach for the long term and because it is good business in the short term. HQ's emphasis on quality is the key to its future.

Question: What are HQ's special advantages?

NS: They are several. First of all, our aquaculture operations are based in a unique location. Hainan province is a pristine tropical island in the South China Sea. This pollution-free environment has year-round warm temperatures, making it the only part of China where sashimi-grade tilapia can be raised 365 days a year. Our processing plant is within 45 minutes of the fish ponds, guaranteeing quality and freshness. In addition, Hainan province is presently designated by the PRC as a special economic zone providing various tax benefits.

Question: Are there other advantages unique to HQ?

NS: Yes. Most importantly, we are the only vertically integrated aquatic business in China. We formulate feed, control our cooperative fish farms, processing plant and distribution network. This gives us complete control over the quality of every aspect of our operations.

Question: In addition to those advantages, you also have a strong management team, I see.

NS: Our top executives are American-educated managers from?China, United States, Europe ?and Canada, enabling us to operate efficiently in both Western and Asian cultures.

Question: How and where do you distribute and market your products?

NS: Our main marketing offices are now in Seattle. More than half our products are exported to the U.S., Australia, South Korea, Japan and other Asian countries. Some of these exports are sold under the buyers' brand names and increasingly under our new zero-toxin label, "TiLoveYa". In addition, we have long-term business relationships in Canada, Germany, France, Belgium, and Spain. We regularly attend major International Food Shows in Boston, Los Angeles, Shanghai, Beijing, Singapore and Brussels. I believe we are the only PRCbased integrated producers present at these shows. We also work with such leading U.S. distributors as Beaver Street Fisheries, Slade Gorton, Paragon Seafood Company, Croker & Winsor Seafoods, Mareida Trading Co., and Tomich Brother Fish Co.

Question: Can you sum up your company's long term business goal?

NS: Long term, our goal is to consolidate our position as one of the world's premium brand of highest quality aquaculture products. Central to this will be chemical-free farming, organically certified feed and adherence to fair trade labor policies. We believe we are already well on our way to obtaining this position in the U.S. and European markets. "


What follows are frequently asked questions with answers provided by Dr. Stephen Newman, founder of Aqua In-Tech

Dr. Newman has a Ph.D. Microbiology - Granted May 1979. University of Miami, Miami, Florida.Microbial physiology and genetics.and
A BSc. Fish and Wildlife Management, Conservation and Resource Development, Major in Zoology - Granted May 1973.University of Maryland, College Park, Maryland.

July 1996 to Present
President and CEO
Aqua In Tech, Inc.Lynnwood, WA.

WHAT DO WE FEED OUR TILAPIA?

What do farmed fish eat?

Farmed fish eat palliated feeds that contain all of the essential and micro-nutrients that the fish need to grow.They may also consume natural feeds as well, although as they get bigger in size, typically the fish gain most of their nutrition from feeds that are added to the ponds.The composition of the fish pellets varies depending on the species and its nutritional requirements.

What do we feed our fish at HQSM?

Unlike many other farmed Tilapia species, our animals are fed a diet that is largely plant protein.This plant protein is free of the contaminants that are commonly found in fish meals. Tilapia are not carnivorous and do very well on plant derived proteins.

Why is this good for the consumer?

Many fish contain contaminants that enter their environment through feed and water.
Carnivorous fish typically contain higher levels of these contaminants.Our Tilapia are free of these influences.The feed contains no fish meal

Use of fertilizers??

The use of manure as a fertilizer in fish ponds is a common practice.We do not use any manure based fertilizers in the rearing of our fish.

Why is this important?

Animal manures, while rich in nutrients, can contain a variety of adulterants including antibiotic residues, heavy metals, pesticides, pathogenic bacteria and viruses.HQSM does not use any animal manures in the production of its Tilapia.

Why does this make our fish better?

Produced in waters free of contaminants and using production methods that do not result in the addition of contaminants during the rearing process guarantees you that the Tilapia we produce are free of the substances that rearing the fish in other environments might result in.

ENVIRONMENTAL ISSUES

Where do we produce our fish?

All of our fish are produced on the Chinese Island of Hainan.This is a tropical island located off the Southern tip of China in the South China Sea.Its latitude is less than 20 N making it at the same latitude as the Hawaiian Islands.This is a favorable climate for producing Tilapia.

Where does the water come from that we use to produce our fish?

The water that we use is rain water.It is collected in reservoirs for the specific purpose of producing Tilapia.The water is not used for anything else before we use it.This water is clean and completely free of any agricultural influences.

What is so special about the environment where we rear our fish?

Most farms produce Tilapia in ponds using water from rivers, estuaries and other surface waters.Tilapia are also grown in lakes.Our water is pure rain water that is collected in reservoirs and pumped into our ponds.Hainan Island has no industrial base and the water is clean and not polluted by any local influences.

What so special about the water quality?

Our tilapia is approved to be sold as Izumi-dai, sushi grade Tilapia.The standards for this are exacting and the filets have to be of the highest quality, produced in pristine waters free of any all potential contaminants.This is a prerequisite for obtaining permission to label our Tilapia filets as Izumi-dai.

ZERO HORMONE USE

Why are Male Tilapia reared preferentially?

Male tilapia grow faster and larger than female fish do.Reproducing females can damage pond bottoms by digging nests.Tilapia are typically farmed cyclically.They are stocked, reared to a marketable weight and harvested in a time cycle that varies only with the weather.Large numbers of females producing fry can make this a more complicated strategy.For these reasons most farms that produce tilapia preferentially produce male fish.

How are male tilapia produced?

All-male tilapia are produced by three primary methods.One is by using a cross between two different species.Many, if most most, other farms use a hormone, methyl-testosterone that is applied to fish in the hatchery, when they are very small.This hormone changes the fish so that they are almost all males.Other methods include manipulation of the sex by genetic selection, producing YY chromosome males that produce only male (XY) offspring.

How does HQSM produce our male tilapia?

The method takes advantage of the fact that most of the offspring of a cross between two different species will be male.HQSM uses Oreochromus niloticus crossed with O. aureus.This is an all natural method for producing a high male population.The animals are never exposed to methyl-testosterone or any other chemical to produce all males.Our process yields more than 90% males.This all natural process does result in some females and we accept the minor disadvantages of having some females in our ponds.

Why does our method give you a better product?

We never use hormones at any stage of the life process.Nothing is given to our fish to promote reproduction or to alter normal genetic patterns.We rely on the fact that crossing two different species of Tilapia gives us a largely male population.You are thus assured a product that is completely free of added hormones.

OFF-FLAVOR

What is off-flavor?

The term off-flavor refers to a characteristic taste found in the flesh of fish that have been reared in ponds.It is often described as a musty or muddy taste, although not always.It can range from subtle to making the fish inedible.Not all people find low levels unpleasant though quality fish products are free of off-flavor.

What causes off-flavor?

Most off-flavor is caused by specific species of algae and bacteria.Some cases have been linked to other sources such as diesel and for some types of off-flavor there are no identifiable causes.At this time, two algal and bacterial metabolic products have been identified as being the cause of the majority of off-flavor.These are geosmin and 2-methylisoborneol (MIB).

Where does off-flavor come from?

MIB and geosmin are produced by many species of actinomycte bacteria and blue-green algae species.Blue-green algae that cause most off-flavor include species of Anabaena and Oscillatoria as well as other species.

What conditions favor the production of blue-green algae that cause off-flavor?

Blue-green algae are normal inhabitants of most aquatic environments.In ecologically balanced systems they are present as components of the overall mixture and are not dominant.In systems in which nutrients have altered the ecology, blue-green bacterial species may dominate.The conditions that typically cause this are known as eutrophication.This is a form of environmental disruption that favors the growth of blue-green algae that may produce off-flavors.

Why is this not a problem in Tilapia produced by HQSM?