I've tracked it down until the following line:
administrator/components/com_hikashop/helpers/image.php Line: 258-260:
I replaced the line: ( commented it just in case )
$ok = $this->_resizeImage($file_path, $new[0], $new[1], $this->uploadFolder.'thumbnail_'.$thumbnail_y.'x'.$thumbnail_x.DS);
With:
$ok = $this->_resizeImage($file_path, $new[0], $new[1], $this->uploadFolder.'thumbnail_'.$new[1].'x'.$new[0].DS);
I know I shouldn't be touching the core files but this looked like a bug to me and I needed it resolved. Hopefully when I update the extension it will be corrected..