Liuyang Fireworks Reports Second Quarter Financial Results

TORONTO, Aug. 27 /CNW/ - Liuyang Fireworks Limited (TSX-V: FWK) ("Liuyang" or "the Company") today reported its financial results for the three- and six-month periods ended June 30, 2010. All amounts are in Canadian dollars unless otherwise stated.

Selected Financial Highlights

(in thousands except share or % data)	Q2 2010	Q2 2009	Change
Revenue	$3,016	$2,198	+37%
Gross profits	$1,047	$927	+13%
Gross margins	34.7%	42.2%	-7.5%
EBITDA	$294	$347	-15%
Net income	$208	$174	+20%
Adjusted net income	$344	$174	+98%
Earnings per share	$0.005	$0.004	+$0.001

"Our second quarter performance was marked by a focused execution of our strategy to grow market share and become the most vertically integrated fireworks company in China," said Miao Hu, President and Chief Executive Officer, Liuyang Fireworks Limited. "Our efforts resulted in revenue growth of 37%, higher net income by 20% on a comparative basis to last year, and most importantly, the acquisition of two wholesale licenses that will drive our growth in the coming periods."

Second Quarter 2010 Highlights:

• Entered the wholesale market by launching a joint venture named Haining Jiale Liuyang Fireworks Co. based in China's Zhejiang province. The joint venture brings together Liuyang's products with Haining Jiale's wholesale experience and proximity to Shanghai, China's leading market for fireworks.
• Completed a second wholesale license acquisition and launched a new joint venture named Hangzhou Wanjia Huasheng Fireworks Co., based in China's Zhejiang province.

Review of Second Quarter 2010 Financial Results
Revenue for Q2 2010 was $3.0 million, up 37% from $2.2 million for the corresponding period of 2009. Excluding the impact of strengthening Canadian dollar, Liuyang's revenue for Q2 2010 would have been $3.4 million, representing a 56% increase over Q2 2009.

The revenue growth is due to increased product sales linked to seasonal events and public holiday celebrations in international markets. The growth was also attributable to increased sales in the domestic Chinese market consistent with the Company's strategy. On a segmented basis, Liuyang generated 72%, or $2.2 million, and 28%, or $0.8 million, from international and domestic markets, respectively.

On a six-month basis, revenue for 2010 was $5.7 million, up 19.7% from $4.7 million for 2009.

Gross profit for Q2 2010 was $1.0 million or 35.4% of sales, compared with $0.9 million, or 42.2% of sales, for the corresponding period of 2009. The decline in gross margin was due to attractive pricing and the implementation of incentive programs designed to gain market share primarily within the domestic Chinese market.

On a year-to-date basis, gross profit and gross margins for 2010 were $1.9 million and 35%, respectively. These compare to $1.9 million and 41.2%, respectively, for 2009.

Total operating expenses for Q2 2010 were $0.8 million, up 24% from $0.6 million for Q2 2009. The increase was attributable primarily to higher selling expenditures and stock-based compensation expenses during the quarter. These increased operating costs were offset by a reduction in general and administrative and amortization expenses.

On a six-month basis, operating expenses for 2010 were $1.6 million, up 36% from $1.1 million for 2009. The growth was principally due to higher selling and stock compensation expenses.

EBITDA for Q2 2010 was $294,000, down from $347,000, for the corresponding period of 2009. The decline was largely due to non-cash stock-based compensation expenses and higher selling expenses.

On a year-to-date basis, EBITDA for 2010 was $477,000, up 37.5% from $347,000 for 2009.

Net income for Q2 2010 was $208,000 or $0.004 per fully diluted share, compared with $174,000, or $0.004 per fully diluted share for the second quarter of 2009.

Excluding a stock-based compensation charge of $135,503, adjusted net income for Q2 2010 was $344,000. On a six-month basis, adjusted net income for 2010 was $611,000. In 2009, Liuyang was a private company and incurred no stock-based compensation charges.

At June 30, 2010, Liuyang had working capital of $4.0 million, including cash and cash equivalents of $1.6 million. These compare to $4.5 million and $2.0 million, respectively, at December 31, 2009.

Outlook
"Our short-term focus will be to fully integrate our two new wholesale joint ventures into our operations to drive market share and revenue growth domestically," add Mr. Hu. "Over the longer term, we are committed to a two-pronged strategy designed to accelerate our growth. Internationally, we are focused on expanding our distribution network to tap into growing demand for safe, high quality fireworks. Domestically, we are focused on becoming the most innovative and vertically integrated fireworks company that will combine manufacturing, wholesale and display activities.

Liuyang's consolidated financial statements for the quarter ended June 30, 2010 and related management's discussion and analysis (MD&A) will be filed with securities regulatory authorities within applicable timelines and will be available via SEDAR at www.sedar.com.

About Liuyang Fireworks Limited
Liuyang Fireworks Limited is a leading China-based manufacturer of fireworks that are distributed domestically and in more than 15 countries in North America, South America and Europe. The Company has more than 16 years of experience in the fireworks industry and is a supplier to the world's top five fireworks wholesalers and retailers. Liuyang's ISO9001-certified manufacturing facilities are located in the Liuyang area of Hunan, China where more than half of the world's fireworks are produced.

The forward-looking information contained in this news release represents the expectations of the Company as of the date of this news release and, accordingly, is subject to change after such date. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While the Company may elect to, it does not undertake to update this information at any particular time except as required in accordance with applicable securities legislation.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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