Liuyang Fireworks Reports First Quarter Financial Results

TORONTO, May 28 /CNW/ - Liuyang Fireworks Limited (TSX-V: FWK) ("Liuyang" or "the Company") today reported its financial results for the three-month period ended March 31, 2010. All amounts are in Canadian dollars unless otherwise stated.

    
    Selected First Financial Highlights
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    In thousands except per share and % data       Q1 2010  Q1 2009   Change
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    Revenue                                         $2,646   $2,534      +4%
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    Gross profit                                      $936   $1,024      -9%
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    Gross margin                                     35.4%    40.4%      -5%
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    EBITDA(1)                                         $183     $611     -70%
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    Net income                                        $119     $399     -70%
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    Adjusted net income(2)                            $267     $399     -33%
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    Earnings per share                              $0.003      n/a      n/a
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"We are pleased with our first quarter results," said Miao Hu, President and Chief Executive Officer, Liuyang Fireworks Limited. "Our strategy of increasing domestic sales in China and integrating the various elements that make-up the fireworks supply chain resulted in market share growth, the launch of a new fireworks display company and record sales for the Chinese New Year selling season. Operationally, excluding the negative impact of the strengthening Canadian dollar, our Q1 revenue grew by 25% to $3.2 million."

First Quarter 2010 Highlights:

    
    -   Launched Hunan Liuyang Fireworks Display Art Company, a 100 percent-
        owned subsidiary. The subsidiary will enable Liuyang Fireworks to
        market its fireworks products throughout China, directly to large
        event organizers as well as to individuals hosting small events where
        fireworks are consumed.
    -   Announced record sales of $2.0 million for the 2010 Chinese New Year
        selling season.
    -   Awarded approximately $154,000, by the City of Changsha for becoming
        the city's first company to be publicly listed in North America.

    Highlights subsequent to quarter end

    -   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.
    

Review of First Quarter 2010 Financial Results

Revenue for Q1 2010 was $2.6 million, up 4% from $2.5 million for the first quarter of 2009. Revenue growth was largely due to increased market share in the domestic Chinese market, offset by the impact of the appreciation of the Canadian dollar. Excluding the impact of foreign exchange, revenue would have increased by 25% to $3.2 million.

Gross profit for Q1 2010 was $936,000, or 35.4% of sales, compared with $1.0 million, or 40.4% 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 during the Spring 2010 sales season.

Total operating expenses for Q1 2010 were $780,000, up 50% from $519,000 for Q1 2009.

The increase was attributable primarily to higher general and administrative expenses associated with becoming a publicly listed company, higher selling expenditures, and stock-based compensation during the quarter. These increased operating costs were offset by a reduction in amortization expenses due to the de-consolidation of Far Ocean Enterprises and Far Ocean Printing from the Company's financial statements effective January 1, 2010.

EBITDA for Q1 2010 was $183,000, down from $611,000, for the corresponding period of 2009. The decline was largely due to non-cash stock-based compensation expenses and higher selling, general and administrative expenses.

Net income for Q1 2010 was $119,000 or $0.003 per fully diluted share, compared with $399,000 for the first quarter of 2009. Excluding the non-controlling interest share of $13,191 and stock-based compensation charge of $135,503, adjusted net income for Q1 2010 was $267,000.

At March 31, 2010, Liuyang held cash and cash equivalents of $565,000 and working capital of $3.7 million, including cash and cash equivalents of $565,000. These compare to $4.5 million and $2 million, respectively, at December 31, 2009.

Outlook

"Since the start of 2010, we have carefully executed on our growth strategy by increasing our sales focus on the domestic Chinese market, acquiring the first of our three planned wholesalers for the year and launching a new fireworks display company," Mr. Hu added. "These achievements are effectively positioning us China's most integrated fireworks company, and will drive our long-term success."

Liuyang's consolidated financial statements for the quarter ended March 31, 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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    (1) Earnings before interest, taxes, depreciation and amortization
        (EBITDA) is often used as a measure of financial performance.
        However, EBITDA is a not a term that has specific meaning in
        accordance with generally accepted accounting principles, and may be
        calculated differently by other companies. Liuyang reconciles EBITDA
        to its net income.
    (2) Adjusted net income refers to net income adjusted for non-controlling
        interest and non-cash stock-based compensation expense.
    

For further information: Jacky Long, Chief Financial Officer, Liuyang Fireworks Limited, Tel: [phone] ext 206, [email protected]; Joe Racanelli, Investor Relations, The Equicom Group, Tel: [phone] ext 243, Email: [email protected]