Liuyang Fireworks Reports Third Quarter Results

Liuyang Fireworks Limited (TSX-V: FWK | Quote | Chart | News | PowerRating) today reported its financial results for the three- and nine-month periods ended September 30, 2009. All amounts are in Canadian dollars unless otherwise stated.

"We are extremely pleased with our Q3 performance, our first full quarter as a public company," said Miao Hu, President and Chief Executive Officer, Liuyang Fireworks Limited. "We experienced strong revenue growth and increased orders for our fireworks products in advance of the busy Christmas and year-end season in Europe and North America as well as for Chinese New Year celebrations. Our progress, we believe, is the result of our strong relationships with distributors around the world and our commitment to quality products, innovative packaging and customer safety."

Third Quarter Financial Results

Revenue for the third quarter of 2009 was $4.0 million, up 28% from $3.1 million for Q3 of 2008. Revenue for the nine-month period of 2009 was $8.7 million, an increase of 41% from $6.1 million for the same period of 2008. Revenue growth was due to an expanded international distribution network, higher sales emanating from Europe and an increased focus on strategic clients.

Gross profit for the third quarter of 2009 was $1.9 million, or 49% of sales, compared to $1.6 million, or 51% of sales, for Q3 2008. On a year-to-date basis, gross profit for 2009 was $3.9 million, or 45% of sales, compared to $3.0 million, or 48% of sales, for 2008. The decline in gross margin percentages was primarily attributable to volume sales discounts offered to strategic clients.

Total expenses for Q3 2009 were $1.2 million, up 43% from $870,000 for Q3 2008. The increase was principally due to higher selling costs related to transportation and international freight charges, increased general and administrative expenses stemming from the Company's public listing activities and higher salaries for an expanded management team. The higher selling and administrative expenses were partially offset by reduced amortization expenses as some equipment became fully amortized during Q3. Total expenses for the nine-month period of 2009 were $2.4 million compared to $1.7 million for the same period of 2008.

EBITDA for the third quarter of 2009 was $704,000 compared with $814,000 for Q3 2008. The decline was principally due to higher administrative expenses, including higher salaries as a result of an expanded workforce. EBITDA for the nine-month period of 2009 was $1.7 million, up 9.2% when compared with $1.5 million for the same period of 2008.

Net income for Q3 2009 was $402,000, or $0.01 per share (basic and diluted), compared to $478,000 for Q3 2008. On a year-to-date basis, net income was $974,000, or $0.02 per share, for 2009 and $1.1 million for 2008. Liuyang operated as a private company in 2008 and became listed on the TSX Venture Exchange on June 29, 2009 following the close of a qualifying transaction.

During the third quarter of 2009, Liuyang increased its controlling interest of Far Ocean JV to 73% through a cash contribution of $1.3 million. Far Ocean JV is a joint venture between Ease Asia Industrial and the Far Ocean group of companies, of which Liuyang Fireworks Limiited is the principal entity. Under the terms of the joint venture agreement, Liuyang must make an aggregate cash contribution of $7.2 million by September 15, 2011.

Cash and cash equivalents as at September 30, 2009 totaled $5.2 million compared to $1.9 million at December 31, 2008. The growth is primarily due to a non-brokered private placement of $3.1 million completed in tandem with the close of the qualifying transaction.

Outlook

"While our fourth quarter is typically slower than Q3 given the seasonal nature of our business, we are very encouraged by the volume of purchase orders received to date," Mr. Hu said. "Over the long-term, we expect our revenue to be less impacted by seasonal fluctuations as a result of our strategy to drive higher sales from China, where demand is strongest in Q4 and Q1 due to the spring festival season."

Liuyang's consolidated financial statements for the third quarter ended September 30, 2009 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.