Hollysys Automation Technologies Reports Unaudited Financial Results for the Fourth Quarter and Fiscal Year 2010 Ended June 30, 2010

PRNewswire
Aug 11, 2010

BEIJING, Aug. 11 /PRNewswire-Asia-FirstCall/ -- Hollysys Automation Technologies, Ltd. (NASDAQ: HOLI) ("Hollysys" or the "Company"), a leading provider of automation and control technologies and applications in China, today announced its unaudited financial results for its fiscal fourth quarter and the fiscal year 2010 ended June 30, 2010 (see attached tables).

  Q4 Financial Highlights
  -- Revenues of $56.4 million, representing an increase of 25.9% compared
     to $44.8 million year-over-year
  -- Gross margin at 33.9%, as compared to 33.5% year-over-year
  -- Non-GAAP net income of $10.7 million, as compared to $6.3 million and a
     69.2% increase year-over-year
  -- Record-breaking backlog balance at $252.9 million as of June 30, 2010,
     a 33.8% increase compared to $188.9 million year-over-year
  -- Operating cash inflow of $1.8 million
  -- Quarterly DSO of 116 days, as compared to 124 days year-over-year and
     192 days quarter-over-quarter

  Fiscal Year 2010 Financial Highlights
  -- Revenues of $174.1 million, an increase of 10.5% compared to 157.5
     million year-over-year
  -- Non-GAAP net income attributable to Hollysys of $30.7 million, a 19.4%
     increase compared to $25.7 million for fiscal year 2009
  -- $30.1 million cash generated from operations for the fiscal year 2010;
     cash and cash equivalents of $119.5 million as of the year end
  -- DSO of 140 days, as compared 147 days year-over-year
  -- Inventory turnover of 73 days, versus 79 days year-over-year

Dr. Changli Wang, Hollysys' Chairman of the Board and CEO, stated, "We are very pleased to report a solid fiscal 2010 annual result, culminated by the fourth quarter of strong financial and operational results, amid some of the difficulties we overcame during the year. Our financials demonstrated the continuous trend of revenues and earnings growth on a year-over-year basis, and our record-breaking backlog balance and strong sales pipeline indicated our strong operational status going into the new fiscal year. Most important of all, Hollysys is becoming a stronger and better company, not only from the market competitiveness perspective, but also from the corporate management perspective. I would like to discuss some of the key events that took place during this quarter. "

"In the industrial automation segment, we achieved accelerated growth in both revenue and backlog this quarter, attributable to our solid execution, increased efforts in research and development. The quarterly segment revenue increased by 27.8% and backlog balance increased by 31.5% year-over-year. "

"In the high-speed rail segment, the contract win of US $12.4 million Tai-Zhong-Yin Line in July 2010 is the result of our hard work and persistent efforts in the previous quarters. We were contracted to provide our ground based high-speed rail signaling system to the Phase I of Tai-Zhong-Yin Railway Line with 460 km in length and designed to travel at a speed of 200km/h. With the winning of this contract, it is not only a strong validation of Hollysys' state-of-the-art high-speed rail signaling system, most importantly, it marks our successful penetration into China's northwest region's high-speed rail market. With China's high-speed rail build-out expedites its pace towards 2012, Hollysys has successfully laid a solid foundation to capture its fair share in this unprecedented high-speed rail build-out.

In our subway segment, we were awarded a contract to supply our SCADA System to the Phase II of Beijing Subway Line 8, valued at approximately USD$11million. This contract win further validates our well-established brand name recognition in China's fast-growing subway automation market. As China's subway ramp-up accelerates in over 22 cities nationwide, Hollysys will continue to leverage on its solid track record and brand-name recognition to expand its market share in this booming market."

Dr. Wang continued, "In the nuclear segment, we commenced supplying our proprietary conventional island automation and control products to #1 and #2 reactors of Yangjiang Nuclear Power Station, pursuant to the first batch of purchase orders from our JV with China Guangdong Nuclear Power Corp. The Yangjiang Nuclear Power Station in Guangdong province is designed to have six one-gigawatt (GW) pressurized water reactors using CGNPC's proprietary CPR-1000 technology. With China's accelerated nuclear build-out in the coming years and our strategic alliance with the most leading nuclear station builder in China, our nuclear segment will contribute more to our margin and profit going forward."

The Fourth Quarter and Fiscal Year 2010 Unaudited Financial Results Summary

To facilitate a clear understanding of Hollysys operational result, a summary of unaudited non-GAAP financial results is shown as below:

  In USD thousands, except share numbers and EPS

                                       Three Months ended
                                     June 30,      June 30,       % Change
                                        2010          2009

  Revenues                    $         56,371        44,772         25.9%
      Integrated Contract     $         53,016        41,791         26.9%
  Revenue
      Products Sales          $          3,355         2,981         12.5%
  Cost of Revenues            $         37,246        29,779         25.1%
  Gross Profit                $         19,125        14,993         27.6%
  Total Operating Expenses    $          9,287         6,394         45.3%
      Selling                 $          3,113         2,327         33.8%
       General and
       Administrative         $          4,514         2,752         64.0%
      Research and
       Development            $          3,859         3,593          7.4%
      VAT refunds and
       government subsidy     $         (2,199)       (2,278)        -3.5%
  Income from Operations      $          9,838         8,599         14.4%
  Others                      $          3,039          (242)    -1,354.6%
  Income Tax Expenses         $          2,097           841        149.3%
  Non-GAAP Net income
   attributable to non-
   controlling interest       $             47         1,174        -96.0%
  Non-GAAP Net Income
   attributable to Hollysys
   Automation Technologies
   Ltd.                       $         10,733         6,342         69.2%
  Basic Non-GAAP EPS          $           0.20          0.14         43.1%
  Diluted Non-GAAP EPS        $           0.20          0.14         42.3%

  Stock-based Compensation
   Cost for Options           $            131           131          0.0%
  Stock-based Compensation
   Cost for Incentive Shares  $             --        22,240
  Net income attributable to
   Hollysys Automation
   Technologies Ltd.(GAAP)    $         10,602       (16,029)      -166.1%
  Basic GAAP EPS              $           0.19         (0.35)      -155.9%
  Diluted GAAP EPS            $           0.19         (0.35)      -155.6%

  Basic Weighted Average
   Common Shares Outstanding        54,385,044    45,986,570         18.3%
  Diluted Weighted Average
   Common Shares Outstanding        54,984,420    46,233,857         18.9%


                                        Fiscal year ended
                                      June 30,      June 30,       % Change
                                        2010          2009

  Revenues                     $       174,089       157,502         10.5%
      Integrated Contract      $       164,118       149,303          9.9%
  Revenue
      Products Sales           $         9,971         8,199         21.6%
  Cost of Revenues             $       113,937       102,924         10.7%
  Gross Profit                 $        60,152        54,578         10.2%
  Total Operating Expenses     $        27,080        20,569         31.7%
      Selling                  $        12,152        10,022         21.3%
       General and
       Administrative          $        13,390         9,422         42.1%
      Research and
       Development             $        13,071         8,829         48.0%
      VAT refunds and
       government subsidy      $       (11,533)       (7,704)        49.7%
  Income from Operations       $        33,072        34,009         -2.8%
  Others                       $         2,671           (53)    -5,173.9%
  Income Tax Expenses          $         3,209         3,061          4.8%
  Non-GAAP Net income
   attributable to non-
   controlling interest        $         1,851         5,187        -64.3%
  Non-GAAP Net Income
   attributable to Hollysys
   Automation Technologies
   Ltd.                        $        30,683        25,708         19.4%
  Basic Non-GAAP EPS           $          0.60          0.57          4.7%
  Diluted Non-GAAP EPS         $          0.59          0.57          3.5%

  Stock-based Compensation
   Cost for Options            $           524           319         64.3%
  Stock-based Compensation
   Cost for Incentive Shares   $            --        39,240       -100.0%
  Net income attributable to
   Hollysys Automation
   Technologies Ltd.(GAAP)     $        30,159       (13,851)      -317.7%
  Basic GAAP EPS               $          0.59         (0.31)      -289.5%
  Diluted GAAP EPS             $          0.58         (0.31)      -288.8%

  Basic Weighted Average
   Common Shares Outstanding        51,243,667    44,950,833         14.0%
  Diluted Weighted Average
   Common Shares Outstanding        51,838,294    44,950,833         15.3%


  Operational Results Analysis for the three months ended June 30, 2010

For the three months ended June 30, 2010, total revenues increased by 25.9% to $56.4 million, from $44.8 million in the comparable prior fiscal year period. Of the total revenues, revenue from integrated contracts increased by 26.9% to $53.0 million, compared to $41.8 million for the same period of the prior year. The Company's integrated contract revenue by segment was as followings:

  -- $24.0 million, or 45.3%, related to Industrial Automation & Control,
     representing a 27.8% segment revenue growth year-over-year;
  -- Rail and Subway was $26.5 million, or 50.0%, representing a 16.3%
     increase year over year; of which $8.9 million, or 16.9%, was from Rail
     Signaling and Control projects, and $17.6 million, or 33.1%, was from
     Subway Automation and Control; and
  -- $2.5 million, or 4.7%, related to Nuclear Plant Control projects and
     miscellaneous, compared to $0.2 million year-over-year.

As a percentage of total revenues, overall gross margin was 33.9% for the three months ended June 30, 2010, as compared to 33.5% for the same period of last year, mainly due to the fact that the gross margin for product sales increased from 42.5% for the prior year period, to 51.8% in this quarter. The gross margin for integrated contracts was 32.8% for the three months ended June 30, 2010, which was unchanged compared to the same period of last year.

For the three months ended June 30, 2010, selling expenses were $3.1 million, compared to $2.3 million year over year, and was increased by $0.8 million, or 33.8%, which was mainly due to the Company's increased marketing activities. As a percentage of total revenues, selling expenses were 5.5% and 5.2% for the three months ended June 30, 2010 and 2009, respectively.

General and administrative expenses, excluding non-cash stock-based compensation expense, were $4.5 million for the fourth quarter, representing an increase of $1.7 million, or 64.0%, compared to $2.8 million for the same period of last year. The increase is consisted of $1.3 million in bad debt allowance and $0.7 million in provision for fixed assets. Including the non- cash stock compensation cost recorded on a GAAP basis, G&A expenses were $4.6 million and $25.1 million for three months ended June 30, 2010 and 2009, respectively.

Research and development expenses were $3.9 million for the three months ended June 30, 2010, compared to $3.6 million for the same period of last year. As a percentage of total revenue, R&D expenses were 6.8% and 8.0% for three months ended June 30, 2010 and 2009, respectively.

For the fourth quarter ended June 30, 2010, the share of net gains of equity investees amounted to $3.3 million, of which $3.2 million was contributed by Beijing Techenergy Ltd., the 50/50 joint venture between Hollysys and China Guangdong Nuclear Power Corp. (CGNPC) that mainly engages in providing automation and control products and services to China's nuclear industry.

For the three months ended June 30, 2010, non-GAAP net income attributable to Hollysys, excluding non-cash stock compensation cost, was $10.7 million, or $0.20 per diluted share based on 55 million shares outstanding. This represents an increase of $4.4 million, or 69.2%, over the $6.3 million, or $0.14 per share based on 46 million shares outstanding, reported in the prior year period. On a GAAP basis, net income attributable to Hollysys was $10.6 million, or $0.19 per diluted share based on 55 million shares outstanding, compared to net loss attributable to Hollysys of $16.0 million, or $(0.35) per diluted share based on 46 million shares outstanding, for the same period of the prior year.

Operational Results Analysis for the fiscal year ended June 30, 2010

For the fiscal year 2010, total revenues increased by 10.5% to $174.1 million, from $157.5 million of the prior year. Of the total revenues, revenue from integrated contracts increased by 9.9% to $164.1 million, from $149.3 million for the prior fiscal year. The Company's integrated contract revenue by segment was as followings:

  -- $94.2 million, or 57.4%, related to Industrial Automation & Control,
     representing a 15.6% increase year over year;
  -- Rail and Subway was $60.0 million, or 36.5%, representing a 0.4%
     increase year over year; of which $28.8 million, or 17.5%, was from
     Rail Signaling and Control projects, and $31.2 million, or 19.0%, was
     from Subway Automation and Control; and
  -- $9.9 million, or 6.0%, related to Nuclear Automation and Control and
     miscellaneous, representing a 23.2% increase.

For the fiscal year 2010, as a percentage of total revenues, overall gross margin was 34.6%, as compared to 34.7% for the prior year. The gross margin for integrated contracts was 32.8% for fiscal 2010, compared to 33.4% for the prior year, mainly due to the decrease of high-margin high-speed rail revenue in both absolute dollar value and its percentage of total revenue.

For fiscal 2010, selling expenses were $12.2 million, which increased by $2.2 million, or 21.3%, as compared to $10.0 million for the prior year. The increase is mainly due to increased marketing activities. As a percentage to total revenues, selling expenses were 7.0% and 6.4% for year ended June 30, 2010 and 2009, respectively.

General and administrative expenses, excluding non-cash stock-based compensation expense, were $13.4 million, as compared to $9.4 million for the prior year, representing an increase of $4.0 million, or 42.1%. The increase is mainly consisted of $1.6 million in bad debt allowance, the increase of $1.2 million in staff salaries and bonus, and $0.7 million in provision for fixed assets. Including the non-cash stock compensation recorded on a GAAP basis, G&A expenses were $13.9 million and $49.0 million for fiscal years 2010 and 2009, respectively.

Research and development expenses were $13.1 million for fiscal 2010, compared to $8.8 million for the prior year, with an increase of $4.2million, or 48.0%, which was mainly due to the increase in R&D staff. As a percentage to total revenue, R&D expenses were 7.5% and 5.6% for year ended June 30, 2010 and 2009, respectively.

The share of net gains of equity investees amounted to $4.0 million for fiscal 2010, of which $2.9 million was contributed by Beijing Techenergy Ltd.

For the fiscal year 2010, the non-GAAP net income excluding non-cash stock compensation cost was $30.7 million, or $0.59 per diluted share based on 52 million shares outstanding. This represents an increase of $5.0 million, or 19.4%, over the $25.7 million, or $0.57 per share based on 45 million shares outstanding, reported for the prior year. On a GAAP basis, net income attributable to Hollysys was $30.2 million, or $0.58 per diluted share based on 52 million shares outstanding, compared to net loss attributable to Hollysys of $13.9 million, or $(0.31) per diluted share based on 45 million shares outstanding, for the prior year.

Backlog Highlights

Hollysys' backlog as of June 30, 2010 was $252.9 million, compared to $242.3 million on March 31, 2010, and $188.9 million on June 30, 2009. The detailed breakdown of the backlog by segment is as followings:

   (In USD million)
                               Quarter-over-Quarter        Year-over-Year
                                     Analysis                 Analysis
                  2010-6-30       2010-3-31               2009-6-30
                       % to            % to     %              % to      %
                  $    Total     $     Total  Change      $    Total  Change
                      Backlog         Backlog                 Backlog
  Industrial
   Automation &
   Control       86.0   34.0%   62.7    25.9%  36.9%     65.3   34.6%  31.5%
  Rail
   Automation &
   Control       50.5   20.0%   53.8    22.2%  -6.0%     58.1   30.7% -13.0%
  Subway
   Automation &
   Control      106.2   42.0%  115.0    47.4%  -7.6%     60.1   31.8%  76.8%
  Nuclear
   automation
   and control
   and
   miscellaneous 10.2    4.0%   10.9     4.5%  -6.0%      5.5    2.9%  87.3%
  Total         252.9  100.0%  242.3   100.0%   4.3%    188.9  100.0%  33.8%


  Cash Flow Highlights

Hollysys generated operating cash flow of $1.8 million and $30.1 million for the three months and the fiscal year ended June 30, 2010 respectively. Including investing and financing activities, the total net cash outflow for the three months ended June 30, 2010 was $0.4 million. For the fiscal year ended June 30, 2010, the total cash outflow was $9.4 million including investing and financing activities, mainly due to the usage of $9.7 million to acquire the 25.89% minority interests of Beijing Hollysys, in addition to the Company's cash inflow and outflow during the ordinary course of business.

Balance Sheet Highlights

As of June 30, 2010, Hollysys' cash and cash equivalents were $119.5 million, compared to $119.9 million on March 31, 2010, and $128.9 million on June 30, 2009. Days Sales Outstanding ("DSO") for fiscal 2010 is 140 days, reduced from 147 days for the prior year. Inventory turnover is 73 days for the year ended June 30 2010, as compared to 79 days the prior year.

Outlook for FY 2011

Dr. Wang concluded, "Given the backlog balance and strong pipeline across all of our business segments, we believe our revenue and net income growth will accelerate to approximate 35% and 25% respectively in our fiscal 2011. At the same time, the company has decided to grow our industrial automation sales team by an exponential rate and increase the investment in corporate research and development initiatives to further establish Hollysys as a dominant leader in automation and control field, across industrial, rail, and subway industries in China. "

Based on our operating results for fiscal 2010, we project our fiscal 2011 revenues to be in the range of USD 233M to USD 237M. We expect our fiscal 2011 non-GAAP net income to be in the range of USD 38M to USD 39M, which will translate into net income per share of USD 0.69 to USD 0.71, based on expected 55 million shares outstanding.

Conference Call

Management will discuss the current status of the Company's operations during a conference call at 9:00 AM ET/9:00 PM Beijing time on Thursday, August 12, 2010. Interested parties may participate in the call by dialing the following numbers approximately 10 minutes before the call is scheduled to begin and ask to be connected to the Hollysys Automation Technologies conference call. The conference call identification number is 90847140.

   1-866-519-4004 (USA)
   800-930-346 (HK)
   800-819-0121 (China Landline)
   400-620-8038 (China Mobile)
   +65-67239281 (International)


In addition, a recorded replay of the conference call will be accessible within 24 hours via Hollysys' website at: http://www.hollysys.com.sg/home/pubdown/180809.zip

About Hollysys Automation Technologies, Ltd.

Hollysys Automation Technologies is a leading provider of automation and control technologies and applications in China that enables its diversified industry and utility customers to improve operating safety, reliability, and efficiency. Founded in 1993, Hollysys has approximately 2,300 employees with 9 sales centers and 13 service centers in 21 cities in China and serves over 1700 customers in the industrial, railway, subway & nuclear industries. Its proprietary technologies are applied in product lines including Distributed Control System (DCS) and Programmable Logic Controller (PLC) for industrial sector, high-speed railway signaling system of TCC (Train Control Center) and ATP (Automatic Train Protection), subway supervisory and control platform (SCADA), and nuclear conventional island automation and control system.

SAFE HARBOUR:

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are "forward-looking statements," including statements regarding: the ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Such forward-looking statements, based upon the current beliefs and expectations of Hollysys' management, are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov/). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

  For further information, please contact:

  Hollysys Automation Technologies, Ltd.
   http://www.hollysys.com/
   Jennifer Zhang
   Investor Relations
   Tel:   +86-10-5898-1386
   Email: investors@hollysys.com

   Ling Zhang
   Investor Relations
   Tel:   +1-646-593-8125
   Email: investors@hollysys.com



                  HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
        CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                             (In US Dollars)

                      Three months ended June 30, Fiscal year ended June 30,
                           2010          2009         2010         2009
                       (Unaudited)  (Unaudited)   (Unaudited)
  Revenues
  Integrated contract
   revenue           $ 53,016,254 $  41,791,402 $ 164,118,183 $ 149,303,309
  Products sales        3,354,531     2,980,910     9,971,013     8,198,758
  Total revenues       56,370,785    44,772,312   174,089,196   157,502,067

  Cost of integrated
   contracts           35,629,054    28,065,525   110,268,475    99,423,487
  Cost of products
   sold                 1,616,890     1,713,861     3,668,899     3,500,471
  Gross profit         19,124,841    14,992,926    60,151,822    54,578,109

  Operating expenses
  Selling               3,113,064     2,326,647    12,152,019    10,021,832
   General and
   administrative       4,644,693    25,122,689    13,914,091    48,981,078
  Research and
   development          3,859,217     3,592,739    13,071,318     8,829,402
  VAT refunds and
   government subsidy  (2,198,523)   (2,278,303)  (11,533,006)   (7,703,724)
  Total operating
   expenses             9,418,451    28,763,772    27,604,422    60,128,588

  Income (loss) from
   operations           9,706,390   (13,770,846)   32,547,400    (5,550,479)

  Other income
   (expense), net        (151,160)      (60,291)     (215,277)      723,269
  Share of net gains
   of equity investees  3,313,781        45,619     3,958,073       178,167
  Interest expense,
   net                   (123,201)     (227,587)   (1,070,772)     (954,078)
  Income (loss) before
   income taxes        12,745,810   (14,013,105)   35,219,424    (5,603,121)

  Income taxes
   expenses             2,097,450       841,276     3,209,034     3,061,141
  Net income (loss)    10,648,360   (14,854,381)   32,010,390    (8,664,262)

  Less: Net income
   attributable to
   non-controlling
   interest                46,523     1,174,409     1,851,453     5,186,802
  Net income (loss)
   attributable to
   Hollysys Automation
   Technologies Ltd. $ 10,601,837 $ (16,028,790) $ 30,158,937  $(13,851,064)

  Weighted average
   number of common
   shares              54,385,044    45,986,570    51,243,667    44,950,833

  Weighted average
   number of diluted
   common shares       54,984,420    46,233,857    51,838,294    44,950,833

  Basic earnings
   (loss) per share
   attributable to
   Hollysys Automation
   Technologies Ltd.         0.19         (0.35)         0.59         (0.31)

  Diluted earnings
   (loss) per share
   attributable to
   Hollysys Automation
   Technologies Ltd.         0.19         (0.35)         0.58         (0.31)

  Other comprehensive
   income (loss)
  Net income (loss)    10,648,360   (14,854,381)   32,010,390    (8,664,262)
  Translation
   adjustments          1,089,939       119,328     1,239,750       605,582
  Comprehensive
   income (loss)       11,738,299   (14,735,053)   33,250,140    (8,058,680)

  Less: Comprehensive
   income attributable
   to non-controlling
   interest                50,699     1,186,774     1,876,297     5,254,351
  Comprehensive
   income (loss)
   attributable
   to Hollysys
   Automation
   Technologies Ltd. $ 11,687,600 $ (15,921,827 )$ 31,373,843  $(13,313,031)



                  HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
                       CONSOLIDATED BALANCE SHEETS
                             (In US Dollars)

                                         June 30,              March 31,
                                           2010                  2010
                                        (Unaudited)           (Unaudited)
  ASSETS
   Current Assets
     Cash and cash equivalents   $       119,501,945  $        119,930,627
     Contract commitment deposit
      in banks                             4,383,684             4,237,057
     Accounts receivable, net of
      allowance for doubtful
      accounts of $8,408,318 and
      7,321,655                           64,384,519            64,902,638
     Cost and estimated earnings
      in excess of billings, net
      of allowance for doubtful
      accounts of $1,102,016 and
      $688,158                            60,928,056            44,234,355
     Other receivables, net of
      allowance for doubtful
      accounts of $214,789 and
      $182,000                             4,102,136             4,551,142
     Advances to suppliers                10,676,175            13,185,758
     Amount due from related
      parties                             10,764,828            10,536,598
     Inventories, net of
      provision of $2,393,546 and
      $1,444,708                          23,554,331            21,267,445
     Prepaid expenses                      1,022,803             1,124,323
     Income tax recoverable                1,083,640             1,004,314
     Deferred tax assets                     956,969             1,667,283
     Deposit for acquisition of
      equity interest from non-
      controlling interest                        --             6,206,237
   Total current assets                  301,359,086           292,847,777

   Property, plant and equipment,
    net                                   65,345,618            47,969,800
   Long term investments                  17,348,159            14,169,174
   Goodwill                                       --               285,124

   Deferred tax assets                       677,388               688,119

   Total assets                          384,730,251           355,959,994

  LIABILITIES AND STOCKHOLDERS'
   EQUITY
   Current liabilities
     Short-term bank loans                 1,472,559             1,464,922
     Current portion of long-
      term loans                           1,472,559               732,461
     Bonds payable                        11,780,471            11,719,379
     Accounts payable                     41,479,662            35,120,711
     Deferred revenue                     33,552,968            37,227,125
     Accrued payroll and related
      expense                              4,386,681             3,623,791
     Income tax payable                    1,496,796             1,449,243
     Warranty liabilities                  1,916,654             2,075,347
     Other tax payables                   10,632,611             8,115,604
     Accrued liabilities                   8,078,783             7,764,485
     Amounts due to related
      parties                              2,610,599             2,560,252
     Deferred tax liabilities                     --                79,654
     Construction cost payable            12,562,565             2,749,923
   Total current liabilities             131,442,908           114,682,897

     Long-term bank loans                 35,341,413            35,890,600
     Long-term bonds payable                      --                    --

   Total liabilities                     166,784,321           150,573,497

   Commitments and contingencies

   Stockholder's equity
     Common stock, par value
      $0.001 per share,
      100,000,000 shares
      authorized, 54,449,129 and
      54,356,562 shares issued
      and outstanding                         54,450                54,357
     Additional paid-in capital          138,751,162           140,909,078
     Appropriated earnings                17,396,777            15,135,442
     Retained earnings                    43,391,191            32,789,354
     Accumulated comprehensive
      income - translation
      adjustments                         17,577,485            16,491,722
   Total Hollysys Automation
    Technologies Ltd.
    stockholder's equity                 217,171,065           205,379,953

     Non-controlling interest                774,865                 6,544
   Total equity                          217,945,930           205,386,497

   Total liabilities and equity  $       384,730,251  $        355,959,994




                  HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (In US Dollars)

                                    Three months ended     Fiscal year ended
                                        June 30,               June 30,
                                          2010                   2010
                                       (Unaudited)          (Unaudited)
  Cash flows from operating
   activities:
   Net income                     $       10,648,360   $        32,010,390
  Adjustments to reconcile net
   income to net cash provided
   by (used in) operating
   activities:
   Depreciation and amortization             297,833             2,683,042
   Allowance for doubtful
    accounts                               1,788,580             2,790,078
   Provision for inventories                 948,838             1,279,406
   Loss on disposal of property,
    plant and equipment                     (188,909)               14,112
   Impairment loss for long-term
    assets                                 1,154,588             1,154,588
   Share of net losses from
    equity investees                      (3,313,781)           (3,958,073)
   Amortization of expenses
    accrued for bond payable                  15,371                61,281
   Stock-based compensation                  131,019               524,076
   Deferred tax
    assets/liabilities, net                  641,391              (885,014)
  Changes in operating assets and
   liabilities:
   Accounts receivable                      (723,726)          (10,131,840)
   Cost and estimated earnings in
    excess of billings                   (17,107,559)          (10,191,299)
   Inventories                            (3,235,723)           (5,996,365)
   Advance to suppliers                    2,509,816            (2,598,327)
   Other receivables                         316,045               (93,051)
   Deposits and other assets                 944,058             1,497,584
   Due from related parties                 (159,399)           (3,143,615)
   Accounts payable                        8,171,184             5,032,941
   Deferred revenue                       (3,674,157)           12,480,428
   Accruals and other payable              1,064,987             5,953,753
   Due to related parties                     50,347             1,145,916
   Tax payable                             1,480,920               495,864
   Net cash provided by operating
    activities                             1,760,083            30,125,875

  Cash flows from investing
   activities:
   Purchase of property, plant
    and equipment                         (9,942,041)          (20,918,968)
   Proceeds from disposing                       275                 9,251
    property, plant and equipment
   Receipt from related parties                   --               653,325
   Acquisition of long term
    investments                                   --            (1,001,569)
   Dividends from equity
    investees                                     --                58,640
   Acquisition of a subsidiary,
    net of cash acquired                    (147,939)             (279,120)
   Acquisition of equity interest
    from non-controlling interest                 --           (10,373,600)
   Refund of deposit for
    acquisition of equity interest
    from non-controlling interest          6,203,874                    --
   Net cash used in investing
    activities                            (3,885,831)          (31,852,041)

  Cash flows from financing
   activities:
   Repayments of short-term bank
    loans                                         --            (4,397,989)
   Repayments of long-term bank
    loans                                         --            (5,130,987)
   Capital injection from non-
    controlling interest                     718,338               718,338
   Net cash used in financing
    activities                               718,338            (8,810,638)

   Effect of foreign exchange
    rate changes                             978,728             1,156,083
   Net decrease in cash and cash
    equivalents                   $         (428,682)  $        (9,380,721)

   Cash and cash equivalents,
    beginning of period           $      119,930,627   $       128,882,666
   Cash and cash equivalents, end
    of period                            119,501,945           119,501,945


  Reconcile GAAP Net Income (Loss) to Non-GAAP Net Income

The following table provides more details on the reconciliations between GAAP financial measures that are most directly comparable to non-GAAP financial measures.

                       Three months ended June 30, Fiscal year ended June 30,
                            2010         2009         2010          2009
                       (Unaudited)   (Unaudited)   (Unaudited)  (Unaudited)

  Net income (loss)
   attributable to
   Hollysys            $ 10,601,837 $(16,028,790) $ 30,158,937  $(13,851,064)
   Automation
   Technologies Ltd.
  Adjustments:
   Stock-based
    compensation
    cost for
    options                 131,019      131,019       524,076       319,026
   Stock-based
    compensation
    cost for
    incentive
    shares                       --   22,240,000            --    39,240,000
  Non-GAAP Net
   Income
   attributable
   to Hollysys
   Automation
   Technologies
   Ltd.                $ 10,732,856 $  6,342,229  $ 30,683,013  $ 25,707,962

SOURCE: Hollysys Automation Technologies, Ltd.

CONTACT: Hollysys Automation Technologies, Ltd., Jennifer Zhang, Investor
Relations, +86-10-5898-1386, or investors@hollysys.com; Or Ling Zhang,
Investor Relations, +1-646-593-8125, or investors@hollysys.com

Web site: http://www.hollysys.com/


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