Hollysys Automation Technologies Reports Financial Results for Its Fiscal Year Ended June 30, 2007

Sep 21, 2007


· Total revenues increased 13.3% to $101.89 million

· Comprehensive income of $15.81 million, reduced from $22.21 million as the result of a one-time $6.4 million merger related expense


Beijing, China – September 27, 2007 – Hollysys Automation Technologies, Ltd. ("Hollysys" or "the Company"), one of the leading automation systems providers in the People's Republic of China (PRC), today announced its financial results for the fiscal year ended June 30, 2007 (see attached tables). These results do not include the results of Chardan North China Acquisition Corporation, the Specified Purpose Acquisition Corporation ("SPAC") with which Hollysys combined on September 20, 2007. Hollysys now owns 74.11% and 89.64%, respectively, of Beijing and Hangzhou HollySys, and has approximately 29,200,000 shares outstanding and 11,500,000 warrants outstanding.


Dr. Wang Changli, Hollysys Systems' Chief Executive Officer, stated, "We are very pleased with Hollysys' growth over the past twelve months, and feel that the Company is now in a prime position to expand operations in the PRC and internationally. We signed a record number of contracts during the year, and our backlog at June 30, 2007 increased 17.5% to $101.92 million from $86.75 million at June 30, 2006. Subsequent to our fiscal 2007 year-end we have signed several substantial contracts which cover projects in the rail and nuclear industries and are in higher margin sectors than our standard industrial business. We expect that our margins and earnings will increase as we further penetrate into these markets."


Dr. Wang continued, "In addition to our constant focus on winning contracts and securing new business, we are also working towards positioning Hollysys for future growth and expansion. We feel the access to additional capital as a result of the Chardan North merger will greatly enhance our ability to pursue a variety of potential acquisition possibilities to help accelerate the next phase of our growth. We are evaluating multiple potential candidates, but will only pursue those that can further strengthen our position in the industrial, nuclear and rail automation markets and are strategically aligned with our core expansion strategy. Possibilities include increasing ownership positions in certain domestic companies in which Hollysys currently holds a minority interest, Chinese companies that fit our business model, and candidates outside of China."


Year-End Financial Results

For the fiscal year-ended June 30, 2007, total revenues were $101.89 million, an increase of 13.3% from $89.92 million in the prior fiscal year. This increase was largely due to a higher number of total integrated contracts under operations, with 2,089 contracts for the year-ended June 30, 2007 compared to 1,609 contracts for the prior fiscal year. Hollysys also reported product revenue, the selling of spare parts and component products to customers for maintenance and replacement purposes, of $4.51 million for the fiscal year-ended June 30, 2007, an increase of approximately $776,000, or 20.8%, from $3.73 million in the prior year.


As a percentage of total revenues, the overall gross margin declined slightly to 35.1% for the fiscal year-ended June 30, 2007 from 35.6% for the prior fiscal year, primarily due to Hollysys purchasing a higher proportion of spare parts and components from third parties in order to satisfy its customers' maintenance and replacements needs. Gross margin for integrated contracts slightly increased to 34.0% for the fiscal year-ended June 30, 2007 from 33.7% for the prior year. This increase was due primarily to the commencement of a higher number of railway and city light rail transportation contracts versus the prior year, which generated higher margins than the traditional industrial contracts that comprised the majority of the work in process during fiscal 2006.


The Company reported income from operations of $18.43 million for the fiscal year-ended June 30, 2007, compared to $18.99 million in the prior fiscal year. The slight decline was largely due to a $2.56 million increase in research and development expenses from fiscal 2006 related to railway signaling control systems. The nature of Hollysys' business entitles the Company to receive governmental subsidies to encourage and support its research and development activities. The Company reports its research and development expenses as a net figure, which is the amount spent less the amount of current government subsidies received respectively.


The Company reported a net interest expense of $7.61 million for the fiscal year-ended June 30, 2007, compared to $1.09 million for the prior year. The increase was mainly due to one time $6.4 million merger related expenses connected to the previously announced $30 million bridge loan in December 2006 as part of the Chardan North China Acquisition Corp. announcement, with $4.82 million being the amortization of discount to notes payable and $1.58 million being the accrued interest on notes payable.


For the fiscal year ended June 30, 2007, the Company's comprehensive income was $15.81 million compared to $19.20 million for the prior fiscal year, with the difference being primarily attributable to the $6.4 million increase in interest expense.


Upcoming Events

Dr. Wang concluded, "Hollysys is continuing its search for a Chief Financial Officer with experience in both the Chinese and U.S. markets. We expect to fill the position in the near future and will schedule a financial community call shortly thereafter. In addition, we are continuing to seek a listing on a national exchange, and hope to provide an update shortly."


About Hollysys

Hollysys has become one of the leading automation systems providers in the PRC, developing a number of core technologies and completing over 4700 projects utilizing a wide array of automation products. The Company specializes in the research, development, production, sale and distribution of industrial automation and control systems, competing effectively with both domestic Chinese companies and large, multinational participants in the industrial, rail and nuclear power sectors.

For further information: Jennifer Zhang or Serena Wu Investor Relations & Corporate Communications P.R. China: +86(10) 5898-1386 United States: +1(646) 593-8125 Email: mailto: investors@hollysys.com