6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

FOR THE MONTH OF MARCH 2018

COMMISSION FILE NUMBER: 001-33602

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

No. 2 Disheng Middle Road,

Beijing Economic-Technological Development Area,

Beijing, P. R. China 100176

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F x             Form 40-F ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ¨

EXPLANATORY NOTE

Hollysys Automation Technologies Ltd. (“Hollysys” or the “Company”) is furnishing this Form 6-K to provide six-month interim financial statements and incorporate such financial statements into the Company’s registration statements referenced below.

This Form 6-K is hereby incorporated by reference into the registration statements of the Company on Form S-8 (Registration Numbers 333-17081 and 333-208615) and on Form F-3 (Registration Number 333-208631) to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

FORWARD-LOOKING INFORMATION

This Report on Form 6-K contains forward-looking statements and information relating to us that are based on the current beliefs, expectations, assumptions, estimates and projections of our management regarding our company and industry. When used in this report, the words “may”, “will”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management's current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: our potential inability to achieve similar growth in future periods as we did historically, a decrease in the availability of our raw materials, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, uncertainties related to China’s legal system and economic, political and social events in China, the volatility of the securities markets, and other risks and uncertainties which are generally set forth under the heading, “Key information - Risk Factors” and elsewhere in our Annual Report on Form 20-F filed on September 22, 2017 (the “Annual Report”). Should any of these risks or uncertainties materialize, or should the underlying assumptions about our business and the commercial markets in which we operate prove incorrect, actual results may vary materially from those described as anticipated, estimated or expected in the Annual Report.

All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.

1

EXHIBIT INDEX

Exhibit Number	Description
Exhibit 99.1	Selected consolidated financial data as of December 31, 2017 and June 30, 2017 and for the six months ended December 31, 2017 and 2016 of Hollysys Automation Technologies Ltd. and its subsidiaries.
Exhibit 99.2	Unaudited interim consolidated financial statements as of December 31, 2017 and for the six months ended December 31, 2017 and 2016 of Hollysys Automation Technologies Ltd. and its subsidiaries.
Exhibit 99.3	Operating and Financial Review and Prospects as of December 31, 2017 and for the six months ended December 31, 2017 and 2016 of Hollysys Automation Technologies Ltd. and its subsidiaries.
Exhibit 101	The following financial statements as of and for the six months ended December 31, 2017 from the Hollysys Automation Technologies Ltd.’s Report on Form 6-K for the month of March 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated balance sheets as of June 30, 2017 (audited) and December 31, 2017 (unaudited), (ii) Condensed consolidated statements of comprehensive income for the six months ended December 31, 2016 and 2017 (unaudited), (iii) Condensed consolidated statements of cash flows for the six months ended December 31, 2016 and 2017 (unaudited), and (iv) Notes to unaudited condensed consolidated financial statements for the six months ended December 31, 2016 and 2017.

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
	/s/ Baiqing Shao
	Baiqing Shao
Date: March 23, 2018	Chief Executive Officer

3

EX-99.1

Exhibit 99.1

Selected Consolidated Financial Data

The following selected consolidated statements of comprehensive income and other financial data for the six months ended December 31, 2016 and 2017, and the consolidated balance sheet data as of June 30, 2017 and December 31, 2017 have been derived from our unaudited condensed consolidated financial statements which are included elsewhere in this report. Our unaudited condensed consolidated financial statements have been prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Except for changes in operating subsidiaries, our unaudited condensed consolidated financial statements have been prepared as if our current corporate structure had been in existence throughout the relevant periods.

The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our unaudited condensed consolidated financial statements and related notes and the “Operating and Financial Review and Prospects” included elsewhere in this report.

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

(In USD thousands, except share numbers and per share data)
	Six months ended December 31,
	2016			2017
Statement of Comprehensive Income Data
Revenue		202,679			272,914
Integrated contract revenue		182,600			230,109
Products sales		14,370			19,177
Service rendered		5,709			23,628
Cost of revenues		143,588			168,663
Gross profit		59,091			104,251
Total operating expenses		30,543			40,278
Selling		11,858			14,438
General and administrative		20,493			23,135
Research and development		15,990			19,216
VAT refunds and government subsidies		(17,798	)		(16,511	)
Income from operations		28,548			63,973
Other income, net		1,260			2,710
Foreign exchange gain (loss)		(635	)		(1,104	)
Share of net income of equity investees		2,279			2,273
Gains on deconsolidation of the Company’s interests in Beijing Hollycon Electronic Technology Co., Ltd		6,005			-
Dividend income from a cost investee		-			1,057
Interest income		1,257			3,036
Interest expenses		(400	)		(634	)
Income tax expenses		4,570			13,031
Net income (loss) attributable to non-controlling interests		(13	)		86
Non-GAAP net income attributable to Hollysys Automation Technologies Ltd.		33,757			58,194
Non-GAAP basic EPS		0.56			0.96
Non-GAAP diluted EPS		0.56			0.96
Share-based compensation expenses		1,837			324
Amortization of acquired intangible assets		263			279
GAAP Net income attributable to Hollysys Automation Technologies Ltd.		31,657			57,591
GAAP basic EPS		0.53			0.95
GAAP diluted EPS		0.52			0.95
		-			-
Basic weighted average common shares outstanding		59,976,132			60,428,431
Diluted weighted average common shares outstanding		61,023,669			61,241,092
		June 30,			December 31,
		2017			2017
Balance Sheet Data
Total current assets		865,356			969,932
Total assets		1,058,254			1,180,109
Total current liabilities		302,978			330,840
Total liabilities		334,714			373,539
Net assets		723,519			806,462
Non-controlling interests		21			108
Stockholders’ equity		723,540			806,570

1

In evaluating our results, the non-GAAP measures of “Non-GAAP general and administrative expenses (“Non-GAAP G&A expenses”)”, “Non-GAAP cost of integrated contracts”, “Non-GAAP other income (expenses), net”, “Non-GAAP net income attributable to Hollysys” and “Non-GAAP earnings per share” serve as additional indicators of our operating performance and not as a replacement for other measures in accordance with US GAAP. We believe these non-GAAP measures are useful to investors as they exclude: 1) the non-cash share-based compensation expenses, 2) amortization of acquired intangible assets, 3) fair value adjustments of acquisition-related consideration and 4) fair value adjustments of a bifurcated derivative. All of above will not result in any cash inflows or outflows. We believe that using non-GAAP measures help our shareholders have a better understanding of our operating results and growth prospects. In addition, given the business nature of Hollysys, it has been a common practice for investors and analysts to use such non-GAAP measures to evaluate the Company. Specifically, the non-GAAP measures excluded the following items:

1) The non-cash share-based compensation expenses, which are calculated based on the number of shares or options granted and the fair value as of grant date.

2) Amortization of acquired intangible assets, which is a non-cash expense relating primarily to acquisitions. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as customer relationships and order backlog, are valued and amortized over their estimated lives. Value is also assigned to the acquired indefinite-lived intangible assets, which comprise goodwill that are not subject to amortization.

3) Fair value adjustments of a bifurcated derivative are accounting adjustments to report the change of fair value of the feature bifurcated as a derivative from the underlying host instrument of a convertible bond, and accounted for as a liability at its fair value.

The following table provides a reconciliation of U.S. GAAP measures to the non-GAAP measures for the periods indicated:

	Six months ended December 31,
	2016		2017
Cost of integrated contracts		137,810		155,998
Less: Amortization of intangible assets		263		279
Non-GAAP cost of integrated contracts		137,547		155,719
G&A expenses		22,330		23,459
Less: Share-based compensation expenses		1,837		324
Non-GAAP G&A expenses		20,493		23,135
Net income attributable to Hollysys		31,657		57,591
Add: Share-based compensation expenses		1,837		324
Amortization of intangible assets		263		279
Non-GAAP net income attributable to Hollysys		33,757		58,194
Weighted average number of ordinary shares outstanding used in computation:
Basic		59,976,132		60,428,431
Diluted		61,023,669		61,241,092
Non-GAAP earnings per share:
Basic		0.56		0.96
Diluted		0.56		0.96

2

Exchange Rate Information

A majority of our business is conducted in China. We also operate in Singapore, Malaysia and several other jurisdictions in Asia and Middle East through HAP, Concord Group, and Bond Group. We use US dollars as our reporting currency in our financial statements in this interim report. For entities whose functional currencies are not US dollars, assets and liabilities are translated into US dollars at the balance sheet date rates; equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year as published by the International Monetary Fund. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the consolidated statement of comprehensive income and changes in equity. Transactions and amounts in other parts of this interim report in foreign currencies recorded at the rates of exchange prevailing when the transactions occurred. With respect to amounts not recorded in our consolidated financial statements but included elsewhere in this interim report, all conversion between RMB and US dollars were made at a rate of RMB 6.6472 to $1.00, and all conversion between Singapore dollars and US dollars were made at a rate of SGD 1.3574 to $1.00, as set forth by the International Monetary Fund. We make no representation of any kind that RMB, Singapore dollar, US dollar or any other currency referenced in this report could have been, or could be, converted into the other stated currencies at the rates stated below, any particular rate, or at all. The Chinese government imposes control over its foreign-currency reserves through both direct regulation concerns conversion of RMB into foreign exchange and through restrictions on foreign trade.

3

EX-99.2

Exhibit 99.2

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONTENTS

	Page
Condensed consolidated balance sheets as of June 30, 2017 (audited) and December 31, 2017 (unaudited)	F-2
Condensed consolidated statements of comprehensive income for the six months ended December 31, 2016 and 2017 (unaudited)	F-3
Condensed consolidated statements of cash flows for the six months ended December 31, 2016 and 2017 (unaudited)	F-4
Notes to unaudited condensed consolidated financial statements for the six months ended December 31, 2016 and 2017	F-5

F-1

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2017 (AUDITED) AND DECEMBER 31, 2017 (UNAUDITED)
(In US dollars thousands except for number of shares and per share data)

		June 30,			December 31,
	Notes	2017			2017
		(Audited)			(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	197,640		$	231,070
Time deposits with maturities over three months			96,214			134,379
Restricted cash			39,534			35,986
Accounts receivable, net of allowance for doubtful accounts of $48,0891 and $49,041 as of June 30, 2017 and December 31, 2017, respectively			246,552			257,611
Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $8,660 and $12,472 as of June 30, 2017 and December 31, 2017, respectively			162,096			199,736
Other receivables, net of allowance for doubtful accounts of $1,448 and $1,568 as of June 30, 2017 and December 31, 2017, respectively			20,036			16,857
Advances to suppliers			9,964			8,523
Amounts due from related parties			34,142			28,642
Inventories	3		45,660			47,602
Prepaid expenses			619			797
Income tax recoverable			5,169			170
Deferred tax assets			7,730			-
Total current assets			865,356			961,373
Non-current assets:
Restricted cash			522			461
Prepaid expenses			-			8
Property, plant and equipment, net			80,529			84,025
Prepaid land leases			10,206			10,472
Intangible assets, net			1,928			1,602
Investments in equity investees	5		47,242			58,219
Investments in cost investees			4,024			4,191
Goodwill	4		47,326			51,175
Deferred tax assets			1,121			8,583
Total non-current assets			192,898			218,736
Total assets		$	1,058,254		$	1,180,109
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including amounts of the VIE without recourse to the primary beneficiary of $14,178 and $17,342 as of June 30, 2017 and December 31, 2017, respectively):	1
Derivative financial liability		$	487		$	535
Short-term bank loans	7		8,121			7,859
Current portion of long-term loans	8		420			401
Accounts payable			122,714			126,095
Construction costs payable			383			167
Deferred revenue			107,407			130,451
Accrued payroll and related expenses			13,600			17,724
Income tax payable			3,371			5,237
Warranty liabilities	6		5,386			6,136
Other tax payables			10,488			11,052
Accrued liabilities			23,950			22,014
Amounts due to related parties			2,301			3,169
Deferred tax liabilities			4,350			-
Total current liabilities			302,978			330,840
Accrued liabilities			2,220			9,155
Long-term loans	8		20,581			21,064
Deferred tax liabilities			6,689			9,838
Warranty liabilities	6		2,246			2,642
Total non-current liabilities			31,736			42,699
Total liabilities			334,714			373,539
Commitments and contingencies	13		-			-
Stockholders’ equity:
Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 60,342,099 and 60,342,099 shares issued and outstanding as of June 30, 2017 and December 31, 2017, respectively	10		60			60
Additional paid-in capital			222,189			222,514
Statutory reserves			41,130			41,130
Retained earnings			482,999			533,347
Accumulated other comprehensive income			(22,859	)		9,411
Total Hollysys Automation Technologies Ltd. stockholders’ equity			723,519			806,462
Non-controlling interest			21			108
Total equity			723,540			806,570
Total liabilities and equity		$	1,058,254		$	1,180,109

F-2

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED)
(In US dollars thousands except for number of shares and per share data)

		Six months ended December 31,
	Notes	2016			2017
		(Unaudited)			(Unaudited)
Net revenues
Integrated contract revenue		$	182,600		$	230,109
Product sales			14,370			19,177
Revenue from services			5,709			23,628
Total net revenues			202,679			272,914
Costs of integrated contracts			137,810			155,998
Costs of products sold			4,143			5,834
Costs of services rendered			1,898			7,110
Gross profit			58,828			103,972
Operating expenses
Selling			11,858			14,438
General and administrative			22,330			23,459
Research and development			15,990			19,216
VAT refunds and government subsidies			(17,798	)		(16,511	)
Total operating expenses			32,380			40,602
Income from operations			26,448			63,370
Other income, net			1,260			2,710
Foreign exchange loss			(635	)		(1,104	)
Gains on deconsolidation of the Company’s interests in Beijing Hollycon Electronic Technology Co., Ltd (“Hollycon”)			6,005			-
Share of net income of equity investees			2,279			2,273
Interest income			1,257			3,036
Interest expenses			(400	)		(634	)
Dividend income from a cost investee			-			1,057
Income before income taxes			36,214			70,708
Income tax expenses	11		4,570			13,031
Net income			31,644			57,677
Less: net (loss) income attributable to non-controlling interests			(13	)		86
Net income attributable to Hollysys Automation Technologies Ltd.		$	31,657		$	57,591
Other comprehensive income, net of tax of nil
Translation adjustments		$	(33,611	)	$	32,270
Comprehensive (loss) income			(1,967	)		89,947
Less: comprehensive (loss) income attributable to non-controlling interests			(21	)		87
Comprehensive (loss) income attributable to Hollysys Automation Technologies Ltd.		$	(1,946	)	$	89,860
Net income per ordinary share:
Basic	12	$	0.53		$	0.95
Diluted	12	$	0.52		$	0.95
Shares used in income per share computation:
Weighted average number of ordinary shares			59,976,132			60,428,431
Weighted average number of diluted ordinary shares			61,023,669			61,241,092

F-3

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED)
(In US dollars thousands except for number of shares and per share data)

	Six months ended December 31,
	2016			2017
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	31,644		$	57,677
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		2,866			3,389
Amortization of prepaid land leases		94			130
Amortization of intangible assets		263			279
Allowance for doubtful accounts		3,260			4,187
Loss on disposal of property, plant and equipment		26			48
Share of net income of equity investees		(2,279	)		(2,273	)
Gains on deconsolidation of the Company’s interests in HollyCon		(6,005	)		-
Share-based compensation expenses		1,836			325
Deferred income tax benefit		(3,195	)		(754	)
Accretion of convertible bond		334			258
Fair value adjustments of a bifurcated derivative		-			48
Gain from the derecognition of nonfinancial assets		-			(2,345	)
Changes in operating assets and liabilities:
Accounts receivable		1,232			847
Costs and estimated earnings in excess of billings		34,267			(34,461	)
Inventories		(6,070	)		(44	)
Advances to suppliers		954			(62	)
Other receivables		571			3,806
Restricted cash		(17,306	)		4,975
Due from related parties		(534	)		6,777
Accounts payable		(2,554	)		158
Deferred revenue		26,795			18,353
Accruals and other payables		(4,874	)		3,141
Due to related parties		919			757
Income tax payable		2,387			6,806
Other tax payables		(10,558	)		126
Net cash provided by operating activities	$	54,073		$	72,148
Cash flows from investing activities:
Time deposits placed with banks		(74,799	)		(119,741	)
Purchases of property, plant and equipment		(434	)		(611	)
Maturity of time deposits		27,933			86,215
Proceeds from disposal of property, plant and equipment		34			50
Investment of equity investees		-			(4,212	)
Net cash reduced upon deconsolidation of a subsidiary		(16,681	)		-
Acquisition of a subsidiary, net of cash acquired		-			(583	)
Net cash used in investing activities	$	(63,947	)	$	(38,882	)
Cash flows from financing activities:
Proceeds from short-term bank loans		3,108			1,052
Repayments of short-term bank loans		(3,917	)		(1,554	)
Proceeds from long-term bank loans		5,665			536
Repayments of long-term bank loans		(2,149	)		(362	)
Proceeds from exercise of options		5,802			-
Payment of dividends		(11,973	)		(7,241	)
Net cash used in financing activities	$	(3,464	)	$	(7,569	)
Effect of foreign exchange rate changes		(5,642	)		7,733
Net (decrease) increase in cash and cash equivalents	$	(18,980	)	$	33,430
Cash and cash equivalents, beginning of period		229,095			197,640
Cash and cash equivalents, end of period	$	210,115		$	231,070
Supplementary disclosures of significant non-cash transactions:
Acquisition of equity interest with consideration of intangible asset	$	-			2,345

F-4

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED)

(Amounts in thousands except for number of shares and per share data)

NOTE 1 - ORGANIZATION AND BUSINESS BACKGROUND

Hollysys Automation Technologies Ltd. (“Hollysys” or the “Company”) was established under the laws of the British Virgin Islands (“BVI”) on February 6, 2006.

As of December 31, 2017, the Company had subsidiaries incorporated in countries and jurisdictions including the People’s Republic of China (“PRC”), Singapore, Malaysia, Macau, Hong Kong, British Virgin Islands, India and Indonesia.

The Company makes a determination at the inception of each arrangement whether an entity in which the Company has made an investment or in which the Company has other variable interests is considered a variable interest entity (“VIE”). The Company consolidates a VIE when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company determines whether any changes occurred requiring a reassessment of whether it is the primary beneficiary of a VIE. If the Company is not deemed to be the primary beneficiary in a VIE, the investment or other variable interests in a VIE is accounted for in accordance with applicable GAAP.

In November 2015, CECL was established in Doha, Qatar, by CCPL, a wholly-owned subsidiary of the Company incorporated under the laws of Singapore, and a Qatar citizen as a nominee shareholder, with 49% and 51% of equity interest in CECL, respectively. Through a series of contractual arrangements signed in November 2015 and September 2016, CCPL is entitled to appoint majority of directors of CECL who have the power to direct the activities that significantly impact CECL’s economic performance. In addition, CCPL is entitled to 95% of the variable returns or loss from CECL’s operations. In accordance with ASC 810, Consolidation, despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between CCPL and CECL through the series of contractual arrangements and CCPL is considered the primary beneficiary of CECL. CECL was concluded as a VIE of the Company and consolidated by the Company since inception with 5% of non-controlling interest.

The carrying amounts and classifications of the assets and liabilities of the VIE are as follows:

	June 30,			December 31,
	2017			2017
	(Audited)			(Unaudited)
Current assets	$	14,331		$	19,150
Non-current assets		239			331
Total assets		14,570			19,481
Current liabilities	$	14,178		$	17,342
Total liabilities		14,178			17,342
	Six months ended December 31,
	2016			2017
	(Unaudited)			(Unaudited)
Revenue	$	720		$	12,108
Cost of revenue		606			10,057
Net (loss) profit		(209	)		1,712
Net cash provided by (used in) operating activities		7,258			(5,445	)
Net cash used in investing activities		-			-
Net cash provided by financing activities	$	-		$	-

F-5

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

As of December 31, 2017, the current assets of the VIE included amounts due from subsidiaries of the Company amounting to $5,071 (June 30, 2017: $1,629), and the current liabilities of the VIE included amounts due to subsidiaries of the Company amounting to nil (June 30, 2017: $127), which were all eliminated upon consolidation by the Company. Creditors of the VIE do not have recourse to the general credit of the Company for the liabilities of the VIE. The Company is obligated to absorb the VIE’s expected losses and to provide financial support to the VIE if required. For the six months ended December 31, 2016 and 2017, the Company has not provided financial support other than that which it was contractually required to provide. The Company believes that there are no assets of the VIE that can be used only to settle obligations of the VIE.

In July 2017, Bond Corporation Pte. Ltd (“Bond PL”), a wholly-owned Singapore subsidiary of the Company, and a Malaysian citizen (the “Trustee”) entered into a trust deed, under which, 49.1% of Bond PL’s equity interests in Bond M & E Sdn. Bhd. (“Bond JB”), a Malaysian company, which previously was a 100% subsidiary of Bond PL, was transferred to the Trustee. According to the trust deed, all of the beneficial interests in Bond JB belong to Bond PL and the Trustee shall hold the legal title of the transferred shares on trust for and act on behalf of Bond PL absolutely. Any dividend, interest and other benefits received or receivable by the Trustee will be transferred to Bond PL. The Trustee shall exercise the managerial rights and voting power in a manner directed by a prior written notice from Bond PL. The Trustee shall be obligated to vote in the same manner as Bond PL in the absence of any written notice. In addition, an undated Form of Transfer of Securities with the transferee’s name left blank was duly executed by the Trustee and delivered to Bond PL. Therefore, Bond PL can transfer the 49.1% of equity interests to any party at any time without further approval by the Trustee. Accordingly, the Company believes it holds all beneficial rights, obligation and the power of the 100% equity interest in Bond JB, and therefore consolidates 100% of equity interests in Bond JB into its financial statements.

The Company is principally engaged in the manufacture, sale and provision of integrated automation systems and services, mechanical and electrical solution services and installation services in the PRC, Southeast Asia and the Middle East.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements of the Company, its subsidiaries and VIE (collectively the “Group”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited consolidated financial statements for the fiscal year ended June 30, 2017. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Group for each of the periods presented. The results of operations for the six months period ended December 31, 2017 are not necessarily indicative of results to be expected for any other interim period or for the year ending June 30, 2018. The consolidated balance sheet as of June 30, 2017 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended June 30, 2017.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and a VIE. All inter-company transactions and balances between the Company, its subsidiaries, and the VIE are eliminated upon consolidation. The Company included the results of operations of acquired businesses from the respective dates of acquisition.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates estimates, including those related to the expected total costs of integrated contracts, expected gross margins of integrated solution contracts, allowance for doubtful accounts, fair values of share options, fair value of bifurcated derivative, fair value of equity method investment received by giving up nonfinancial assets, fair value of acquired intangible assets and goodwill, warranties, valuation allowance of deferred tax assets and impairment of goodwill and other long-lived assets. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

F-6

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Foreign currency translations and transactions

The Company’s functional currency is the United States dollars (“US dollars” or “$”); whereas the Company’s subsidiaries and VIE use the primary currency of the economic environment in which their operations are conducted as their functional currency. According to the criteria of Accounting Standards Codification (“ASC”) Topic 830 (“ASC 830”), the Company uses the US dollars as its reporting currency.

The Company translates the assets and liabilities into US dollars using the rate of exchange prevailing at the balance sheet date, and the statements of comprehensive income are translated at average rates during the reporting period. Adjustments resulting from the translation of financial statements from the functional currency into US dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. Transactions dominated in currencies other than the functional currency are translated into functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the consolidated statements of comprehensive income for the reporting period.

Transactions denominated in foreign currencies are measured into the functional currency at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in earnings, except for those raised from intercompany transactions with investment nature, which are recorded in other comprehensive income.

Business combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities the Company acquired based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of the acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statements of comprehensive income.

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted cash flows over that period.

Acquisition-related costs are recognized as general and administrative expenses in the statements of comprehensive income as incurred.

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HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. All highly liquid investments that are readily convertible to known amounts of cash with original stated maturities of three months or less are classified as cash equivalents.

Time deposits with original maturities over three months

Time deposits with original maturities over three months consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2017, $122,781, $7,856, $3,685 and $57 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore, Malaysia and India, respectively. As of June 30, 2017, $80,507, $11,690, $3,935 and $82 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore and Malaysia and India, respectively.

Restricted cash

Restricted cash mainly consists of the cash deposited in banks pledged for performance guarantees, or bank loans. These cash balances are not available for use until these guarantees are expired or cancelled, or the loans are repaid.

Revenue recognition

Integrated solutions contracts

Revenues generated from designing, building, and delivering customized integrated industrial automation systems are recognized over the contractual terms based on the percentage of completion method. The contracts for designing, building, and delivering customized integrated industrial automation systems are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and ranges from 6 months to 5 years excluding the warranty period. The majority of the contract duration is longer than one year.

Revenue generated from mechanical and electrical solution contracts for the construction or renovation of buildings, rail or infrastructure facilities are also recognized over the contractual terms based on the percentage of completion method. The contracts for mechanical and electrical solution are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and the complexity of the construction work and ranges from 6 months to 3 years excluding the warranty period. The majority of the contract duration is longer than one year.

In accordance with ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts (“ASC 605-35”), recognition is based on an estimate of the income earned to date, less income recognized in earlier periods. Extent of progress toward completion is measured using the cost-to-cost method where the progress (the percentage complete) is determined by dividing costs incurred to date by the total amount of costs expected to be incurred for the integrated solutions contract. Revisions in the estimated total costs of integrated solutions contracts are made in the period in which the circumstances requiring the revision become known. Provisions, if any, are made in the period when anticipated losses become evident on uncompleted contracts.

The Company reviews and updates the estimated total costs of integrated solutions contracts at least annually. The Company accounts for revisions to contract revenue and estimated total costs of integrated solution contracts, including the impact due to approved change orders, in the period in which the facts that cause the revision become known as changes in estimates. Unapproved change orders are considered claims. Claims are recognized only when it has been awarded by customers. Excluding the impact of change orders, if the estimated total costs of integrated solution contracts, which was revised during the six months ended December 31, 2017, had been used as a basis of recognition of integrated contract revenue since the contract commencement, net income for the six months ended December 31, 2017 would have been decreased by $5,741; basic net income per share and diluted net income per share for six months ended December 31, 2017 would have been decreased by $0.09 and $0.09, respectively.

F-8

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

The Company combines a group of contracts as one project if they are closely related and are, in substance, parts of a single project with an overall profit margin. The Company segments a contract into several projects, when they are of different business substance, for example, with different business negotiation, solutions, implementation plans and margins.

Revenue in excess of billings on the contracts is recorded as costs and estimated earnings in excess of billings. Billings in excess of revenues recognized on the contracts are recorded as deferred revenue until the above revenue recognition criteria are met. Recognition of accounts receivable and costs and estimated earnings in excess of billings are discussed below.

The Company generally recognizes 100% of the contractual revenue when the customer acceptance has been obtained and no further major costs are estimated to be incurred, and normally this is also when the warranty period commences. Revenues are presented net of taxes collected on behalf of the government.

Product sales

Revenue generated from sales of products is recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Service rendered

The Company has in recent years extended its service offerings as described below. The Company mainly provides two types of services:

Revenue from one-off services: the Company provides different types of one-off services which are generally completed on site within a few working days. Revenue is recognized when the Company has completed all the respective services described in the contracts, there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured.

Revenue from services covering a period of time: the Company also separately sells extended warranties to their integrated solution customers for a fixed period. Such arrangements are negotiated separately from the corresponding integrated solution system and are usually entered into upon the expiration of the warranty period attached to the integrated solution contract. During the extended warranty period, the Company is responsible for addressing issues related to the system. Part replacement is not covered in such services. The Company recognizes revenue on a pro-rata basis over the contractual term.

Accounts receivable and costs and estimated earnings in excess of billings

Performance of the integrated contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual agreements. There are different billing practices in the PRC, overseas operating subsidiaries and the VIE (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in contracts negotiated with customers. In general, there are four milestones: 1) project commencement, 2) system manufacturing and delivery, 3) installation, trial-run and customer acceptance, and 4) expiration of the warranty period. The amounts to be billed at each milestone are specified in the contract. All contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated contract varies depending on the duration of the contract (under certain contracts, the interval lasts more than a year) and the last billing to be issued for an integrated solution contract is scheduled at the end of a warranty period. For Concord and Bond Groups, billing claims rendered are subject to the further approval and certification of the customers or their designated consultants. Payments are made to Concord or Bond Groups based on the certified billings according to the payment terms mutually agreed between the customers and Concord or Bond Groups. Certain amounts are retained by the customer and payable to Concord and Bond Groups upon satisfaction of final quality inspection or at the end of the warranty period. The retained amounts which were recorded as accounts receivable were $12,838 and $15,550 as of June 30, 2017 and December 31, 2017, respectively. Prepayments received are recorded as deferred revenue. The deferred revenue will be recognized as revenue under the percentage of completion method along with the progress of a contract.

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HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

The carrying value of the Company’s accounts receivable and costs and estimated earnings in excess of billings, net of the allowance for doubtful accounts, represents their estimated net realizable value. An allowance for doubtful accounts is recognized when it’s probable that the Company will not collect the amount and is written off in the period when deemed uncollectible. The Company periodically reviews the status of contracts and decides how much of an allowance for doubtful accounts should be made based on factors surrounding the credit risk of customers and historical experience. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventories

Inventories are composed of raw materials, work in progress, purchased and manufactured finished goods and low value consumables. Inventories are stated at the lower of cost and net realizable value. The Company elected to use weighted average cost method as inventory costing method.

The Company assesses the lower of cost and net realizable value for non-saleable, excess or obsolete inventories based on its periodic review of inventory quantities on hand and the latest forecasts of product demand and production requirements from its customers. The Company writes down inventories for non-saleable, excess or obsolete raw materials, work-in-process and finished goods by charging such write-downs to cost of integrated contracts and/or costs of products sold.

Warranties

Warranties represent a major term under an integrated contract, which will last, in general, for one to three years or otherwise specified in the terms of the contract. The Company accrues warranty liabilities under an integrated contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for an integrated contract throughout the contract period.

Property, plant and equipment, net

Property, plant and equipment, other than construction in progress, are recorded at cost and are stated net of accumulated depreciation and impairment, if any. Depreciation expense is determined using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	30 -50 years
Machinery	5 - 10 years
Software	3 - 5 years
Vehicles	5- 6 years
Electronic and other equipment	3 - 10 years

Construction in progress represents uncompleted construction work of certain facilities which, upon completion, management intends to hold for production purposes. In addition to costs under construction contracts, other costs directly related to the construction of such facilities, including duty and tariff, equipment installation and shipping costs, and borrowing costs are capitalized. Depreciation commences when the asset is placed in service.

Maintenance and repairs are charged directly to expenses as incurred, whereas betterment and renewals are capitalized in their respective accounts. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized for the reporting period.

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HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Prepaid land leases, net

Prepaid land lease payments, for the land use right of three parcels of land in the PRC, three parcels of leasehold land in Malaysia and one parcel of leasehold land in Singapore, are initially stated at cost and are subsequently amortized on a straight-line basis over the lease terms of 49 to 88 years.

Intangible assets, net

Intangible assets are carried at cost less accumulated amortization and any impairment. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets, except for which are estimated to have an indefinite useful life, are amortized using a straight-line method. Intangible assets estimated to have an indefinite useful life are not amortized but tested for impairment annually or more frequently when indicators of impairment exist.

The estimated useful lives for the intangible assets are as follows:

Category	Estimated useful life
Customer relationship	57 - 60 months
Order backlog	21 - 33 months
Patents and copyrights	60 - 120 months

Residual values are considered nil.

F-11

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Company adopted ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in income taxes. Interests and penalties arising from underpayment of income taxes shall be computed in accordance with the related tax laws.

F-12

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Segment reporting

In accordance with ASC 280, Segment reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision makers review operating results to make decisions about allocating resources and assessing performance of the Company. According to management’s approach, the Company organizes its internal financial reporting structure based on its main product and service offerings. The Company operates in three principal business segments in the financial reporting structure and their management report, namely industrial automation, rail transportation and mechanical and electrical solutions. The Company does not allocate any assets to the three segments as management does not use the information to measure the performance of the reportable segments.

Investments in cost and equity investees

The Company accounts for its equity investments under either the cost method or the equity method by considering the Company’s rights and ability to exercise significant influence over the investees. Under the cost method, investments are initially carried at cost. In the event that the fair value of the investment falls below the initial cost and the decline is considered as other-than-temporary, the Company recognizes an impairment charge, equal to the difference between the cost basis and the fair value of the investment. A variety of factors are considered when determining if a decline in fair value below carrying value is other than temporary, including, among others, the financial condition and prospects of the investee.

The investments in entities over which the Company has the ability to exercise significant influence are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.

F-13

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities, by the amortization of any basis difference between the amount of the Company’s investment and its share of the net assets of the investee, and by dividend distributions or subsequent investments. Unrealized inter-company profits and losses related to equity investees are eliminated. An impairment charge, being the difference between the carrying amount and the fair value of the equity investee, is recognized in the consolidated statements of comprehensive income when the decline in value is considered other than temporary.

There was no impairment loss on investments in cost or equity investees for the six months ended December 31, 2016 and 2017, respectively.

Income per share

Income per share is computed in accordance with ASC 260, Earnings per Share (“ASC 260”). Basic income per ordinary share is computed by dividing income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted income per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares.

F-14

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Fair value measurements

The Company has adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1	-	Quoted prices in active markets for identical assets or liabilities.
Level 2	-	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	-	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

F-15

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Recent accounting pronouncements

Standards Effective in Future Years

In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-14, which defers the effective date of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) (" ASU 2014-09") by one year and allows entities the option to early adopt the new revenue standard as of the original effective date. Issued in May 2014, ASU 2014-09 provided guidance on revenue recognition on contracts with customers to transfer goods or services or on contracts for the transfer of nonfinancial assets. ASU 2014-09 requires that revenue recognition on contracts with customers depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for us on July 1, 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. The Company preliminarily plans to use the modified retrospective method and has developed an implementation plan. We are currently evaluating the impact of adoption of this guidance, including required disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This updated guidance is effective for the annual period beginning after December 15, 2017, including interim periods within the year. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

F-16

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In August 2016, the FASB issued (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of the pending adoption of ASU 2016-15 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Under the new standard, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or liability, as well as the related deferred tax benefit or expense, upon purchase or receipt of the asset. This pronouncement is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is still evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU2016-18”). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance is effective for public companies for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The guidance should be applied using a retrospective transition method for each period presented. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. The Company does not believe this standard will have a material impact on the results of operations or financial condition.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04(“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

F-17

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.

Recently Adopted Standards

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU requires entities within scope of this update to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update are effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. The Company adopted ASU 2015-11 on July 1, 2017 and such adoption did not have a material impact on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company adopted ASU 2015-17 on July 1, 2017 on a prospective basis. As a result, current portion of deferred income tax liabilities and assets have been reclassified to noncurrent liabilities and assets. Prior periods were not retrospectively adjusted and all future adjustments will be reported as noncurrent.

In March, 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new standard is effective for the Company for the fiscal year beginning July 1, 2017. Early adoption is permitted. The Company adopted this guidance on July 1, 2017 on a prospective basis. The adoption of this guidance did not have a material impact on our financial position or results of operations.

NOTE 3 - INVENTORIES

Components of inventories are as follows:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Raw materials	$	15,781	$	15,550
Work in progress		19,525		18,196
Finished goods		10,354		13,856
	$	45,660	$	47,602

F-18

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 4 - GOODWILL

The changes in the carrying amount of goodwill are as follows:

	Six Months Ended
	December 31, 2017
	(Unaudited)
Balance at June 30, 2017 (Audited)	$	47,326
Goodwill acquired		2,312
Translation adjustment		1,537
Balance at December 31, 2017  (Unaudited)	$	51,175

The carrying amount of the Company’s goodwill at June 30, 2017 represents goodwill from the acquisitions of two reporting units, Concord Group and Bond Group, net of impairment.

On July 1, 2017, the Company completed the acquisition of 100% equity of Beijing Shuanghe Science & Technology Company Limited with a cash consideration of approximately $2,381. The goodwill related to the acquisition was $2,312 and the Company believed that acquisition is immaterial to the consolidated financial statements.

F-19

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 5 - INVESTMENTS IN EQUITY

In August 2017, the Company acquired 25% of equity interest in Beijing EMCC Technology Co., Ltd (“EMCC”), a third party, with a total consideration of $7,188 ($4,062 in cash and $3,126 in intangible assets). The Company accounted the consideration given in the form of the intangible assets at fair value based on valuation by external valuation firm with a partial gain of $2,345 recognized. The fair value of the intangible assets given was measured using a discounted cash flow approach. Key estimates and assumptions include the amount and timing of future expected cash flows, terminal value growth rates, and discount rate. According to the revised article of association, EMCC will be managed by a board of directors comprising of a total 7 members, of which, the Company can appoint two directors. All major management and operation decisions should be approved by the majority of the directors. The Company believed it has significant influence over EMCC, and therefore accounted for the investment in EMCC under equity method.

F-20

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 6 - WARRANTY LIABILITIES

	Six Months Ended
	December 31, 2017
Beginning balance at June 30, 2017(Audited)	$	7,632
Expense accrued		2,617
Expense incurred		(1,783	)
Translation adjustment		312
	$	8,778
Less: current portion of warranty liabilities (Unaudited)		(6,136	)
Long-term warranty liabilities (Unaudited)	$	2,642

NOTE 7 - SHORT-TERM BANK LOANS

On June 30, 2017, the Company’s short-term bank borrowings consisted of revolving bank loans of $8,121 from several banks, which were subject to annual interest rates ranging from 3.09% to 4.85%, with a weighted average interest rate of 3.53%. Some of the short-term loans are secured by the pledge of restricted cash and buildings with carrying values of $16,410 and $991 as of June 30, 2017, respectively.

On December 31, 2017, the Company’s short-term bank borrowings consisted of revolving bank loans of $7,859 from several banks, which were subject to annual interest rates ranging from 2.76% to 4.58%, with a weighted average interest rate of 3.15%. Some of the short-term loans are secured by the pledge of restricted cash and buildings with carrying values of $16,341 and 1,283 as of December 31, 2017, respectively.

For the six months ended December 31, 2016 and 2017, interest expenses on short-term bank loans amounted to $20 and $122, respectively.

As of June 30, 2017, the Company had available lines of credit from various banks in the PRC, Singapore and Malaysia amounting to $257,670, of which $78,910 was utilized and $178,760 is available for use. These lines of credit were secured by the pledge of restricted cash and buildings with a carrying value of $4,954 and $3,209, respectively.

As of December 31, 2017, the Company had available lines of credit from various banks in the PRC, Singapore and Malaysia amounting to $251,454, of which $69,173 was utilized and $182,281 is available for use. These lines of credit were secured by the pledge of restricted cash and buildings with a carrying value of $3,317 and $2,814, respectively.

F-21

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 8 - LONG-TERM LOANS

	June 30,			December 31,
	2017			2017
	(Audited)			(Unaudited)
MYR denominated loan		782			963
SGD denominated loan		187			212
Convertible Bond		20,032			20,290
	$	21,001		$	21,465
Less: current portion		(420	)		(401	)
	$	20,581		$	21,064

F-22

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Scheduled principal payments for all outstanding long-term loans as of December 31, 2017 are as follows:

January 1, 2018 – December 31, 2018	$	384
January 1, 2019 – December 31, 2019		20,585
January 1, 2020 – December 31, 2020		204
January 1, 2021 – December 31, 2021		150
January 1, 2022 and onwards		281
	$	21,604

For the six months ended December 31, 2016 and 2017, interest expenses of long-term loans incurred amounted to $380 and $512 respectively, and nil was capitalized as construction in progress.

F-23

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 9 - FAIR VALUE MEASUREMENT

Financial instruments include cash and cash equivalents, time deposits with maturities over three months, accounts receivable, other receivables, amounts due to or from related parties, accounts payable, short-term bank loans, long-term bank loans and bifurcated derivative. The carrying values of these financial instruments, other than long-term bank loans and a bifurcated derivative (which is a recurring fair value measurement), approximate their fair values due to their short-term maturities. The carrying value of the Company’s long-term bank loans other than the Convertible Bond approximates its fair value as the long-term bank loans are subject to floating interest rates. These assets and liabilities, excluding cash and cash equivalents (which fall into level 1 of the fair value hierarchy), fall into level 2 of the fair value hierarchy.

The value of the liability component is simply the present value of all the cash flows of Convertible Bond if the Convertible Bond conversion and other features are not considered. If the discount rates adopted increased or decreased by 1%, the fair value of Convertible Bond would decrease or increase by $43 and $43, respectively.

The derivative financial liability represents the fair value of the non-conversion compensation feature bifurcated from the convertible bond. The Company engaged an independent third-party appraiser to assist with the valuation of the feature. The Company is ultimately responsible for the fair value of the non-conversion compensation feature recorded in the consolidated financial statements. The Company adopted the binomial model to assess the fair value of such feature as of year-end. The non-conversion compensation feature is equal to the difference between the fair value of the whole Convertible Bond with the non-conversion compensation feature and the whole Convertible Bond without the non-conversion feature. The significant unobservable inputs used in the fair value measurement of the non-conversion compensation feature includes the risk-free rate of return, expected volatility, expected life of the Convertible Bond and expected ordinary dividend yield. The changes in fair value of the non-conversion compensation feature during six months ended December 31, 2017 are shown in the following table.

F-24

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

	Fair value measurements as of December 31, 2017 using significant unobservable inputs
	(Level 3)
	Non-conversion compensation feature related to the Convertible Bond
Balance as at June 30, 2017 (Audited)	$	487
Change in fair-value (included within other expenses, net)		48
Balance as of December 31, 2017 (Unaudited)	$	535

The Company measures certain financial assets, including equity method investments and cost method investments, at fair value on a nonrecurring basis only if an impairment charge were to be recognized. The Company’s non-financial assets, such as intangible assets, goodwill and fixed assets, would be measured at fair value only if they were determined to be impaired on an other-than-temporary basis. Addition assets measured at fair value on a nonrecurring basis as of December 31, 2017 are stated below:

	December 31, 2017 (Unaudited)
	Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Goodwill(i)		-		-		2,409		2,409
Equity method investment received by giving up nonfinancial assets(ii)						2,345		2,345
Total assets measured at fair value on a non-recurring basis	$	-	$	-	$	4,754	$	4,754

(i) As of December 31, 2017, the Company’s goodwill of $2,409 was related to the acquisition of Beijing Shuanghe Science & Technology Co., Ltd. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date.

(ii) During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

F-25

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 10 - STOCKHOLDERS’ EQUITY

On September 26, 2016, the Company declared a regular cash dividend of $0.20 per share to the holders of the Company’s ordinary shares. The record date was October 26, 2016, and the dividend was paid on November 11, 2016.

On September 26, 2017, the Company declared a regular cash dividend of $0.12 per share to the holders of the Company’s ordinary shares. The record date was October 16, 2017, and the dividend was paid on November 6, 2017.

NOTE 11 - INCOME TAX

Effective tax rate

The effective income tax rate (“ETR”) of our Company was 18.4% for the six months ended Dec 31, 2017 as compared to 12.6% for the six months ended Dec 31, 2016. The ETR fluctuation was mainly due to the different pre-tax income mixes with different tax rates, as the Company’s subsidiaries apply to different tax rates.

F-26

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 12 - INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share attributable to Hollysys for the six months indicated:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to the Company - basic	$	31,657	$	57,591
Net income attributable to the Company - diluted(i)	$	31,991	$	58,067
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		59,976,132		60,428,431
Effect of dilutive securities
Convertible Bond		784,400		788,800
Share options		256,024		-
Restricted shares		7,113		23,861
Weighted average ordinary shares outstanding used in computing diluted income per share		61,023,669		61,241,092
Income per share - basic	$	0.53		0.95
Income per share - diluted	$	0.52		0.95

(i) For the six months ended December 31, 2016 and 2017, interest accretion related to the Convertible Bond of $334 and $476, respectively, is added back to derive net income attributable to the Company for computing diluted income per share.

Vested and unissued restricted shares of 96,882 and 86,332 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2016, and 2017, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2017 as their effects would be anti-dilutive.

F-27

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Company leases premises under various operating leases. Rental expenses under operating leases included in the consolidated statements of comprehensive income were $1,359 and $1,582 for the six months ended December 31, 2016 and 2017, respectively.

F-28

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consist of the following:

	Minimum lease payments
	(Unaudited)
January 1, 2018 – December 31, 2018	$	1,949
January 1, 2019 – December 31, 2019		1,297
January 1, 2020 – December 31, 2020		446
January 1, 2021 – December 31, 2021		198
January 1, 2022 and onwards		70
Total minimum lease payments	$	3,960

The Company’s lease arrangements have no renewal or purchase options, rent escalation clauses, restriction or contingent rents and are all conducted with third parties.

Capital commitments

As of December 31, 2017, the Company had approximately $189 in capital obligations for the coming twelve months, mainly for the Company’s information system construction.

Purchase obligation

As of December 31, 2017, the Company had $147,089 purchase obligations for the coming twelve months, for purchases of inventories, mainly for fulfillment of in-process or newly entered contracts resulting from the expansion of the Company’s operations.

Performance guarantee and standby letters of credit

The Company had stand-by letters of credit of $23,000 and outstanding performance guarantees of $59,448 as of December 31, 2017, with restricted cash of $15,530 pledged to banks. The purpose of the stand-by letter of credit and performance guarantees is to guarantee that the performance of the Company’s deliveries reach the pre-agreed requirements specified in the integrated solutions contracts. The guarantee is to ensure the functionality of the Company’s own work. The disclosed amount of stand-by letters of credit and outstanding performance guarantees represent the maximum potential amount of future payments the Company could be required to make under such guarantees.

The Company accounts for performance guarantees and stand-by letters of credit in accordance with ASC topic 460 (“ASC 460”), Guarantees. Accordingly, the Company evaluates its guarantees to determine whether (a) the guarantee is specifically excluded from the scope of ASC 460, (b) the guarantee is subject to ASC 460 disclosure requirement only, but not subject to the initial recognition and measurement provisions, or (c) the guarantee is required to be recorded in the financial statements at fair value.

Both the performance guarantees and the stand-by letters of credit are for the Company’s commitment of its own future performance, and the outcome of which is within its own control. As a result, performance guarantees and stand-by letters of credit are subject to ASC 460 disclosure requirements only.

F-29

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

NOTE 14 - SEGMENT REPORTING

The chief operating decision makers have been identified as the Chairman, Chief Executive Officer and Chief Financial Officer of the Company. The Company organizes its internal financial reporting structure based on its main product and service offerings.

Based on the criteria established by ASC 280, Segment Reporting (“ASC 280”), the Company has determined that the reportable segments of the Company consist of (1) IA, (2) Rail, (3) M&E and (4) miscellaneous, in accordance with the Company’s organization and internal financial reporting structure. The chief operating decision makers assess the performance of the operating segments based on the measures of revenues, costs and gross profit. Other than the information provided below, the chief operating decision makers do not use any other measures by segments.

Summarized information by segments for the six months ended December 31, 2016, and 2017 is as follows:

	Six months ended December 31, 2016 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	90,831		56,297		55,462		89		202,679
Costs of revenue		55,424		39,883		48,503		41		143,851
Gross profit	$	35,407		16,414		6,959		48		58,828
	Six months ended December 31, 2017 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	115,130		104,745		53,039		-		272,914
Costs of revenue		71,422		52,680		44,840		-		168,942
Gross profit	$	43,708		52,065		8,199		-		103,972

The Company’s assets are shared among the segments thus no assets have been designated to specific segments.

F-30

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2017 (UNAUDITED) - continued

(Amounts in thousands except for number of shares and per share data)

The majority of the Company’s revenues and long-lived assets other than goodwill and intangible assets are derived from and located in the PRC. The following table sets forth the revenues by geographical area:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	140,577	$	218,401
Non-PRC		62,102		54,513
	$	202,679	$	272,914

The following table sets forth the long-lived assets other than goodwill and intangible assets by geographical area:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	131,625	$	144,176
Non-PRC		12,029		12,731
	$	143,654	$	156,907

F-31

EX-99.3

Exhibit 99.3

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission on September 22, 2017 (the "2017 Form 20-F"). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those identified elsewhere in this Report on Form 6-K, and those listed in the 2017 Form 20-F under “Item 3. Key Information-D. Risk Factors” or in other parts of the 2017 Form 20-F.

Overview

Through our operating subsidiaries, we are one of the leading automation solutions providers in China, developing a number of core technologies and completing numerous projects utilizing a wide array of automation products. With our philosophy of sincere concern for customers and our technical innovation capabilities, we specialize in the research, development, production, sale and distribution of industrial automation for digital railway signals and information systems, e-government, motor drive transmissions and non-safety controls for nuclear power reactors.

The main channel through which we obtain our automation system business is the procurement bidding process. Customers propose their requirements and specifications via legally binding bid documents. Companies interested in obtaining the contract can respond with an appropriate bid.

We derive our revenue mainly from three operating segments including industrial automation, railway transportation and mechanical and electrical solutions. Around 90% of our total consolidated revenues derived from integrated contracts we have won through the bid process. In addition, we generate revenue from sales of spare parts and component products to customers for maintenance and replacement purposes after the completion of the integrated solution contract, and from providing maintenance and training service, after the warranty period to customers for efficiency improvement or environment protection purpose; which tends to provide a recurring revenue stream. Spare part and component sales and services rendered are not part of the integrated solutions contracts.

The purpose of an integrated solutions contract is to furnish an automation system that provides the customer with a total solution for the automation or process control requirement being addressed. The automation system and total solution we offer, consisting of hardware, software and services, is customized to meet the customer’s particular needs and technical specifications. None of the hardware, software and services has independent functionality, and therefore, is not sold separately to customers.

Order backlog of contracts presents the amount of unrealized revenue to be earned from the contracts that we have won. The following table sets forth the information regarding contracts we won during the six months ended December 31, 2016 and 2017 and the backlog at the dates indicated:

	Six months ended December 31,
	2016		2017
Number of new contracts won during the period		1,538		1,643
Total amount of new contracts (million)	$	206.8	$	312.0
Average price per contract	$	134,460	$	189,897
	Six months ended December 31,
	2016		2017
Backlog Situation:
Contracts newly entered and unfinished (million)	$	120.0	$	143.4
Contracts entered in prior periods and unfinished (million)	$	379.4	$	404.2
Total amount of backlog (million)	$	499.4	$	547.6

1

Key Factors Affecting Our Growth, Operating Results and Financial Condition

Our future growth, operating results and financial condition will be affected by a number of factors including:

· The ability in developing and acquiring new products and systems in order to improve competitiveness, which can increase both sales revenue and margins. The success of our business depends in great measure on our ability to keep pace with or even lead changes that occur in our industry.

· The success in expanding our business in targeted emerging markets and overseas markets, which may require us to overcome domestic competition and trade barriers.

· Our ability to retain our existing customers and to obtain additional business opportunities. Since we do not have long-term purchase commitments from customers, our customers can shift to other competitors for future projects.  It is important to maintain our customer base in order to sustain and expand our business.

· The success of our business also depends on securing a steady stream of new customers.  In order for our business to continue to succeed and grow, it is vital to secure contracts with new customers on a regular basis.

· The ability to secure adequate engineering resources and relatively low cost engineering staff can increase our profitability and potential business prospects. One of the competitive advantages that we enjoy is the access to lower cost engineering staff as compared to those of our Western and Japan-based competitors. The plentiful supply of affordable engineering talent in China is a key element of our overall business strategy.

· Further improvement in product design and maintaining high standard of quality control, which can reduce or avoid product defects. Any product defects will result in additional costs and cause damage to our business reputation.

· The ability to secure and protect our intellectual property rights is critical, as our business is based on a number of proprietary products and systems, and we strive to strengthen and differentiate our product portfolio by developing new and innovative products and product improvements.

· The success in penetrating into the railway, conventional and nuclear power market sectors can develop revenue streams and improve margins. In addition to the traditional industrial automation business, our plan for future growth includes an increasing emphasis on rail control systems, power generation control systems and mechanical and electrical solutions both in China and internationally.

· The ability to obtain greater financial resources to match or even exceed our major competitors, in order to compete effectively with them, and to weather any extended weaknesses in the automation and control market.

· The continued growth in the Chinese and Southeast Asia industry in general.  This continued growth will create more business opportunities for us, because industrial companies in Asia are our principal source of revenues.

· The ability to maintain key personnel and senior management, who will have significant impact and contribution to our future business. The ability to attract and retain additional qualified management, technical, sales and marketing personnel will be vital.

· The continuation of the preferential tax treatment and subsidies currently available to our PRC subsidiaries will be critical to our future operating results. If governmental subsidies were reduced or eliminated, our after-tax income would be adversely affected.

2

· The exchange rate fluctuation of RMB and SGD against US dollars will result in future translation gain or loss as most of our assets are denominated in RMB and SGD. In addition, some of our raw materials, components and major equipment are imported from overseas. In the event that the RMB and SGD appreciate against other foreign currencies, our costs will decrease and our profitability will increase. However, the impact will be the other way around if RMB and SGD depreciate against other foreign currencies.

Critical Accounting Policies

Revenue recognition

Integrated solutions contracts

Revenues generated from designing, building, and delivering customized integrated industrial automation systems are recognized over the contractual terms based on the percentage of completion method. The contracts for designing, building, and delivering customized integrated industrial automation systems are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and ranges from 6 months to 5 years excluding the warranty period. The majority of the contract duration is longer than one year.

Revenue generated from mechanical and electrical solution contracts for the construction or renovation of buildings, rail or infrastructure facilities are also recognized over the contractual terms based on the percentage of completion method. The contracts for mechanical and electrical solution are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and the complexity of the construction work and ranges from 6 months to 3 years excluding the warranty period. The majority of the contract duration is longer than one year.

In accordance with ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts (“ASC 605-35”), recognition is based on an estimate of the income earned to date, less income recognized in earlier periods. Extent of progress toward completion is measured using the cost-to-cost method where the progress (the percentage complete) is determined by dividing costs incurred to date by the total amount of costs expected to be incurred for the integrated solutions contract. Revisions in the estimated total costs of integrated solutions contracts are made in the period in which the circumstances requiring the revision become known. Provisions, if any, are made in the period when anticipated losses become evident on uncompleted contracts.

The Company reviews and updates the estimated total costs of integrated solutions contracts at least annually. The Company accounts for revisions to contract revenue and estimated total costs of integrated solution contracts, including the impact due to approved change orders, in the period in which the facts that cause the revision become known as changes in estimates. Unapproved change orders are considered claims. Claims are recognized only when it has been awarded by customers. Excluding the impact of change orders, if the estimated total costs of integrated solution contracts, which were revised during the six months ended December 31, 2017, had been used as a basis of recognition of integrated contract revenue since the contract commencement, net income for the six months ended December 31, 2017 would have been decreased by $5.7 million; basic net income per share and diluted net income per share for six months ended December 31, 2017 would have been decreased by $0.09 and $0.09, respectively.

The Company combines a group of contracts as one project if they are closely related and are, in substance, parts of a single project with an overall profit margin. The Company segments a contract into several projects, when they are of different business substance, for example, with different business negotiation, solutions, implementation plans and margins.

Revenue in excess of billings on the contracts is recorded as costs and estimated earnings in excess of billings. Billings in excess of revenues recognized on the contracts are recorded as deferred revenue until the above revenue recognition criteria are met.

3

The Company generally recognizes 100% of the contractual revenue when the customer acceptance has been obtained and no further major costs are estimated to be incurred, and normally this is also when the warranty period commences. Revenues are presented net of taxes collected on behalf of the government.

Product sales

Revenue generated from sales of products is recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Service rendered

The Company has in recent years extended its service offerings as described below. The Company mainly provides two types of services:

Revenue from one-off services: the Company provides different types of one-off services, which are generally completed on site within a few working days. Revenue is recognized when the Company has completed all the respective services described in the contracts, there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured.

Revenue from services covering a period of time: the Company also separately sells extended warranties to their integrated solution customers for a fixed period. Such arrangements are negotiated separately from the corresponding integrated solution system and are usually entered into upon the expiration of the warranty period attached to the integrated solution contract. During the extended warranty period, the Company is responsible for addressing issues related to the system. Part replacement is not covered in such services. The Company recognizes revenue on a pro-rata basis over the contractual term.

Allowance for doubtful accounts

The carrying value of the Company’s accounts receivable and costs and estimated earnings in excess of billings, net of the allowance for doubtful accounts, represents their estimated net realizable value. An allowance for doubtful accounts is recognized when it’s probable that the Company will not collect the amount and is written off in the period when deemed uncollectible. The Company periodically reviews the status of contracts and decides how much of an allowance for doubtful accounts should be made based on factors surrounding the credit risk of customers and historical experience. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Warranties

Warranties represent a major term under an integrated contract, which will last, in general, for one to three years or otherwise specified in the terms of the contract. The Company accrues warranty liabilities under an integrated contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for an integrated contract throughout the contract period.

4

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Company adopted ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in income taxes. Interests and penalties arising from underpayment of income taxes shall be computed in accordance with the related tax laws.

5

Recent accounting pronouncements

Standards Effective in Future Years

In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-14, which defers the effective date of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) (" ASU 2014-09") by one year and allows entities the option to early adopt the new revenue standard as of the original effective date. Issued in May 2014, ASU 2014-09 provided guidance on revenue recognition on contracts with customers to transfer goods or services or on contracts for the transfer of nonfinancial assets. ASU 2014-09 requires that revenue recognition on contracts with customers depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for us on July 1, 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. The Company preliminarily plans to use the modified retrospective method and has developed an implementation plan. We are currently evaluating the impact of adoption of this guidance, including required disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This updated guidance is effective for the annual period beginning after December 15, 2017, including interim periods within the year. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of the pending adoption of ASU 2016-15 on its consolidated financial statements.

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In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Under the new standard, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or liability, as well as the related deferred tax benefit or expense, upon purchase or receipt of the asset. This pronouncement is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Group is still evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU2016-18”). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance is effective for public companies for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The guidance should be applied using a retrospective transition method for each period presented. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. The Group does not believe this standard will have a material impact on the results of operations or financial condition.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04(“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.

Recently Adopted Standards

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU requires entities within scope of this update to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update are effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. The Company adopted ASU 2015-11 on July 1, 2017 and such adoption did not have a material impact on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company adopted ASU 2015-17 on July 1, 2017 on a prospective basis. As a result, current portion of deferred income tax liabilities and assets have been reclassified to noncurrent liabilities and assets. Prior periods were not retrospectively adjusted and all future adjustments will be reported as noncurrent.

In March, 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new standard is effective for the Company for the fiscal year beginning July 1, 2017. Early adoption is permitted. The Company adopted this guidance on July 1, 2017 on a prospective basis. The adoption of this guidance did not have a material impact on our financial position or results of operations

A. Operating Results

The following are some financial highlights for the six months ended December 31, 2017:

· Total assets increased by approximately $121.8 million, from approximately $1,058.3 million as of June 30, 2017, to approximately $1,180.1 million as of December 31, 2017. The increase was mainly due to an increase of approximately $38.2 million in time deposits with maturities over three months, approximately $37.6 million in cost and estimated earnings in excess of billings, and approximately $33.5 million in cash and cash equivalents.

· Cash and cash equivalents increased by approximately $33.5 million, from approximately $197.6 million as of June 30, 2017, to approximately $231.1 million as of December 31, 2017. The increase was mainly due to $72.1 million cash generated from operating activities.

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· Accounts receivable at December 31, 2017 were approximately $257.6 million, an increase of approximately $11.0 million, or 4.5%, compared to approximately $246.6 million at June 30, 2017.

· Cost and estimated earnings in excess of billings as of December 31, 2017, were approximately $199.7 million compared to approximately $162.1 million as of June 30, 2017, representing a increase of approximately $37.6 million, or 23.2%. The cost and estimated earnings in excess of billings were accounted for based on the difference between percentages of completion and progress billings. Different contracts have different billing arrangements, and consequently result in different cost and estimated earnings in excess of billings. The higher or lower balance of cost and estimated earnings in excess of billings as of the balance sheet date was due to the different contracts mix with different billing arrangements.

· Inventory increased by approximately $1.9 million, from approximately $45.7 million as of June 30, 2017, to approximately $47.6 million as of December 31, 2017.

· Property, plant and equipment increased by approximately $3.5 million, from approximately $80.5 million as of June 30, 2017, to approximately $84.0 million as of December 31, 2017.

· Investments in equity investees increased by approximately $11.0 million, from $47.2 million as of June 30, 2017, to approximately $58.2 million as of December 31, 2017. The increase was mainly due to gains realized from equity investees.

· Total liabilities increased by approximately $38.8 million or 11.6% from approximately $334.7 million at June 30, 2017, to approximately $373.5 million as of December 31, 2017. The increase in liabilities was mainly due to an increase of approximately $23.1 million in deferred revenue.

· Short-term bank loans decreased by approximately $0.2 million, from approximately $8.1 million on June 30, 2017, to $7.9 million on December 31, 2017.

· Accounts payable increased by approximately $3.4 million, or 2.8% from approximately $122.7 million on June 30, 2017, to $126.1 million on December 31, 2017.

· Deferred revenue increased by approximately $23.1 million, or 21.5%, from approximately $107.4 million on June 30, 2017, to approximately $130.5 million on December 31, 2017. The deferred revenue was accounted for based on the difference between progress billings and percentages of completion. Different contracts have different billing arrangements, and consequently result in different deferred revenue. The higher or lower balance of deferred revenue as of the balance sheet date was due to the different contracts mix with different billing arrangements.

· Deferred tax assets were $8.6 million as of December 31, 2017. Based on the Company’s historical operating results and order backlog, the Company believes that it is more than likely that the deferred tax assets net of valuation allowance would be realized.

Comparison of Six Months Ended December 31, 2017 and 2016

Revenues: For the six months ended December 31, 2017, total revenues amounted to approximately $272.9 million, an increase of approximately $70.2 million, compared to approximately $202.7 million for the same period in the prior year, representing an increase of 34.6%.

Integrated contract revenue accounted for approximately $230.1 million of total revenues, an increase of approximately $47.5 million or 26.0%, compared to approximately $182.6 million for the same period in the prior year. The increase in integrated revenues was mainly composed of an increase of approximately $30.1 million or 57.4% in rail transportation and an increase of approximately $19.3 million or 26.2% in industrial automation projects. The revenue increase was partially offset by a decrease of $2.5 million or 4.6% in mechanical and electrical solutions business.

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Approximately $19.2 million of total revenues was generated from product sales, an increase of approximately $4.8 million, or 33.3% compared to approximately $14.4 million in product sales revenue for the same period in the prior year. Product sales revenue depends on overall demand for the Company’s spare parts for customers’ maintenance and replacement purposes.

Approximately $23.6 million of total revenue was generated from service rendered, an increase of $17.9 million or 314.0% compared to $5.7 million for the same period in the prior year.

The Company’s total revenue by segments was as follows:

(In USD millions)

	Six months ended December 31,
	2016					2017
	$		% to Total Revenue			$		% to Total Revenue
Industrial Automation		90.8		44.8	%		115.1		42.2	%
Rail Transportation		56.3		27.8	%		104.8		38.4	%
Mechanical and Electrical Solution		55.5		27.4	%		53.0		19.4	%
Miscellaneous		0.1		0.0	%		-		0.0	%
Total		202.7		100.0	%		272.9		100.0	%

Order Backlog: An important measure of the stability and growth of the Company’s business is the size of its order backlog, which represents the total amount of unrecognized contract revenue associated with existing contracts. Our order backlog as of December 31, 2017 amounted to approximately $547.6 million, representing an increase of approximately $48.2 million, or 9.7%, compared to approximately $499.4 million as of December 31, 2016.

Of the total order backlog as of December 31, 2017, the unrecognized revenue associated with new contracts signed in the six months period ended December 31, 2017 was approximately $143.4 million and the amount brought forward from prior periods was approximately $404.2 million, comparing to the total backlog as of December 31, 2016 of approximately $120.0 million from new contracts signed in the six months period ended December 31, 2016, and approximately $379.4 million from contracts carried forward from prior year.

Cost of revenues: Mirroring the categories of revenues, the cost of revenues can also be divided into three components including cost of integrated contracts, cost of products sold and cost of service rendered. For the six months ended December 31, 2017, the total cost of revenues amounted to approximately $168.9 million, an increase of approximately $25.0 million, or 17.4%, compared to approximately $143.9 million for the same period in the prior year. The increase was due to an approximate $18.2 million increase in the cost of integrated contracts, an increase of approximately $5.2 million or 274.6% in the cost of services rendered, and an increase of approximately $1.7 million or 40.8% in the cost of products.

The cost of integrated contract revenue consists primarily of three components: cost of equipment and materials, labor costs and other manufacturing expenses including but not limited to detecting expense, technology service fee, all of which incurred during the designing, building and delivering customized automation solutions process to customers. For the six months ended December 31, 2017, the total cost of integrated contracts was approximately $156.0 million, compared to approximately $137.8 million for the same period in the prior year, representing an increase of approximately $18.2 million, or 13.2%.  The increase was primarily due to an increase of approximately $11.4 million in cost of equipment and materials, an increase of approximately $4.2 million in labor cost, and an increase of approximately $2.6 million in other manufacturing expenses. Of the total cost of integrated contract revenue for the six months ended December 31, 2017, cost of equipment and materials accounted for approximately $86.3 million, compared to approximately $74.9 million for the same period in the prior year; labor cost accounted for approximately $36.3 million, compared to approximately $32.1 million for the same period in the prior year; and other manufacturing expenses accounted for approximately $33.4 million, compared to approximately $30.8 million for the same period in the prior year. Of the total integrated contract revenue for the six months ended December 31, 2017, cost of equipment and materials accounted for 37.5%, compared to 41.0% for the same period in the prior year; labor cost accounted for 15.8%, compared to 17.6% for the same period in the prior year; and other manufacturing expenses accounted for 14.5%, compared to 16.9% for the same period in the prior year. The cost components of integrated contracts were determined and varied according to requirements of different customers.

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Sales of products represent sales of spare parts (either company manufactured or purchased from outside vendors) to customers for maintenance and replacement purposes. Given the fact that the products purchased from outside vendors have different functions and capabilities from our self-made products, we decide whether to purchase or manufacture the necessary products based on the needs and preferences of different customers while considering the efficiency factor. Therefore, as a percentage of the cost of products sold, the self-made products and purchased products have varied significantly from time to time. The cost of products sold for the six months ended December 31, 2017 was approximately $5.8 million, an increase of approximately $1.7 million, compared to approximately $4.1 million for the same period in the prior year.

As for the cost of the service revenue, our employees spend time and incur expenses while they are with the customers. From time to time, materials costs related to the service are incurred, especially for providing extended warranty services. The cost of service revenue for the six months ended December 31, 2017 was approximately $7.1 million, an increase of approximately $5.2 million, compared to approximately $1.9 million for the same period in the prior year.

Gross margin: For the six months ended December 31, 2017, as a percentage of total revenues, the overall gross margin was 38.1%, compared to 29.0% for the same period in the prior year. The gross margin for integrated contracts was 32.2% for the six months ended December 31, 2017, compared to 24.5% for the same period in the prior year. The increase in gross margin for integrated contracts was mainly due to our different sales mix during the six months ended December 31, 2017. The gross margin for products sold was 69.6% for the six months ended December 31, 2017, compared to 71.2% for the same period in the prior year. The gross margin for service provided was 69.9% for the six months ended December 31, 2017, compared to 66.8% for the same period in the prior year.

Selling expenses: Selling expenses mainly consist of compensation, traveling and administrative expenses related to marketing, sales and promotion activities incurred by the Company’s marketing departments. Selling expenses were approximately $14.4 million for the six months ended December 31, 2017, an increase of 21.0%, or approximately $2.5 million, compared to approximately $11.9 million for the same period in the prior year. As a percentage of total revenues, selling expenses accounted for 5.3% and 5.9% for the six months ended December 31, 2017 and 2016, respectively.

General and administrative expenses: General and administrative expenses mainly include compensation, traveling and other administrative expenses of non-sales-related departments, such as the finance department, information systems department and human resources department. General and administrative expenses amounted to approximately $23.5 million for the six months ended December 31, 2017, representing an increase of approximately $1.1 million, or 4.9%, compared to approximately $22.3 million for the same period in the prior year. As a percentage of total revenues, general and administrative expenses were 8.6% and 11.0% for the six months ended December 31, 2017 and 2016, respectively.

Research and development expenses: Research and development expenses represent mostly employee compensation, materials consumed and experiment expenses related to specific new product research and development, as well as any expenses incurred for basic research on advanced technologies. For the six months ended December 31, 2017, research and development expenses were approximately $19.2 million, representing an increase of approximately $3.2 million, or 20.0%, compared to approximately $16.0 million for the same period in the prior year. As a percentage of total revenues, research and development expenses were 7.0% and 7.9% for the six months ended December 31, 2017 and 2016, respectively.

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VAT refunds and government subsidies: The state tax bureaus in China provide refunds out of the value added tax (“VAT”) they collect in order to encourage the research and development efforts made by certain qualified enterprises.  Some of our subsidiaries in China received such refunds. All VAT refunds, that have no further conditions to be met, are recognized in the statements of comprehensive income when cash or approval from the tax bureaus is received. For the six months ended December, 2017, VAT refunds were approximately $13.2 million, compared to approximately $12.9 million for the same period in the prior year, increasing by approximately $0.3 million, or 2.3%. As a percentage of total revenues, VAT refunds were 4.8% and 6.4% for the six months ended December 31, 2017 and 2016, respectively.

The local governments in China also provide financial subsidies to encourage research and development efforts made by certain qualified enterprises. Some of our subsidiaries received such subsidies. For the government subsidies that have no further conditions to be met, the funds received are recognized in the statements of comprehensive income; for the subsidies that have certain operating conditions yet to be met, the fund received are recorded as liabilities and will be released to income when the conditions are met. Subsidy income from the government amounted to approximately $3.3 million and $4.9 million for the six months ended December 31, 2017 and 2016, respectively, representing a decrease of approximately $1.6 million, or 32.7%.

Income from operations: Income from operations increased by approximately $37.0 million, from approximately $26.4 million for the six months ended December 31, 2016 to approximately $63.4 million for the six months ended December 31, 2017. The increase was mainly due to the increase of $45.1 million in the gross profit.

Interest income: For the six months ended December 31, 2017, interest income increased by approximately $1.7 million, or 130.8% from approximately $1.3 million for the same period in the prior year, to approximately $3.0 million for the current period. As a percentage of total revenue, interest income accounted for 1.1% and 0.6% for the six months ended December 31, 2017 and 2016, respectively. The interest income was mainly earned from time deposits with maturities over three months.

Interest expenses: For the six months ended December 31, 2017, interest expenses increased by approximately $0.2 million, or 50.0% from approximately $0.4 million for the same period in the prior year, to approximately $0.6 million for the current period. As a percentage of total revenue, interest expenses accounted for 0.2% and 0.2% for the six months ended December 31, 2017 and 2016, respectively. The interest expenses were incurred by the short-term and long-term loans/bonds we had.

Other income (expenses), net: For the six months ended December 31, 2017, the other income (expenses), net increased by approximately $1.4 million from approximately $1.3 million for the same period in the prior year, to approximately $2.7 million for the current period.

Income tax expenses: For the six months ended December 31, 2017, the Company’s income tax expenses and the effective tax rate were $13.0 million and 18.4% for the six months ended December 31, 2017, as compared to $4.6 million and 12.6% for comparable prior year period. The effective tax rate fluctuation was mainly due to the different pre-tax income mix with different tax rates, as the Company’s subsidiaries are subject to different tax rates.

Net income and earnings per share attributable to Hollysys: For the six months ended December 31, 2017, net income attributable to Hollysys amounted to approximately $57.6 million, representing an increase of approximately $25.9 million, as compared to approximately $31.7 million for the same period in the prior year. The basic and diluted earnings per share were $0.95 and $0.95 for the six months ended December 31, 2017, as compared to $0.53 and $0.52 for the same period in the prior year, representing an increase of $0.42 and $0.43, respectively. The increase was primarily due to the higher net income attributable to Hollysys compared to prior year period.

B. Liquidity and Capital Resources

We believe our working capital is sufficient to meet our present requirements. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In the long-term, we intend to rely primarily on cash flow from operations and additional borrowings from banks to meet our anticipated cash needs. If our anticipated cash flow and borrowing capacity is insufficient to meet our requirements, we may also seek to sell additional equity, debt or equity-linked securities. We cannot assure you that any financing will be available in the amounts we need or on terms acceptable to us, if at all.

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In line with the industry practice, we typically have a long receivable collection cycle. As a result, our cash provided by our operations in any given year may not be sufficient to fully meet our operating cash requirements in that year. We will use available financing means, including bank loans, to provide sufficient cash inflows to balance timing differences in our cash flows.

We estimate our liquidity needs for investing and financing activities for fiscal 2018 will be approximately $14.4 million, which will be primarily related to the repayment of bank borrowings and capital expenditures. Our future working capital requirements will depend on many factors, including, among others, the rate of our revenue growth, the timing and extent of expansion of our sales and marketing activities, the timing of introductions of new products and/or enhancements to existing products, and the timing and extent of expansion of our manufacturing capacity.

Our long-term liquidity needs will relate primarily to working capital to pay our suppliers, and third-party manufacturers, as well as any increases in manufacturing capacity or acquisitions of third party businesses that we may seek in the future. We expect to meet these requirements primarily through our current cash holdings, revolving bank borrowings, as well as our cash flow from operations. For fiscal year 2018, we expect $5.9 million of capital expenditures, mainly related to information system enhancement and manufacturing facility upgrades. We currently do not have any plan to incur significant capital and investing expenditures for the foreseeable future beyond 2018.

Cash Flow and Working Capital

As of December 31, 2017, we had total assets of approximately $1,180.1 million, of which cash and cash equivalents amounted to $231.1 million, time deposits with original maturities over three months amounted to $134.4 million, accounts receivable amounted to $257.6 million and inventories amounted to $47.6 million. While working capital was approximately $630.5 million, equity amounted to $806.6 million and our current ratio was approximately 2.9.

The following table shows our cash flows with respect to operating activities, investing activities and financing activities for the six months ended December 31, 2016 and 2017:

	Six Months Ended December 31,
Cash Flow Item	2016			2017
Net cash provided by operating activities	$	54,073		$	72,148
Net cash used in investing activities	$	(63,947	)	$	(38,882	)
Net cash used in financing activities	$	(3,464	)	$	(7,569	)
Effect of exchange rate changes on cash and cash equivalents	$	(5,642	)	$	7,733
Net (decrease) increase in cash and cash equivalents	$	(18,980	)	$	33,430
Cash and cash equivalents, beginning of period	$	229,095		$	197,640
Cash and cash equivalents, end of period	$	210,115		$	231,070

Operating Activities

For the six months ended December 31, 2017, net cash provided by operating activities was approximately $72.1 million, compared to approximately $54.1 million for the same period in the prior year.  The net cash inflow of operating activities in six months ended December 31, 2017 was primarily consisted of net income of approximately $57.7 million, approximately $3.2 million generated from non-operating items and non-cash items, approximately $11.2 million provided by working capital. Changes in working capital are attributable to an increase in deferred revenue of approximately $18.4 million, an increase of due from related parties of approximately $7.8 million, an increase of income tax payable approximately of $6.8 million, an increase of restricted cash approximately of $5.0 million, an increase of other receivables approximately of $3.8 million, all of which were partially offset by a decrease in costs and estimated earnings in excess of billings of approximately $34.5 million.

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The net cash inflow of operating activities in six months ended December 31, 2016 was primarily consisted of net income of approximately $31.6 million, and changes in working capital attributable to an increase in costs and estimated earnings in excess of billings of approximately $34.3 million, an increase of deferred revenue approximately of $26.8 million, all of which were partially offset by a decrease in restricted cash of approximately $17.3 million, a decrease in other tax payables of approximately $10.6 million, and a decrease in inventories of approximately $6.1 million.

Investing Activities

For the six months ended December 31, 2017, net cash used in investing activities was approximately $38.9 million, compared to approximately $63.9 million for the same period in the prior year. The net cash used in investing activities in six months ended December 31, 2017 mainly consisted of a cash outflow of approximately $119.7 million for time deposits placed with banks, a cash outflow of approximately $4.2 million in investment of an equity investee, partially offset by a cash inflow of approximately $86.2 million from maturity of time deposits.

The net cash used in investing activities in six months ended December 31, 2016 mainly consisted of a cash outflow of approximately $74.8 million for time deposits placed with banks, a cash outflow of approximately $16.7 million for net cash reduced upon deconsolidation of a subsidiary, partially offset by a cash inflow of approximately $27.9 million from maturity of time deposits.

Financing Activities

For the six months ended December 31, 2017, net cash used in financing activities was approximately $7.6 million, as compared to approximately $3.5 million for the same period in the prior year. The net cash used in financing activities in six months ended December 31, 2017 mainly consisted of a repayment of short-term bank loans of approximately $1.6 million, and a payment of dividends of approximately $7.2 million, partially offset by proceeds from short-term bank loans of approximately $1.1 million.

The net cash used in financing activities in six months ended December 31, 2016 mainly consisted of a repayment of short-term bank loans of approximately $3.9 million, a repayment of long-term bank loans of approximately $2.1 million, and a payment of dividends of approximately $12.0 million, partially offset by proceeds from exercise of share options of approximately $5.8million, proceeds from long-term bank loans of approximately $5.7 million, and proceeds from short-term bank loans of approximately $3.1million.

C. Research and Development, Patents and Licenses

Research and Development Efforts

As a high-technology company, our business and long-term development rely highly on our research and development capabilities. Our research and development process is based on Capability Maturity Model Integration Level 2&3 and can be classified into the following seven phases:

· Study phase

· Requirement phase

· Designing phase

· Implementation phase

· Testing phase

· Inspection phase

· Maintaining phase

We use standard product development life cycle models, including the waterfall model, increment model, iterative model and prototype. As a technology leader we continually develop and patent new automation technologies.  We also continually review and evaluate technological changes affecting the automation and integrated system industries and invest substantially in application-based research and development. We currently employ over 700 staff in the research and development department or engaged in research and development work.

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Our core technologies achieved from our research and development efforts include:

· Large scale software platform architecture design;

· Proprietary network design and development technologies;

· Safety computer platform design and manufacturing;

· Efficient I/O (Input /Output) signal processing design technology; and

· Embedded system design and manufacturing.

We are committed to incorporating the latest advances in electronics and information system technology into its products and, whenever possible, developing state-of-the-art proprietary products based on its extensive internal expertise and research efforts.  We currently spend approximately 6-9% of our annual revenues on research and development. Our recent major research and development focuses include:

· Transportation Automation;

· Manufacturing Automation; and

· Process Automation.

Our research and development efforts have led to the invention of several proprietary systems in the fields of DCS, PLC and transportation automation systems. We improved our 5th generation DCS (Distributed Control System), which represents higher reliability, stability, better safety protection and user-friendliness with advanced system architecture, hardware, software designs and industry expert solutions. We completed the development and certified our SIS (Safety Instrumented System) –HiaGuard with SIL3 (Safety Integrity Level 3) in compliance with international standards. HiaGuard is the first domestically developed SIS technology and breaks the monopoly held by foreign systems in China in this product. Hollysys’ HiaGuard can be applied for ESD (Emergency Shutdown System), PSD (Process Shutdown System), and FGS (Fire and Gas Systems) used in various industries. We also invented several series of PLC (Programmable Logic Controller) products, and the most successful applications include the mining safety protection systems and Traditional Chinese Medicine manufacturing and packaging machine and dispensing machine. Our core technologies provide a platform that is designed to enable the rapid and efficient development of our technologies for specific applications that are quickly, efficiently and affordably tailored to particular industries and to the needs of our customers. Our software development tools enable us to program our systems rapidly, allowing us to apply digital technologies that take advantage of the tremendous advances in electronics and information technology to improve quality and reliability while reducing cost. The market for our products includes, not only the large number of factories that are continually under construction in China’s rapidly expanding industrial base, but also extends to the replacement and upgrading of outdated legacy systems to bring a higher degree of control and efficiency to the automation of processes, delivering increasing benefits to customers as they meet increased competition. In the future we expect that the market for our products will extend further into South Asia and the Middle East.

We already have our proprietary high-speed rail signaling system including ATP (Automatic Train Protection), TCC (Train Control Center), LEU (Line-Side Electronic Unit), BTM (Balise Transmission Module), TSRS (Temporary Speed Restriction Server), HVC (Hollysys Vital Computer) and Interlocking system been certified according to international standards and have passed the Safety Integrity Level 4 (SIL4) certification. For the subway signaling system, the proprietary ATS (Automatic Train Supervision) and CBI (Computer Based Interlocking) have passed SIL2 and SIL4 certification respectively by the end of 2011. And in March 2013 we finished the development and certified ZC (Zone Controller), LEU (Line-side Electronic Unit) and Balise according to SIL4 (Safety Integrity Level 4) requirements in compliance of international standards, the certification of ATP (Automatic Train Protection) for subway signaling system was finished at the end of calendar year 2013. For both of the signaling systems, Hollysys is one of the earliest domestic companies in developing and certifying the signaling systems according to the international standards. Hollysys will be one of the few companies in the world which command the most leading and safety critical technologies of rail signaling system and we will compete with multinational companies such as Siemens, Alston and Bombardier in domestic and world arena. We believe our research and development efficiency, latest technology, strong customization and better value for money proposition will give us an unparalleled advantage in the high-speed rail and subway signaling markets.

14

For the six months ended December 31, 2017 and 2016, aggregate research and development expenses were approximately $19.2 million, and $16.0 million, respectively.

Intellectual Property Rights

We rely on a combination of copyright, patent, trademark and other intellectual property laws, nondisclosure agreements and other protective measures to protect our proprietary rights. We also utilize unpatented proprietary know-how and trade secrets and employ various methods to protect them. As of December 31, 2017, we held 163 software copyrights, 141 authorized patents, 182 patent applications and 2 registered trademarks. Our earliest software copyrights will expire in 2051. Our invention patents have terms of 20 years. The first expiration will be in 2020 and the second will be in 2023 and our utility patents and design patents have terms of 10 years. One utility patent is expected to expire in 2018.

Although we employ a variety of intellectual property in the development and manufacturing of products, we believe that only a few of our intellectual property rights are critical to our current operations. However, when taken as a whole, we believe that our intellectual property rights are significant and that the loss of all or a substantial portion of such rights could have a material adverse effect on our results of operations. Also, from time to time, we may desire or be required to renew or to obtain licenses from others in order to further develop and manufacture commercially viable products effectively.

We market our DCS products mainly under the brand name of “HOLLiAS”.  Our brand name is well-established and is recognized as associated with high quality and reliable products by industry participants and customers. We have obtained trademark protection for our brand name “HOLLiAS” in the PRC as well as in other countries in the world. In addition, we have also registered or applied for a series of trademarks including brand names for us and our products. The trademarks are issued for 10-year periods and may be renewed prior to expiration.

D. Trend Information

Other than as disclosed in the foregoing disclosures and elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments or events for the six months ended December 31, 2017 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-Balance Sheet Arrangements

We do not believe that we have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to an investment in our securities.

15

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations, including long-term loans and operating leases and capital and operational commitments as of December 31, 2017.

(In USD thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Short-term & Long-term Loans
-Principal		29,324		8,310		20,675		208		131
-Interest		1,150		682		375		20		73
Operating Lease Obligations(1)		3,960		1,950		1,742		247		21
Purchase Obligations(2)		147,089		135,278		7,382		2,953		1,476
Capital Obligations(3)		189		189		-		-		-
Standby Letters of Credit(4)		23,000		23,000		-		-		-
Performance Guarantees(5)		59,448		49,934		9,138		75		301
Total		264,160		219,343		39,312		3,503		2,002

⁽¹⁾ Operating lease obligations

It represents the future minimum payments under non-cancelable operating leases.

⁽²⁾ Purchase obligations

As of December 31, 2017, the Company had approximately $147.1 million in purchase obligations for the coming twelve months, for purchases of inventories. The inventories will be mainly used for fulfilling existing contracts or new contracts resulted from the expansion of our operations.

⁽³⁾ Capital obligations

As of December 31, 2017, the Company had approximately $0.2 million in capital obligations for the coming twelve months, mainly for the Company’s information system construction.

⁽⁴⁾ Standby letters of credit

We have issued letters of credit to our suppliers to serve as assurance of payment. When a letter of credit is issued, a proportion of the total amount covered by the letter of credit may be required to be deposited in the bank, and is not available until the payment has been settled or the letter of credit has expired. As of December 31, 2017, we had approximately $23.0 million in standby letters of credit obligations, with $23.0 million of restricted cash deposited in banks for the standby letters of credit.

⁽⁵⁾ Performance guarantees

We have provided performance guarantees to our customers to serve as assurance of performance for the contractual obligations. When a performance guarantee is issued, a proportion of the total guarantee amount may be required to be deposited in the bank, and is not available until the guarantee is expired. As of December 31, 2017, we had approximately $59.4 million performance guarantees obligation, with $6.7 million of restricted cash deposited in banks for performance guarantees.

Other than the contractual obligations and commercial commitments set forth above, we did not have any other long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of December 31, 2017.

16

XML

Document And Entity Information	6 Months Ended
	Dec. 31, 2017 shares
Document Information [Line Items]
Document Type	6-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Entity Registrant Name	Hollysys Automation Technologies, Ltd.
Entity Central Index Key	0001357450
Current Fiscal Year End Date	--06-30
Entity Filer Category	Large Accelerated Filer
Trading Symbol	HOLI
Entity Common Stock, Shares Outstanding	60,342,099

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2017	Jun. 30, 2017
Current assets:
Cash and cash equivalents	$ 231,070	$ 197,640
Time deposits with maturities over three months	134,379	96,214
Restricted cash	35,986	39,534
Accounts receivable, net of allowance for doubtful accounts of $48,0891 and $49,041 as of June 30, 2017 and December 31, 2017, respectively	257,611	246,552
Costs and estimated earnings in excess of billings, net of allowance for doubtful accounts of $8,660 and $12,472 as of June 30, 2017 and December 31, 2017, respectively	199,736	162,096
Other receivables, net of allowance for doubtful accounts of $1,448 and $1,568 as of June 30, 2017 and December 31, 2017, respectively	16,857	20,036
Advances to suppliers	8,523	9,964
Amounts due from related parties	28,642	34,142
Inventories	47,602	45,660
Prepaid expenses	797	619
Income tax recoverable	170	5,169
Deferred tax assets	0	7,730
Total current assets	961,373	865,356
Non-current assets:
Restricted cash	461	522
Prepaid expenses	8	0
Property, plant and equipment, net	84,025	80,529
Prepaid land leases	10,472	10,206
Intangible assets, net	1,602	1,928
Investments in equity investees	58,219	47,242
Investments in cost investees	4,191	4,024
Goodwill	51,175	47,326
Deferred tax assets	8,583	1,121
Total non-current assets	218,736	192,898
Total assets	1,180,109	1,058,254
Current liabilities (including amounts of the VIE without recourse to the primary beneficiary of $14,178 and $17,342 as of June 30, 2017 and December 31, 2017, respectively):
Derivative financial liability	535	487
Short-term bank loans	7,859	8,121
Current portion of long-term loans	401	420
Accounts payable	126,095	122,714
Construction costs payable	167	383
Deferred revenue	130,451	107,407
Accrued payroll and related expenses	17,724	13,600
Income tax payable	5,237	3,371
Warranty liabilities	6,136	5,386
Other tax payables	11,052	10,488
Accrued liabilities	22,014	23,950
Amounts due to related parties	3,169	2,301
Deferred tax liabilities	0	4,350
Total current liabilities	330,840	302,978
Accrued liabilities	9,155	2,220
Long-term loans	21,064	20,581
Deferred tax liabilities	9,838	6,689
Warranty liabilities	2,642	2,246
Total non-current liabilities	42,699	31,736
Total liabilities	373,539	334,714
Commitments and contingencies
Stockholders' equity:
Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 60,342,099 and 60,342,099 shares issued and outstanding as of June 30, 2017 and December 31, 2017, respectively	60	60
Additional paid-in capital	222,514	222,189
Statutory reserves	41,130	41,130
Retained earnings	533,347	482,999
Accumulated other comprehensive income	9,411	(22,859)
Total Hollysys Automation Technologies Ltd. Stockholders' equity	806,462	723,519
Non-controlling interest	108	21
Total equity	806,570	723,540
Total liabilities and equity	$ 1,180,109	$ 1,058,254

XML

CONDENSED CONSOLIDATED BALANCE SHEETS [Parenthetical] - USD ($) $ in Thousands	Dec. 31, 2017	Jun. 30, 2017
Allowance for doubtful accounts, accounts receivable	$ 49,041	$ 48,089
Allowance for doubtful accounts of costs and estimated earnings in excess of billings	12,472	8,660
Allowance for doubtful accounts, other receivables	$ 1,568	$ 1,448
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	60,342,099	60,342,099
Common stock, shares outstanding (in shares)	60,342,099	60,342,099
Liabilities, Current, Total	$ 330,840	$ 302,978
Variable Interest Entity, Not Primary Beneficiary [Member]
Liabilities, Current, Total	$ 17,342	$ 14,178

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Net revenues
Integrated contract revenue	$ 230,109	$ 182,600
Product sales	19,177	14,370
Revenue from services	23,628	5,709
Total net revenues	272,914	202,679
Costs of integrated contracts	155,998	137,810
Costs of products sold	5,834	4,143
Costs of services rendered	7,110	1,898
Gross profit	103,972	58,828
Operating expenses
Selling	14,438	11,858
General and administrative	23,459	22,330
Research and development	19,216	15,990
VAT refunds and government subsidies	(16,511)	(17,798)
Total operating expenses	40,602	32,380
Income from operations	63,370	26,448
Other income, net	2,710	1,260
Foreign exchange loss	(1,104)	(635)
Gains on deconsolidation of the Company's interests in Beijing Hollycon Electronic Technology Co., Ltd (“Hollycon”)	0	6,005
Share of net income of equity investees	2,273	2,279
Interest income	3,036	1,257
Interest expenses	(634)	(400)
Dividend income from a cost investee	1,057	0
Income before income taxes	70,708	36,214
Income tax expenses	13,031	4,570
Net income	57,677	31,644
Less: net (loss) income attributable to non-controlling interests	86	(13)
Net income attributable to Hollysys Automation Technologies Ltd.	57,591	31,657
Other comprehensive income, net of tax of nil
Translation adjustments	32,270	(33,611)
Comprehensive (loss) income	89,947	(1,967)
Less: comprehensive (loss) income attributable to non-controlling interests	87	(21)
Comprehensive (loss) income attributable to Hollysys Automation Technologies Ltd.	$ 89,860	$ (1,946)
Net income per ordinary share:
Basic (in dollars per share)	$ 0.95	$ 0.53
Diluted (in dollars per share)	$ 0.95	$ 0.52
Shares used in income per share computation:
Weighted average number of ordinary shares	60,428,431	59,976,132
Weighted average number of diluted ordinary shares	61,241,092	61,023,669

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Cash flows from operating activities:
Net income	$ 57,677	$ 31,644
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	3,389	2,866
Amortization of prepaid land leases	130	94
Amortization of intangible assets	279	263
Allowance for doubtful accounts	4,187	3,260
Loss on disposal of property, plant and equipment	48	26
Share of net income of equity investees	(2,273)	(2,279)
Gains on deconsolidation of the Company’s interests in HollyCon	0	(6,005)
Share-based compensation expenses	325	1,836
Deferred income tax benefit	(754)	(3,195)
Accretion of convertible bond	258	334
Fair value adjustments of a bifurcated derivative	48	0
Gain from the derecognition of nonfinancial assets	(2,345)	0
Changes in operating assets and liabilities:
Accounts receivable	847	1,232
Costs and estimated earnings in excess of billings	(34,461)	34,267
Inventories	(44)	(6,070)
Advances to suppliers	(62)	954
Other receivables	3,806	571
Other tax payables	126	(10,558)
Restricted cash	4,975	(17,306)
Due from related parties	6,777	(534)
Accounts payable	158	(2,554)
Deferred revenue	18,353	26,795
Accruals and other payables	3,141	(4,874)
Due to related parties	757	919
Income tax payable	6,806	2,387
Net cash provided by operating activities	72,148	54,073
Cash flows from investing activities:
Time deposits placed with banks	(119,741)	(74,799)
Purchases of property, plant and equipment	(611)	(434)
Maturity of time deposits	86,215	27,933
Proceeds from disposal of property, plant and equipment	50	34
Investment of equity investees	(4,212)	0
Net cash reduced upon deconsolidation of a subsidiary	0	(16,681)
Acquisition of a subsidiary, net of cash acquired	(583)	0
Net cash used in investing activities	(38,882)	(63,947)
Cash flows from financing activities:
Proceeds from short-term bank loans	1,052	3,108
Repayments of short-term bank loans	(1,554)	(3,917)
Proceeds from long-term bank loans	536	5,665
Repayments of long-term bank loans	(362)	(2,149)
Proceeds from exercise of options	0	5,802
Payment of dividends	(7,241)	(11,973)
Net cash used in financing activities	(7,569)	(3,464)
Effect of foreign exchange rate changes	7,733	(5,642)
Net (decrease) increase in cash and cash equivalents	33,430	(18,980)
Cash and cash equivalents, beginning of period	197,640	229,095
Cash and cash equivalents, end of period	231,070	210,115
Supplementary disclosures of significant non-cash transactions:
Acquisition of equity interest with consideration of intangible asset	$ 2,345	$ 0

XML

ORGANIZATION AND BUSINESS BACKGROUND

6 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 - ORGANIZATION AND BUSINESS BACKGROUND

Hollysys Automation Technologies Ltd. (“Hollysys” or the “Company”) was established under the laws of the British Virgin Islands (“BVI”) on February 6, 2006.

As of December 31, 2017, the Company had subsidiaries incorporated in countries and jurisdictions including the People’s Republic of China (“PRC”), Singapore, Malaysia, Macau, Hong Kong, British Virgin Islands, India and Indonesia.

The Company makes a determination at the inception of each arrangement whether an entity in which the Company has made an investment or in which the Company has other variable interests is considered a variable interest entity (“VIE”). The Company consolidates a VIE when it is deemed to be the primary beneficiary. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Periodically, the Company determines whether any changes occurred requiring a reassessment of whether it is the primary beneficiary of a VIE. If the Company is not deemed to be the primary beneficiary in a VIE, the investment or other variable interests in a VIE is accounted for in accordance with applicable GAAP.

In November 2015, CECL was established in Doha, Qatar, by CCPL, a wholly-owned subsidiary of the Company incorporated under the laws of Singapore, and a Qatar citizen as a nominee shareholder, with 49% and 51% of equity interest in CECL, respectively. Through a series of contractual arrangements signed in November 2015 and September 2016, CCPL is entitled to appoint majority of directors of CECL who have the power to direct the activities that significantly impact CECL’s economic performance. In addition, CCPL is entitled to 95% of the variable returns or loss from CECL’s operations. In accordance with ASC 810, Consolidation, despite the lack of technical majority ownership, there exists a parent-subsidiary relationship between CCPL and CECL through the series of contractual arrangements and CCPL is considered the primary beneficiary of CECL. CECL was concluded as a VIE of the Company and consolidated by the Company since inception with 5% of non-controlling interest.

The carrying amounts and classifications of the assets and liabilities of the VIE are as follows:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Current assets	$	14,331	$	19,150
Non-current assets		239		331
Total assets		14,570		19,481
Current liabilities	$	14,178	$	17,342
Total liabilities		14,178		17,342

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Revenue	$	720	$	12,108
Cost of revenue		606		10,057
Net (loss) profit		(209)		1,712
Net cash provided by (used in) operating activities		7,258		(5,445)
Net cash used in investing activities		-		-
Net cash provided by financing activities	$	-	$	-

As of December 31, 2017, the current assets of the VIE included amounts due from subsidiaries of the Company amounting to $5,071 (June 30, 2017: $1,629), and the current liabilities of the VIE included amounts due to subsidiaries of the Company amounting to nil (June 30, 2017: $127), which were all eliminated upon consolidation by the Company. Creditors of the VIE do not have recourse to the general credit of the Company for the liabilities of the VIE. The Company is obligated to absorb the VIE’s expected losses and to provide financial support to the VIE if required. For the six months ended December 31, 2016 and 2017, the Company has not provided financial support other than that which it was contractually required to provide. The Company believes that there are no assets of the VIE that can be used only to settle obligations of the VIE.

In July 2017, Bond Corporation Pte. Ltd (“Bond PL”), a wholly-owned Singapore subsidiary of the Company, and a Malaysian citizen (the “Trustee”) entered into a trust deed, under which, 49.1% of Bond PL’s equity interests in Bond M & E Sdn. Bhd. (“Bond JB”), a Malaysian company, which previously was a 100% subsidiary of Bond PL, was transferred to the Trustee. According to the trust deed, all of the beneficial interests in Bond JB belong to Bond PL and the Trustee shall hold the legal title of the transferred shares on trust for and act on behalf of Bond PL absolutely. Any dividend, interest and other benefits received or receivable by the Trustee will be transferred to Bond PL. The Trustee shall exercise the managerial rights and voting power in a manner directed by a prior written notice from Bond PL. The Trustee shall be obligated to vote in the same manner as Bond PL in the absence of any written notice. In addition, an undated Form of Transfer of Securities with the transferee’s name left blank was duly executed by the Trustee and delivered to Bond PL. Therefore, Bond PL can transfer the 49.1% of equity interests to any party at any time without further approval by the Trustee. Accordingly, the Company believes it holds all beneficial rights, obligation and the power of the 100% equity interest in Bond JB, and therefore consolidates 100% of equity interests in Bond JB into its financial statements.

The Company is principally engaged in the manufacture, sale and provision of integrated automation systems and services, mechanical and electrical solution services and installation services in the PRC, Southeast Asia and the Middle East.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These unaudited interim condensed consolidated financial statements of the Company, its subsidiaries and VIE (collectively the “Group”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited consolidated financial statements for the fiscal year ended June 30, 2017. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Group for each of the periods presented. The results of operations for the six months period ended December 31, 2017 are not necessarily indicative of results to be expected for any other interim period or for the year ending June 30, 2018. The consolidated balance sheet as of June 30, 2017 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended June 30, 2017.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and a VIE. All inter-company transactions and balances between the Company, its subsidiaries, and the VIE are eliminated upon consolidation. The Company included the results of operations of acquired businesses from the respective dates of acquisition.

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates estimates, including those related to the expected total costs of integrated contracts, expected gross margins of integrated solution contracts, allowance for doubtful accounts, fair values of share options, fair value of bifurcated derivative, fair value of equity method investment received by giving up nonfinancial assets, fair value of acquired intangible assets and goodwill, warranties, valuation allowance of deferred tax assets and impairment of goodwill and other long-lived assets. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Foreign currency translations and transactions

The Company’s functional currency is the United States dollars (“US dollars” or “$”); whereas the Company’s subsidiaries and VIE use the primary currency of the economic environment in which their operations are conducted as their functional currency. According to the criteria of Accounting Standards Codification (“ASC”) Topic 830 (“ASC 830”), the Company uses the US dollars as its reporting currency.

The Company translates the assets and liabilities into US dollars using the rate of exchange prevailing at the balance sheet date, and the statements of comprehensive income are translated at average rates during the reporting period. Adjustments resulting from the translation of financial statements from the functional currency into US dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. Transactions dominated in currencies other than the functional currency are translated into functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the consolidated statements of comprehensive income for the reporting period.

Transactions denominated in foreign currencies are measured into the functional currency at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in earnings, except for those raised from intercompany transactions with investment nature, which are recorded in other comprehensive income.

Business combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities the Company acquired based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of the acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statements of comprehensive income.

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted cash flows over that period.

Acquisition-related costs are recognized as general and administrative expenses in the statements of comprehensive income as incurred.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. All highly liquid investments that are readily convertible to known amounts of cash with original stated maturities of three months or less are classified as cash equivalents.

Time deposits with original maturities over three months

Time deposits with original maturities over three months consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2017, $122,781, $7,856, $3,685 and $57 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore, Malaysia and India, respectively. As of June 30, 2017, $80,507, $11,690, $3,935 and $82 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore and Malaysia and India, respectively.

Restricted cash

Restricted cash mainly consists of the cash deposited in banks pledged for performance guarantees, or bank loans. These cash balances are not available for use until these guarantees are expired or cancelled, or the loans are repaid.

Revenue recognition

Integrated solutions contracts

Revenues generated from designing, building, and delivering customized integrated industrial automation systems are recognized over the contractual terms based on the percentage of completion method. The contracts for designing, building, and delivering customized integrated industrial automation systems are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and ranges from 6 months to 5 years excluding the warranty period. The majority of the contract duration is longer than one year.

Revenue generated from mechanical and electrical solution contracts for the construction or renovation of buildings, rail or infrastructure facilities are also recognized over the contractual terms based on the percentage of completion method. The contracts for mechanical and electrical solution are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and the complexity of the construction work and ranges from 6 months to 3 years excluding the warranty period. The majority of the contract duration is longer than one year.

In accordance with ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts (“ASC 605-35”), recognition is based on an estimate of the income earned to date, less income recognized in earlier periods. Extent of progress toward completion is measured using the cost-to-cost method where the progress (the percentage complete) is determined by dividing costs incurred to date by the total amount of costs expected to be incurred for the integrated solutions contract. Revisions in the estimated total costs of integrated solutions contracts are made in the period in which the circumstances requiring the revision become known. Provisions, if any, are made in the period when anticipated losses become evident on uncompleted contracts.

The Company reviews and updates the estimated total costs of integrated solutions contracts at least annually. The Company accounts for revisions to contract revenue and estimated total costs of integrated solution contracts, including the impact due to approved change orders, in the period in which the facts that cause the revision become known as changes in estimates. Unapproved change orders are considered claims. Claims are recognized only when it has been awarded by customers. Excluding the impact of change orders, if the estimated total costs of integrated solution contracts, which was revised during the six months ended December 31, 2017, had been used as a basis of recognition of integrated contract revenue since the contract commencement, net income for the six months ended December 31, 2017 would have been decreased by $5,741; basic net income per share and diluted net income per share for six months ended December 31, 2017 would have been decreased by $0.09 and $0.09, respectively.

The Company combines a group of contracts as one project if they are closely related and are, in substance, parts of a single project with an overall profit margin. The Company segments a contract into several projects, when they are of different business substance, for example, with different business negotiation, solutions, implementation plans and margins.

Revenue in excess of billings on the contracts is recorded as costs and estimated earnings in excess of billings. Billings in excess of revenues recognized on the contracts are recorded as deferred revenue until the above revenue recognition criteria are met. Recognition of accounts receivable and costs and estimated earnings in excess of billings are discussed below.

The Company generally recognizes 100% of the contractual revenue when the customer acceptance has been obtained and no further major costs are estimated to be incurred, and normally this is also when the warranty period commences. Revenues are presented net of taxes collected on behalf of the government.

Product sales

Revenue generated from sales of products is recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Service rendered

The Company has in recent years extended its service offerings as described below. The Company mainly provides two types of services:

Revenue from one-off services: the Company provides different types of one-off services which are generally completed on site within a few working days. Revenue is recognized when the Company has completed all the respective services described in the contracts, there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured.

Revenue from services covering a period of time: the Company also separately sells extended warranties to their integrated solution customers for a fixed period. Such arrangements are negotiated separately from the corresponding integrated solution system and are usually entered into upon the expiration of the warranty period attached to the integrated solution contract. During the extended warranty period, the Company is responsible for addressing issues related to the system. Part replacement is not covered in such services. The Company recognizes revenue on a pro-rata basis over the contractual term.

Accounts receivable and costs and estimated earnings in excess of billings

Performance of the integrated contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual agreements. There are different billing practices in the PRC, overseas operating subsidiaries and the VIE (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in contracts negotiated with customers. In general, there are four milestones: 1) project commencement, 2) system manufacturing and delivery, 3) installation, trial-run and customer acceptance, and 4) expiration of the warranty period. The amounts to be billed at each milestone are specified in the contract. All contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated contract varies depending on the duration of the contract (under certain contracts, the interval lasts more than a year) and the last billing to be issued for an integrated solution contract is scheduled at the end of a warranty period. For Concord and Bond Groups, billing claims rendered are subject to the further approval and certification of the customers or their designated consultants. Payments are made to Concord or Bond Groups based on the certified billings according to the payment terms mutually agreed between the customers and Concord or Bond Groups. Certain amounts are retained by the customer and payable to Concord and Bond Groups upon satisfaction of final quality inspection or at the end of the warranty period. The retained amounts which were recorded as accounts receivable were $12,838 and $15,550 as of June 30, 2017 and December 31, 2017, respectively. Prepayments received are recorded as deferred revenue. The deferred revenue will be recognized as revenue under the percentage of completion method along with the progress of a contract.

The carrying value of the Company’s accounts receivable and costs and estimated earnings in excess of billings, net of the allowance for doubtful accounts, represents their estimated net realizable value. An allowance for doubtful accounts is recognized when it’s probable that the Company will not collect the amount and is written off in the period when deemed uncollectible. The Company periodically reviews the status of contracts and decides how much of an allowance for doubtful accounts should be made based on factors surrounding the credit risk of customers and historical experience. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventories

Inventories are composed of raw materials, work in progress, purchased and manufactured finished goods and low value consumables. Inventories are stated at the lower of cost and net realizable value. The Company elected to use weighted average cost method as inventory costing method.

The Company assesses the lower of cost and net realizable value for non-saleable, excess or obsolete inventories based on its periodic review of inventory quantities on hand and the latest forecasts of product demand and production requirements from its customers. The Company writes down inventories for non-saleable, excess or obsolete raw materials, work-in-process and finished goods by charging such write-downs to cost of integrated contracts and/or costs of products sold.

Warranties

Warranties represent a major term under an integrated contract, which will last, in general, for one to three years or otherwise specified in the terms of the contract. The Company accrues warranty liabilities under an integrated contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for an integrated contract throughout the contract period.

Property, plant and equipment, net

Property, plant and equipment, other than construction in progress, are recorded at cost and are stated net of accumulated depreciation and impairment, if any. Depreciation expense is determined using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	30 -50 years
Machinery	5 - 10 years
Software	3 - 5 years
Vehicles	5- 6 years
Electronic and other equipment	3 - 10 years

Construction in progress represents uncompleted construction work of certain facilities which, upon completion, management intends to hold for production purposes. In addition to costs under construction contracts, other costs directly related to the construction of such facilities, including duty and tariff, equipment installation and shipping costs, and borrowing costs are capitalized. Depreciation commences when the asset is placed in service.

Maintenance and repairs are charged directly to expenses as incurred, whereas betterment and renewals are capitalized in their respective accounts. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized for the reporting period.

Prepaid land leases, net

Prepaid land lease payments, for the land use right of three parcels of land in the PRC, three parcels of leasehold land in Malaysia and one parcel of leasehold land in Singapore, are initially stated at cost and are subsequently amortized on a straight-line basis over the lease terms of 49 to 88 years.

Intangible assets, net

Intangible assets are carried at cost less accumulated amortization and any impairment. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets, except for which are estimated to have an indefinite useful life, are amortized using a straight-line method. Intangible assets estimated to have an indefinite useful life are not amortized but tested for impairment annually or more frequently when indicators of impairment exist.

The estimated useful lives for the intangible assets are as follows:

Category	Estimated useful life
Customer relationship	57 - 60 months
Order backlog	21 - 33 months
Patents and copyrights	60 - 120 months

Residual values are considered nil.

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Company adopted ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in income taxes. Interests and penalties arising from underpayment of income taxes shall be computed in accordance with the related tax laws.

Segment reporting

In accordance with ASC 280, Segment reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision makers review operating results to make decisions about allocating resources and assessing performance of the Company. According to management’s approach, the Company organizes its internal financial reporting structure based on its main product and service offerings. The Company operates in three principal business segments in the financial reporting structure and their management report, namely industrial automation, rail transportation and mechanical and electrical solutions. The Company does not allocate any assets to the three segments as management does not use the information to measure the performance of the reportable segments.

Investments in cost and equity investees

The Company accounts for its equity investments under either the cost method or the equity method by considering the Company’s rights and ability to exercise significant influence over the investees. Under the cost method, investments are initially carried at cost. In the event that the fair value of the investment falls below the initial cost and the decline is considered as other-than-temporary, the Company recognizes an impairment charge, equal to the difference between the cost basis and the fair value of the investment. A variety of factors are considered when determining if a decline in fair value below carrying value is other than temporary, including, among others, the financial condition and prospects of the investee.

The investments in entities over which the Company has the ability to exercise significant influence are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.

Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities, by the amortization of any basis difference between the amount of the Company’s investment and its share of the net assets of the investee, and by dividend distributions or subsequent investments. Unrealized inter-company profits and losses related to equity investees are eliminated. An impairment charge, being the difference between the carrying amount and the fair value of the equity investee, is recognized in the consolidated statements of comprehensive income when the decline in value is considered other than temporary.

There was no impairment loss on investments in cost or equity investees for the six months ended December 31, 2016 and 2017, respectively.

Income per share

Income per share is computed in accordance with ASC 260, Earnings per Share (“ASC 260”). Basic income per ordinary share is computed by dividing income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted income per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares.

Fair value measurements

The Company has adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1	-	Quoted prices in active markets for identical assets or liabilities.
Level 2	-	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	-	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

Recent accounting pronouncements

Standards Effective in Future Years

In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-14, which defers the effective date of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) (" ASU 2014-09") by one year and allows entities the option to early adopt the new revenue standard as of the original effective date. Issued in May 2014, ASU 2014-09 provided guidance on revenue recognition on contracts with customers to transfer goods or services or on contracts for the transfer of nonfinancial assets. ASU 2014-09 requires that revenue recognition on contracts with customers depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for us on July 1, 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. The Company preliminarily plans to use the modified retrospective method and has developed an implementation plan. We are currently evaluating the impact of adoption of this guidance, including required disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This updated guidance is effective for the annual period beginning after December 15, 2017, including interim periods within the year. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In August 2016, the FASB issued (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of the pending adoption of ASU 2016-15 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Under the new standard, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or liability, as well as the related deferred tax benefit or expense, upon purchase or receipt of the asset. This pronouncement is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is still evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU2016-18”). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance is effective for public companies for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The guidance should be applied using a retrospective transition method for each period presented. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. The Company does not believe this standard will have a material impact on the results of operations or financial condition.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04(“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.

Recently Adopted Standards

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU requires entities within scope of this update to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update are effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. The Company adopted ASU 2015-11 on July 1, 2017 and such adoption did not have a material impact on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company adopted ASU 2015-17 on July 1, 2017 on a prospective basis. As a result, current portion of deferred income tax liabilities and assets have been reclassified to noncurrent liabilities and assets. Prior periods were not retrospectively adjusted and all future adjustments will be reported as noncurrent.

In March, 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new standard is effective for the Company for the fiscal year beginning July 1, 2017. Early adoption is permitted. The Company adopted this guidance on July 1, 2017 on a prospective basis. The adoption of this guidance did not have a material impact on our financial position or results of operations.

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INVENTORIES

6 Months Ended

Dec. 31, 2017

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE 3 - INVENTORIES

Components of inventories are as follows:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Raw materials	$	15,781	$	15,550
Work in progress		19,525		18,196
Finished goods		10,354		13,856
	$	45,660	$	47,602

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GOODWILL

6 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill Disclosure [Text Block]

NOTE 4 - GOODWILL

The changes in the carrying amount of goodwill are as follows:

	Six Months Ended
	December 31, 2017
		(Unaudited)
Balance at June 30, 2017 (Audited)	$	47,326
Goodwill acquired		2,312
Translation adjustment		1,537
Balance at December 31, 2017 (Unaudited)	$	51,175

The carrying amount of the Company’s goodwill at June 30, 2017 represents goodwill from the acquisitions of two reporting units, Concord Group and Bond Group, net of impairment.

On July 1, 2017, the Company completed the acquisition of 100% equity of Beijing Shuanghe Science & Technology Company Limited with a cash consideration of approximately $2,381. The goodwill related to the acquisition was $2,312 and the Company believed that acquisition is immaterial to the consolidated financial statements.

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INVESTMENTS IN EQUITY

6 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

Investment [Text Block]

NOTE 5 - INVESTMENTS IN EQUITY

In August 2017, the Company acquired 25% of equity interest in Beijing EMCC Technology Co., Ltd (“EMCC”), a third party, with a total consideration of $7,188 ($4,062 in cash and $3,126 in intangible assets). The Company accounted the consideration given in the form of the intangible assets at fair value based on valuation by external valuation firm with a partial gain of $2,345 recognized. The fair value of the intangible assets given was measured using a discounted cash flow approach. Key estimates and assumptions include the amount and timing of future expected cash flows, terminal value growth rates, and discount rate. According to the revised article of association, EMCC will be managed by a board of directors comprising of a total 7 members, of which, the Company can appoint two directors. All major management and operation decisions should be approved by the majority of the directors. The Company believed it has significant influence over EMCC, and therefore accounted for the investment in EMCC under equity method.

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WARRANTY LIABILITIES

6 Months Ended

Dec. 31, 2017

Product Warranties Disclosures [Abstract]

Product Warranty Disclosure [Text Block]

NOTE 6 - WARRANTY LIABILITIES

	Six Months Ended
	December 31, 2017
Beginning balance at June 30, 2017(Audited)	$	7,632
Expense accrued		2,617
Expense incurred		(1,783)
Translation adjustment		312
	$	8,778
Less: current portion of warranty liabilities (Unaudited)		(6,136)
Long-term warranty liabilities (Unaudited)	$	2,642

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SHORT-TERM BANK LOANS

6 Months Ended

Dec. 31, 2017

Short-Term Debt [Abstract]

Short-term Debt [Text Block]

NOTE 7 - SHORT-TERM BANK LOANS

On June 30, 2017, the Company’s short-term bank borrowings consisted of revolving bank loans of $8,121 from several banks, which were subject to annual interest rates ranging from 3.09% to 4.85%, with a weighted average interest rate of 3.53%. Some of the short-term loans are secured by the pledge of restricted cash and buildings with carrying values of $16,410 and $991 as of June 30, 2017, respectively.

On December 31, 2017, the Company’s short-term bank borrowings consisted of revolving bank loans of $7,859 from several banks, which were subject to annual interest rates ranging from 2.76% to 4.58%, with a weighted average interest rate of 3.15%. Some of the short-term loans are secured by the pledge of restricted cash and buildings with carrying values of $16,341 and 1,283 as of December 31, 2017, respectively.

For the six months ended December 31, 2016 and 2017, interest expenses on short-term bank loans amounted to $20 and $122, respectively.

As of June 30, 2017, the Company had available lines of credit from various banks in the PRC, Singapore and Malaysia amounting to $257,670, of which $78,910 was utilized and $178,760 is available for use. These lines of credit were secured by the pledge of restricted cash and buildings with a carrying value of $4,954 and $3,209, respectively.

As of December 31, 2017, the Company had available lines of credit from various banks in the PRC, Singapore and Malaysia amounting to $251,454, of which $69,173 was utilized and $182,281 is available for use. These lines of credit were secured by the pledge of restricted cash and buildings with a carrying value of $3,317 and $2,814, respectively.

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LONG-TERM LOANS

6 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Long-term Debt [Text Block]

NOTE 8 - LONG-TERM LOANS

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
MYR denominated loan		782		963
SGD denominated loan		187		212
Convertible Bond		20,032		20,290
	$	21,001	$	21,465
Less: current portion		(420)		(401)
	$	20,581	$	21,064

Scheduled principal payments for all outstanding long-term loans as of December 31, 2017 are as follows:

January 1, 2018 – December 31, 2018	$	384
January 1, 2019 – December 31, 2019		20,585
January 1, 2020 – December 31, 2020		204
January 1, 2021 – December 31, 2021		150
January 1, 2022 and onwards		281
	$	21,604

For the six months ended December 31, 2016 and 2017, interest expenses of long-term loans incurred amounted to $380 and $512 respectively, and nil was capitalized as construction in progress.

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FAIR VALUE MEASUREMENT

6 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 9 - FAIR VALUE MEASUREMENT

Financial instruments include cash and cash equivalents, time deposits with maturities over three months, accounts receivable, other receivables, amounts due to or from related parties, accounts payable, short-term bank loans, long-term bank loans and bifurcated derivative. The carrying values of these financial instruments, other than long-term bank loans and a bifurcated derivative (which is a recurring fair value measurement), approximate their fair values due to their short-term maturities. The carrying value of the Company’s long-term bank loans other than the Convertible Bond approximates its fair value as the long-term bank loans are subject to floating interest rates. These assets and liabilities, excluding cash and cash equivalents (which fall into level 1 of the fair value hierarchy), fall into level 2 of the fair value hierarchy.

The value of the liability component is simply the present value of all the cash flows of Convertible Bond if the Convertible Bond conversion and other features are not considered. If the discount rates adopted increased or decreased by 1%, the fair value of Convertible Bond would decrease or increase by $43 and $43, respectively.

The derivative financial liability represents the fair value of the non-conversion compensation feature bifurcated from the convertible bond. The Company engaged an independent third-party appraiser to assist with the valuation of the feature. The Company is ultimately responsible for the fair value of the non-conversion compensation feature recorded in the consolidated financial statements. The Company adopted the binomial model to assess the fair value of such feature as of year-end. The non-conversion compensation feature is equal to the difference between the fair value of the whole Convertible Bond with the non-conversion compensation feature and the whole Convertible Bond without the non-conversion feature. The significant unobservable inputs used in the fair value measurement of the non-conversion compensation feature includes the risk-free rate of return, expected volatility, expected life of the Convertible Bond and expected ordinary dividend yield. The changes in fair value of the non-conversion compensation feature during six months ended December 31, 2017 are shown in the following table.

	Fair value measurements as of December 31, 2017 using significant unobservable inputs
	(Level 3)
	Non-conversion compensation feature related to the Convertible Bond
Balance as at June 30, 2017 (Audited)	$	487
Change in fair-value (included within other expenses, net)		48
Balance as of December 31, 2017 (Unaudited)	$	535

The Company measures certain financial assets, including equity method investments and cost method investments, at fair value on a nonrecurring basis only if an impairment charge were to be recognized. The Company’s non-financial assets, such as intangible assets, goodwill and fixed assets, would be measured at fair value only if they were determined to be impaired on an other-than-temporary basis. Addition assets measured at fair value on a nonrecurring basis as of December 31, 2017 are stated below:

	December 31, 2017 (Unaudited)
	Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Goodwill(i)		-		-		2,409		2,409
Equity method investment received by giving up nonfinancial assets(ii)						2,345		2,345
Total assets measured at fair value on a non-recurring basis	$	-	$	-	$	4,754	$	4,754

(i) As of December 31, 2017, the Company’s goodwill of $2,409 was related to the acquisition of Beijing Shuanghe Science & Technology Co., Ltd. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date.

(ii) During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

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STOCKHOLDERS' EQUITY

6 Months Ended

Dec. 31, 2017

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 10 - STOCKHOLDERS’ EQUITY

On September 26, 2016, the Company declared a regular cash dividend of $0.20 per share to the holders of the Company’s ordinary shares. The record date was October 26, 2016, and the dividend was paid on November 11, 2016.

On September 26, 2017, the Company declared a regular cash dividend of $0.12 per share to the holders of the Company’s ordinary shares. The record date was October 16, 2017, and the dividend was paid on November 6, 2017.

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INCOME TAX

6 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 11 - INCOME TAX

Effective tax rate

The effective income tax rate (“ETR”) of our Company was 18.4% for the six months ended Dec 31, 2017 as compared to 12.6% for the six months ended Dec 31, 2016. The ETR fluctuation was mainly due to the different pre-tax income mixes with different tax rates, as the Company’s subsidiaries apply to different tax rates.

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INCOME PER SHARE

6 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 12 - INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share attributable to Hollysys for the six months indicated:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to the Company - basic	$	31,657	$	57,591
Net income attributable to the Company - diluted(i)	$	31,991	$	58,067
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		59,976,132		60,428,431
Effect of dilutive securities
Convertible Bond		784,400		788,800
Share options		256,024		-
Restricted shares		7,113		23,861
Weighted average ordinary shares outstanding used in computing diluted income per share		61,023,669		61,241,092
Income per share - basic	$	0.53		0.95
Income per share - diluted	$	0.52		0.95

(i) For the six months ended December 31, 2016 and 2017, interest accretion related to the Convertible Bond of $334 and $476, respectively, is added back to derive net income attributable to the Company for computing diluted income per share.

Vested and unissued restricted shares of 96,882 and 86,332 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2016, and 2017, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2017 as their effects would be anti-dilutive.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Operating lease commitments

The Company leases premises under various operating leases. Rental expenses under operating leases included in the consolidated statements of comprehensive income were $1,359 and $1,582 for the six months ended December 31, 2016 and 2017, respectively.

 

Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consist of the following:

	Minimum lease payments
		(Unaudited)
January 1, 2018 – December 31, 2018	$	1,949
January 1, 2019 – December 31, 2019		1,297
January 1, 2020 – December 31, 2020		446
January 1, 2021 – December 31, 2021		198
January 1, 2022 and onwards		70
Total minimum lease payments	$	3,960

The Company’s lease arrangements have no renewal or purchase options, rent escalation clauses, restriction or contingent rents and are all conducted with third parties.

Capital commitments

As of December 31, 2017, the Company had approximately $189 in capital obligations for the coming twelve months, mainly for the Company’s information system construction.

Purchase obligation

As of December 31, 2017, the Company had $147,089 purchase obligations for the coming twelve months, for purchases of inventories, mainly for fulfillment of in-process or newly entered contracts resulting from the expansion of the Company’s operations.

Performance guarantee and standby letters of credit

The Company had stand-by letters of credit of $23,000 and outstanding performance guarantees of $59,448 as of December 31, 2017, with restricted cash of $15,530 pledged to banks. The purpose of the stand-by letter of credit and performance guarantees is to guarantee that the performance of the Company’s deliveries reach the pre-agreed requirements specified in the integrated solutions contracts. The guarantee is to ensure the functionality of the Company’s own work. The disclosed amount of stand-by letters of credit and outstanding performance guarantees represent the maximum potential amount of future payments the Company could be required to make under such guarantees.

The Company accounts for performance guarantees and stand-by letters of credit in accordance with ASC topic 460 (“ASC 460”), Guarantees. Accordingly, the Company evaluates its guarantees to determine whether (a) the guarantee is specifically excluded from the scope of ASC 460, (b) the guarantee is subject to ASC 460 disclosure requirement only, but not subject to the initial recognition and measurement provisions, or (c) the guarantee is required to be recorded in the financial statements at fair value.

Both the performance guarantees and the stand-by letters of credit are for the Company’s commitment of its own future performance, and the outcome of which is within its own control. As a result, performance guarantees and stand-by letters of credit are subject to ASC 460 disclosure requirements only.

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SEGMENT REPORTING

6 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE 14 - SEGMENT REPORTING

The chief operating decision makers have been identified as the Chairman, Chief Executive Officer and Chief Financial Officer of the Company. The Company organizes its internal financial reporting structure based on its main product and service offerings.

Based on the criteria established by ASC 280, Segment Reporting (“ASC 280”), the Company has determined that the reportable segments of the Company consist of (1) IA, (2) Rail, (3) M&E and (4) miscellaneous, in accordance with the Company’s organization and internal financial reporting structure. The chief operating decision makers assess the performance of the operating segments based on the measures of revenues, costs and gross profit. Other than the information provided below, the chief operating decision makers do not use any other measures by segments.

Summarized information by segments for the six months ended December 31, 2016, and 2017 is as follows:

	Six months ended December 31, 2016 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	90,831		56,297		55,462		89		202,679
Costs of revenue		55,424		39,883		48,503		41		143,851
Gross profit	$	35,407		16,414		6,959		48		58,828

	Six months ended December 31, 2017 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	115,130		104,745		53,039		-		272,914
Costs of revenue		71,422		52,680		44,840		-		168,942
Gross profit	$	43,708		52,065		8,199		-		103,972

The Company’s assets are shared among the segments thus no assets have been designated to specific segments.

The majority of the Company’s revenues and long-lived assets other than goodwill and intangible assets are derived from and located in the PRC. The following table sets forth the revenues by geographical area:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	140,577	$	218,401
Non-PRC		62,102		54,513
	$	202,679	$	272,914

The following table sets forth the long-lived assets other than goodwill and intangible assets by geographical area:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	131,625	$	144,176
Non-PRC		12,029		12,731
	$	143,654	$	156,907

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Principles Of Consolidation and Basis Of Presentation [Policy Text Block]

Basis of Presentation

These unaudited interim condensed consolidated financial statements of the Company, its subsidiaries and VIE (collectively the “Group”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited consolidated financial statements for the fiscal year ended June 30, 2017. Accordingly, these unaudited interim condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.

In the opinion of the Company’s management, the accompanying unaudited interim condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Group for each of the periods presented. The results of operations for the six months period ended December 31, 2017 are not necessarily indicative of results to be expected for any other interim period or for the year ending June 30, 2018. The consolidated balance sheet as of June 30, 2017 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended June 30, 2017.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and a VIE. All inter-company transactions and balances between the Company, its subsidiaries, and the VIE are eliminated upon consolidation. The Company included the results of operations of acquired businesses from the respective dates of acquisition.

Use of Estimates, Policy [Policy Text Block]

Use of estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management evaluates estimates, including those related to the expected total costs of integrated contracts, expected gross margins of integrated solution contracts, allowance for doubtful accounts, fair values of share options, fair value of bifurcated derivative, fair value of equity method investment received by giving up nonfinancial assets, fair value of acquired intangible assets and goodwill, warranties, valuation allowance of deferred tax assets and impairment of goodwill and other long-lived assets. Management bases the estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results could differ materially from those estimates.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign currency translations and transactions

The Company’s functional currency is the United States dollars (“US dollars” or “$”); whereas the Company’s subsidiaries and VIE use the primary currency of the economic environment in which their operations are conducted as their functional currency. According to the criteria of Accounting Standards Codification (“ASC”) Topic 830 (“ASC 830”), the Company uses the US dollars as its reporting currency.

The Company translates the assets and liabilities into US dollars using the rate of exchange prevailing at the balance sheet date, and the statements of comprehensive income are translated at average rates during the reporting period. Adjustments resulting from the translation of financial statements from the functional currency into US dollars are recorded in stockholders’ equity as part of accumulated other comprehensive income. Transactions dominated in currencies other than the functional currency are translated into functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the consolidated statements of comprehensive income for the reporting period.

Transactions denominated in foreign currencies are measured into the functional currency at the exchange rates prevailing on the transaction dates. Foreign currency denominated financial assets and liabilities are re-measured at the exchange rates prevailing at the balance sheet date. Exchange gains and losses are included in earnings, except for those raised from intercompany transactions with investment nature, which are recorded in other comprehensive income.

Business Combinations Policy [Policy Text Block]

Business combinations

The Company accounts for its business combinations using the purchase method of accounting in accordance with ASC Topic 805, Business Combinations (“ASC 805”). The purchase method of accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities the Company acquired based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total cost of the acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the statements of comprehensive income.

The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non-controlling interests is based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates, terminal values, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determines discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted cash flows over that period.

Acquisition-related costs are recognized as general and administrative expenses in the statements of comprehensive income as incurred.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal and use. All highly liquid investments that are readily convertible to known amounts of cash with original stated maturities of three months or less are classified as cash equivalents.

Time Deposits With Original Maturities Over Three Months [Policy Text Block]

Time deposits with original maturities over three months

Time deposits with original maturities over three months consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2017, $122,781, $7,856, $3,685 and $57 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore, Malaysia and India, respectively. As of June 30, 2017, $80,507, $11,690, $3,935 and $82 of time deposits with original maturities over three months were placed in financial institutions in the PRC, Singapore and Malaysia and India, respectively.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted cash

Restricted cash mainly consists of the cash deposited in banks pledged for performance guarantees, or bank loans. These cash balances are not available for use until these guarantees are expired or cancelled, or the loans are repaid.

Revenue Recognition, Policy [Policy Text Block]

Revenue recognition

Integrated solutions contracts

Revenues generated from designing, building, and delivering customized integrated industrial automation systems are recognized over the contractual terms based on the percentage of completion method. The contracts for designing, building, and delivering customized integrated industrial automation systems are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and ranges from 6 months to 5 years excluding the warranty period. The majority of the contract duration is longer than one year.

Revenue generated from mechanical and electrical solution contracts for the construction or renovation of buildings, rail or infrastructure facilities are also recognized over the contractual terms based on the percentage of completion method. The contracts for mechanical and electrical solution are legally enforceable and binding agreements between the Company and customers. The duration of contracts depends on the contract size and the complexity of the construction work and ranges from 6 months to 3 years excluding the warranty period. The majority of the contract duration is longer than one year.

In accordance with ASC 605-35, Revenue Recognition - Construction-Type and Production-Type Contracts (“ASC 605-35”), recognition is based on an estimate of the income earned to date, less income recognized in earlier periods. Extent of progress toward completion is measured using the cost-to-cost method where the progress (the percentage complete) is determined by dividing costs incurred to date by the total amount of costs expected to be incurred for the integrated solutions contract. Revisions in the estimated total costs of integrated solutions contracts are made in the period in which the circumstances requiring the revision become known. Provisions, if any, are made in the period when anticipated losses become evident on uncompleted contracts.

The Company reviews and updates the estimated total costs of integrated solutions contracts at least annually. The Company accounts for revisions to contract revenue and estimated total costs of integrated solution contracts, including the impact due to approved change orders, in the period in which the facts that cause the revision become known as changes in estimates. Unapproved change orders are considered claims. Claims are recognized only when it has been awarded by customers. Excluding the impact of change orders, if the estimated total costs of integrated solution contracts, which was revised during the six months ended December 31, 2017, had been used as a basis of recognition of integrated contract revenue since the contract commencement, net income for the six months ended December 31, 2017 would have been decreased by $5,741; basic net income per share and diluted net income per share for six months ended December 31, 2017 would have been decreased by $0.09 and $0.09, respectively.

The Company combines a group of contracts as one project if they are closely related and are, in substance, parts of a single project with an overall profit margin. The Company segments a contract into several projects, when they are of different business substance, for example, with different business negotiation, solutions, implementation plans and margins.

Revenue in excess of billings on the contracts is recorded as costs and estimated earnings in excess of billings. Billings in excess of revenues recognized on the contracts are recorded as deferred revenue until the above revenue recognition criteria are met. Recognition of accounts receivable and costs and estimated earnings in excess of billings are discussed below.

The Company generally recognizes 100% of the contractual revenue when the customer acceptance has been obtained and no further major costs are estimated to be incurred, and normally this is also when the warranty period commences. Revenues are presented net of taxes collected on behalf of the government.

Product sales

Revenue generated from sales of products is recognized when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

Service rendered

The Company has in recent years extended its service offerings as described below. The Company mainly provides two types of services:

Revenue from one-off services: the Company provides different types of one-off services which are generally completed on site within a few working days. Revenue is recognized when the Company has completed all the respective services described in the contracts, there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection is reasonably assured.

Revenue from services covering a period of time: the Company also separately sells extended warranties to their integrated solution customers for a fixed period. Such arrangements are negotiated separately from the corresponding integrated solution system and are usually entered into upon the expiration of the warranty period attached to the integrated solution contract. During the extended warranty period, the Company is responsible for addressing issues related to the system. Part replacement is not covered in such services. The Company recognizes revenue on a pro-rata basis over the contractual term.

Accounts Receivable and Cost and Estimated Earnings In Excess Of Billings [Policy Text Block]

Accounts receivable and costs and estimated earnings in excess of billings

Performance of the integrated contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual agreements. There are different billing practices in the PRC, overseas operating subsidiaries and the VIE (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in contracts negotiated with customers. In general, there are four milestones: 1) project commencement, 2) system manufacturing and delivery, 3) installation, trial-run and customer acceptance, and 4) expiration of the warranty period. The amounts to be billed at each milestone are specified in the contract. All contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated contract varies depending on the duration of the contract (under certain contracts, the interval lasts more than a year) and the last billing to be issued for an integrated solution contract is scheduled at the end of a warranty period. For Concord and Bond Groups, billing claims rendered are subject to the further approval and certification of the customers or their designated consultants. Payments are made to Concord or Bond Groups based on the certified billings according to the payment terms mutually agreed between the customers and Concord or Bond Groups. Certain amounts are retained by the customer and payable to Concord and Bond Groups upon satisfaction of final quality inspection or at the end of the warranty period. The retained amounts which were recorded as accounts receivable were $12,838 and $15,550 as of June 30, 2017 and December 31, 2017, respectively. Prepayments received are recorded as deferred revenue. The deferred revenue will be recognized as revenue under the percentage of completion method along with the progress of a contract.

The carrying value of the Company’s accounts receivable and costs and estimated earnings in excess of billings, net of the allowance for doubtful accounts, represents their estimated net realizable value. An allowance for doubtful accounts is recognized when it’s probable that the Company will not collect the amount and is written off in the period when deemed uncollectible. The Company periodically reviews the status of contracts and decides how much of an allowance for doubtful accounts should be made based on factors surrounding the credit risk of customers and historical experience. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventory, Policy [Policy Text Block]

Inventories

Inventories are composed of raw materials, work in progress, purchased and manufactured finished goods and low value consumables. Inventories are stated at the lower of cost and net realizable value. The Company elected to use weighted average cost method as inventory costing method.

The Company assesses the lower of cost and net realizable value for non-saleable, excess or obsolete inventories based on its periodic review of inventory quantities on hand and the latest forecasts of product demand and production requirements from its customers. The Company writes down inventories for non-saleable, excess or obsolete raw materials, work-in-process and finished goods by charging such write-downs to cost of integrated contracts and/or costs of products sold.

Standard Product Warranty, Policy [Policy Text Block]

Warranties

Warranties represent a major term under an integrated contract, which will last, in general, for one to three years or otherwise specified in the terms of the contract. The Company accrues warranty liabilities under an integrated contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for an integrated contract throughout the contract period.

Property, Plant and Equipment, Policy [Policy Text Block]

Property, plant and equipment, net

Property, plant and equipment, other than construction in progress, are recorded at cost and are stated net of accumulated depreciation and impairment, if any. Depreciation expense is determined using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	30 -50 years
Machinery	5 - 10 years
Software	3 - 5 years
Vehicles	5- 6 years
Electronic and other equipment	3 - 10 years

Construction in progress represents uncompleted construction work of certain facilities which, upon completion, management intends to hold for production purposes. In addition to costs under construction contracts, other costs directly related to the construction of such facilities, including duty and tariff, equipment installation and shipping costs, and borrowing costs are capitalized. Depreciation commences when the asset is placed in service.

Maintenance and repairs are charged directly to expenses as incurred, whereas betterment and renewals are capitalized in their respective accounts. When an item is retired or otherwise disposed of, the cost and applicable accumulated depreciation are removed and the resulting gain or loss is recognized for the reporting period.

Lease, Policy [Policy Text Block]

Prepaid land leases, net

Prepaid land lease payments, for the land use right of three parcels of land in the PRC, three parcels of leasehold land in Malaysia and one parcel of leasehold land in Singapore, are initially stated at cost and are subsequently amortized on a straight-line basis over the lease terms of 49 to 88 years.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Intangible assets, net

Intangible assets are carried at cost less accumulated amortization and any impairment. Intangible assets acquired in a business combination are recognized initially at fair value at the date of acquisition. Intangible assets, except for which are estimated to have an indefinite useful life, are amortized using a straight-line method. Intangible assets estimated to have an indefinite useful life are not amortized but tested for impairment annually or more frequently when indicators of impairment exist.

The estimated useful lives for the intangible assets are as follows:

Category	Estimated useful life
Customer relationship	57 - 60 months
Order backlog	21 - 33 months
Patents and copyrights	60 - 120 months

Residual values are considered nil.

Income Tax, Policy [Policy Text Block]

Income taxes

The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.

The Company adopted ASC 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in income taxes. Interests and penalties arising from underpayment of income taxes shall be computed in accordance with the related tax laws.

Segment Reporting, Policy [Policy Text Block]

Segment reporting

In accordance with ASC 280, Segment reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision makers review operating results to make decisions about allocating resources and assessing performance of the Company. According to management’s approach, the Company organizes its internal financial reporting structure based on its main product and service offerings. The Company operates in three principal business segments in the financial reporting structure and their management report, namely industrial automation, rail transportation and mechanical and electrical solutions. The Company does not allocate any assets to the three segments as management does not use the information to measure the performance of the reportable segments.

Equity and Cost Method Investments, Policy [Policy Text Block]

Investments in cost and equity investees

The Company accounts for its equity investments under either the cost method or the equity method by considering the Company’s rights and ability to exercise significant influence over the investees. Under the cost method, investments are initially carried at cost. In the event that the fair value of the investment falls below the initial cost and the decline is considered as other-than-temporary, the Company recognizes an impairment charge, equal to the difference between the cost basis and the fair value of the investment. A variety of factors are considered when determining if a decline in fair value below carrying value is other than temporary, including, among others, the financial condition and prospects of the investee.

The investments in entities over which the Company has the ability to exercise significant influence are accounted for using the equity method. Significant influence is generally considered to exist when the Company has an ownership interest in the voting stock of the investee between 20% and 50%. Other factors, such as representation on the investee’s board of directors and the impact of commercial arrangements, are also considered in determining whether the equity method of accounting is appropriate.

Under the equity method, original investments are recorded at cost and adjusted by the Company’s share of undistributed earnings or losses of these entities, by the amortization of any basis difference between the amount of the Company’s investment and its share of the net assets of the investee, and by dividend distributions or subsequent investments. Unrealized inter-company profits and losses related to equity investees are eliminated. An impairment charge, being the difference between the carrying amount and the fair value of the equity investee, is recognized in the consolidated statements of comprehensive income when the decline in value is considered other than temporary.

There was no impairment loss on investments in cost or equity investees for the six months ended December 31, 2016 and 2017, respectively.

Earnings Per Share, Policy [Policy Text Block]

Income per share

Income per share is computed in accordance with ASC 260, Earnings per Share (“ASC 260”). Basic income per ordinary share is computed by dividing income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted income per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares.

Fair Value Measurement, Policy [Policy Text Block]

Fair value measurements

The Company has adopted ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. It establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

Level 1	-	Quoted prices in active markets for identical assets or liabilities.
Level 2	-	Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	-	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent accounting pronouncements

Standards Effective in Future Years

In August 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2015-14, which defers the effective date of ASU 2014-09 Revenue from Contracts with Customers (Topic 606) (" ASU 2014-09") by one year and allows entities the option to early adopt the new revenue standard as of the original effective date. Issued in May 2014, ASU 2014-09 provided guidance on revenue recognition on contracts with customers to transfer goods or services or on contracts for the transfer of nonfinancial assets. ASU 2014-09 requires that revenue recognition on contracts with customers depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will be effective for us on July 1, 2018. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized in retained earnings as of the date of adoption. The Company preliminarily plans to use the modified retrospective method and has developed an implementation plan. We are currently evaluating the impact of adoption of this guidance, including required disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10) (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instruments-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This updated guidance is effective for the annual period beginning after December 15, 2017, including interim periods within the year. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02 (“ASU 2016-02”), Leases. ASU 2016-02 specifies the accounting for leases. For operating leases, ASU 2016-02 requires a lessee to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in its balance sheet. The standard also requires a lessee to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term, on a generally straight-line basis. ASU 2016-02 is effective for public companies for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

In August 2016, the FASB issued (ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The new standard is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case the Company would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently evaluating the impact of the pending adoption of ASU 2016-15 on its consolidated financial statements.

In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. Under the new standard, the selling (transferring) entity is required to recognize a current tax expense or benefit upon transfer of the asset. Similarly, the purchasing (receiving) entity is required to recognize a deferred tax asset or liability, as well as the related deferred tax benefit or expense, upon purchase or receipt of the asset. This pronouncement is effective for reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is still evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) (“ASU2016-18”). ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance is effective for public companies for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The guidance should be applied using a retrospective transition method for each period presented. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying Definition of a Business ("ASU 2017-01"). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements. The Company does not believe this standard will have a material impact on the results of operations or financial condition.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04(“ASU 2017-04”), Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This standard is effective for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The guidance clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. Entities will apply the modification accounting guidance if the value, vesting conditions or classification of the award changes. This guidance is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted.

Recently Adopted Standards

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This ASU does not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU requires entities within scope of this update to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments in this update are effective for fiscal years beginning after December 15, 2016, with early adoption permitted, and should be applied prospectively. The Company adopted ASU 2015-11 on July 1, 2017 and such adoption did not have a material impact on our financial statements.

In November 2015, the FASB issued ASU No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the presentation of deferred income taxes by eliminating the separate classification of deferred income tax liabilities and assets into current and noncurrent amounts in the consolidated balance sheet. The amendments in the update require that all deferred tax liabilities and assets be classified as noncurrent in the consolidated balance sheet. The amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods therein and may be applied either prospectively or retrospectively to all periods presented. Early adoption is permitted. The Company adopted ASU 2015-17 on July 1, 2017 on a prospective basis. As a result, current portion of deferred income tax liabilities and assets have been reclassified to noncurrent liabilities and assets. Prior periods were not retrospectively adjusted and all future adjustments will be reported as noncurrent.

In March, 2016, the FASB issued ASU No. 2016-09, Compensation Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which relates to the accounting for employee share-based payments. This standard addresses several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The new standard is effective for the Company for the fiscal year beginning July 1, 2017. Early adoption is permitted. The Company adopted this guidance on July 1, 2017 on a prospective basis. The adoption of this guidance did not have a material impact on our financial position or results of operations.

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ORGANIZATION AND BUSINESS BACKGROUND (Tables)

6 Months Ended

Dec. 31, 2017

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Variable Interest Entities [Table Text Block]

The carrying amounts and classifications of the assets and liabilities of the VIE are as follows:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Current assets	$	14,331	$	19,150
Non-current assets		239		331
Total assets		14,570		19,481
Current liabilities	$	14,178	$	17,342
Total liabilities		14,178		17,342

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Revenue	$	720	$	12,108
Cost of revenue		606		10,057
Net (loss) profit		(209)		1,712
Net cash provided by (used in) operating activities		7,258		(5,445)
Net cash used in investing activities		-		-
Net cash provided by financing activities	$	-	$	-

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Finite-lived Intangible Assets Amortization Expense [Table Text Block]

Depreciation expense is determined using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	30 -50 years
Machinery	5 - 10 years
Software	3 - 5 years
Vehicles	5- 6 years
Electronic and other equipment	3 - 10 years

Schedule Of Acquired Finite Lived Intangible Assets By Major Class [Table Text Block]

The estimated useful lives for the intangible assets are as follows:

Category	Estimated useful life
Customer relationship	57 - 60 months
Order backlog	21 - 33 months
Patents and copyrights	60 - 120 months

Residual values are considered nil.

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INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2017

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

Components of inventories are as follows:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Raw materials	$	15,781	$	15,550
Work in progress		19,525		18,196
Finished goods		10,354		13,856
	$	45,660	$	47,602

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GOODWILL (Tables)

6 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill [Table Text Block]

The changes in the carrying amount of goodwill are as follows:

	Six Months Ended
	December 31, 2017
		(Unaudited)
Balance at June 30, 2017 (Audited)	$	47,326
Goodwill acquired		2,312
Translation adjustment		1,537
Balance at December 31, 2017 (Unaudited)	$	51,175

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WARRANTY LIABILITIES (Tables)

6 Months Ended

Dec. 31, 2017

Other Liabilities Disclosure [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

	Six Months Ended
	December 31, 2017
Beginning balance at June 30, 2017(Audited)	$	7,632
Expense accrued		2,617
Expense incurred		(1,783)
Translation adjustment		312
	$	8,778
Less: current portion of warranty liabilities (Unaudited)		(6,136)
Long-term warranty liabilities (Unaudited)	$	2,642

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LONG-TERM LOANS (Tables)

6 Months Ended

Dec. 31, 2017

Debt Disclosure [Abstract]

Schedule of Debt Instruments [Table Text Block]

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
MYR denominated loan		782		963
SGD denominated loan		187		212
Convertible Bond		20,032		20,290
	$	21,001	$	21,465
Less: current portion		(420)		(401)
	$	20,581	$	21,064

Schedule of Maturities of Long-term Debt [Table Text Block]

Scheduled principal payments for all outstanding long-term loans as of December 31, 2017 are as follows:

January 1, 2018 – December 31, 2018	$	384
January 1, 2019 – December 31, 2019		20,585
January 1, 2020 – December 31, 2020		204
January 1, 2021 – December 31, 2021		150
January 1, 2022 and onwards		281
	$	21,604

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FAIR VALUE MEASUREMENT (Tables)

6 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	Fair value measurements as of December 31, 2017 using significant unobservable inputs
	(Level 3)
	Non-conversion compensation feature related to the Convertible Bond
Balance as at June 30, 2017 (Audited)	$	487
Change in fair-value (included within other expenses, net)		48
Balance as of December 31, 2017 (Unaudited)	$	535

Fair Value Measurements, Recurring and Nonrecurring [Table Text Block]

 

	December 31, 2017 (Unaudited)
		Quoted prices in active markets for identical assets		Significant other observable inputs		Significant unobservable inputs
		(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Goodwill(i)			-		-		2,409		2,409
Equity method investment received by giving up nonfinancial assets(ii)							2,345		2,345
Total assets measured at fair value on a non-recurring basis		$	-	$	-	$	4,754	$	4,754

(i) As of December 31, 2017, the Company’s goodwill of $2,409 was related to the acquisition of Beijing Shuanghe Science & Technology Co., Ltd. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date.

(ii) During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

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INCOME PER SHARE (Tables)

6 Months Ended

Dec. 31, 2017

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following table sets forth the computation of basic and diluted net income per share attributable to Hollysys for the six months indicated:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to the Company - basic	$	31,657	$	57,591
Net income attributable to the Company - diluted(i)	$	31,991	$	58,067
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		59,976,132		60,428,431
Effect of dilutive securities
Convertible Bond		784,400		788,800
Share options		256,024		-
Restricted shares		7,113		23,861
Weighted average ordinary shares outstanding used in computing diluted income per share		61,023,669		61,241,092
Income per share - basic	$	0.53		0.95
Income per share - diluted	$	0.52		0.95

(i) For the six months ended December 31, 2016 and 2017, interest accretion related to the Convertible Bond of $334 and $476, respectively, is added back to derive net income attributable to the Company for computing diluted income per share.

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

Future minimum lease payments under non-cancelable operating leases with initial terms of one year or more consist of the following:

	Minimum lease payments
		(Unaudited)
January 1, 2018 – December 31, 2018	$	1,949
January 1, 2019 – December 31, 2019		1,297
January 1, 2020 – December 31, 2020		446
January 1, 2021 – December 31, 2021		198
January 1, 2022 and onwards		70
Total minimum lease payments	$	3,960

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SEGMENT REPORTING (Tables)

6 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

Summarized information by segments for the six months ended December 31, 2016, and 2017 is as follows:

	Six months ended December 31, 2016 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	90,831		56,297		55,462		89		202,679
Costs of revenue		55,424		39,883		48,503		41		143,851
Gross profit	$	35,407		16,414		6,959		48		58,828

	Six months ended December 31, 2017 (Unaudited)
	IA		Rail		M&E		Miscellaneous		Consolidated
Revenues from external customers	$	115,130		104,745		53,039		-		272,914
Costs of revenue		71,422		52,680		44,840		-		168,942
Gross profit	$	43,708		52,065		8,199		-		103,972

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

The majority of the Company’s revenues and long-lived assets other than goodwill and intangible assets are derived from and located in the PRC. The following table sets forth the revenues by geographical area:

	Six months ended December 31,
	2016		2017
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	140,577	$	218,401
Non-PRC		62,102		54,513
	$	202,679	$	272,914

Schedule of Disclosure on Geographic Areas, Long-Lived Assets in Individual Foreign Countries by Country [Table Text Block]

The following table sets forth the long-lived assets other than goodwill and intangible assets by geographical area:

	June 30,		December 31,
	2017		2017
	(Audited)		(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	131,625	$	144,176
Non-PRC		12,029		12,731
	$	143,654	$	156,907

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ORGANIZATION AND BUSINESS BACKGROUND (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Equity Method Investment Summarized Financial Information [Line Items]
Current assets	$ 14,331	$ 19,150
Non-current assets	239	331
Total assets	14,570	19,481
Current liabilities	14,178	17,342
Total liabilities	14,178	17,342
Cost of revenue	168,942	143,851
Variable Interest Entity (VIE) or Potential VIE, Information Unavailability [Member]
Equity Method Investment Summarized Financial Information [Line Items]
Revenue	12,108	720
Cost of revenue	10,057	606
Net (loss) profit	1,712	(209)
Net cash provided by (used in) operating activities	(5,445)	7,258
Net cash used in investing activities	0	0
Net cash provided by financing activities	$ 0	$ 0

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ORGANIZATION AND BUSINESS BACKGROUND (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2017	Jul. 31, 2017	Jun. 30, 2017
Subsidiaries [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Due to Affiliate, Current	$ 0		$ 127
Due from Affiliate, Current	$ 5,071		$ 1,629
Bond M E Sdn. Bhd. [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent		100.00%
Bond Corporation Pte Ltd [Member] | Bond M E Sdn. Bhd. [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Percentage of ownership interest held		49.10%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	6 Months Ended
	Dec. 31, 2017
Buildings [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	30 years
Buildings [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	50 years
Machinery [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Machinery [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years
Computer Software, Intangible Asset [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Computer Software, Intangible Asset [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Vehicles [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	5 years
Vehicles [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	6 years
Electronic and Other Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	3 years
Electronic and Other Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, Plant and Equipment, Useful Life	10 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	6 Months Ended
	Dec. 31, 2017
Customer Relationships [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	60 months
Customer Relationships [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	57 months
Order or Production Backlog [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	33 months
Order or Production Backlog [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	21 months
Patents And Copyrights [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	120 months
Patents And Copyrights [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	60 months

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Accounting Policies [Line Items]
Percentage Of Recognized Contractual Revenue	100.00%
Impairment loss on long-term investment	$ 0	$ 0
Retained Amount of Accounts Receivable	$ 15,550		$ 12,838
Integrated Solutions Contracts Range Minimum	6 months
Integrated Solutions Contracts Range Maximum	5 years
Decreased Net Income Per Share Basic	$ 0.09
Decreased Net Income Per Share diluted	$ 0.09
Decreased Net Income	$ 5,741
Malaysia [Member]
Accounting Policies [Line Items]
Deposits Assets	3,685		3,935
Singapore [Member]
Accounting Policies [Line Items]
Deposits Assets	7,856		11,690
India [Member]
Accounting Policies [Line Items]
Deposits Assets	57		82
PRC [Member]
Accounting Policies [Line Items]
Deposits Assets	$ 122,781		$ 80,507
Minimum [Member]
Accounting Policies [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired	20.00%
Contract Period	6 months
Minimum [Member] | Use Rights [Member]
Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life	49 years
Maximum [Member]
Accounting Policies [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired	50.00%
Contract Period	3 years
Maximum [Member] | Use Rights [Member]
Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life	88 years

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INVENTORIES (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Jun. 30, 2017
Inventory [Line Items]
Raw materials	$ 15,550	$ 15,781
Work in progress	18,196	19,525
Finished goods	13,856	10,354
Inventories	$ 47,602	$ 45,660

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GOODWILL (Details) - USD ($) $ in Thousands		6 Months Ended
	Jul. 01, 2017	Dec. 31, 2017
Goodwill [Line Items]
Balance at beginning of period		$ 47,326
Goodwill acquired	$ 2,312	2,312
Translation adjustment		1,537
Balance at the end of period	$ 47,326	$ 51,175

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GOODWILL (Details Textual) - USD ($) $ in Thousands			6 Months Ended
		Jul. 01, 2017	Dec. 31, 2017
Goodwill [Line Items]
Goodwill, Acquired During Period		$ 2,312	$ 2,312
Beijing Shuanghe Science Technology Company Limited [Member]
Goodwill [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired		100.00%
Payments to Acquire Businesses, Gross		$ 2,381
Goodwill, Acquired During Period	[1]		$ 2,409

[1] During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

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INVESTMENTS IN EQUITY (Details Textual) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Aug. 31, 2017	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Schedule of Equity Method Investments [Line Items]
Equity Method Investments		$ 58,219		$ 47,242
Payments to Acquire Equity Method Investments		$ 4,212	$ 0
Equity Method Investments, Fair Value Disclosure	$ 2,345
Beijing EMCC Technology Co Ltd [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investment, Ownership Percentage	25.00%
Equity Method Investments	$ 7,188
Payments to Acquire Equity Method Investments	4,062
Beijing EMCC Technology Co Ltd [Member] | Finite-Lived Intangible Assets [Member]
Schedule of Equity Method Investments [Line Items]
Equity Method Investments	$ 3,126

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WARRANTY LIABILITIES (Details) $ in Thousands	6 Months Ended
	Dec. 31, 2017 USD ($)
Class of Warrant or Right [Line Items]
Beginning balance	$ 7,632
Expense accrued	2,617
Expense incurred	(1,783)
Translation adjustment	312
Closing balance	8,778
Less: current portion of warranty liabilities	(6,136)
Long-term warranty liabilities	$ 2,642

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SHORT-TERM BANK LOANS (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Short-term Debt [Line Items]
Short-term bank loans	$ 7,859		$ 8,121
Interest Expense	122	$ 20
Long-term Line of Credit	251,454		257,670
Line Of Credit Facility Amount Utilized	69,173		78,910
Line Of Credit Facility Amount Available For Use	182,281		178,760
Line Of Credit Facility Secured By Restricted Cash	3,317		4,954
Line Of Credit Facility Secured By Restricted Buildings	2,814		3,209
Building [Member]
Short-term Debt [Line Items]
Property Plant And Equipment Pledged For Short Term Loans	1,283		991
Restricted Stock [Member]
Short-term Debt [Line Items]
Restricted Cash Pledged For Short Term Loans	$ 16,341		$ 16,410
Minimum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Effective Percentage	2.76%		3.09%
Maximum [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Effective Percentage	4.58%		4.85%
Weighted Average [Member]
Short-term Debt [Line Items]
Debt Instrument, Interest Rate, Effective Percentage	3.15%		3.53%

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LONG-TERM LOANS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Jun. 30, 2017
Debt Instrument [Line Items]
Loans Payable to Bank	$ 21,465	$ 21,001
Less: current portion	(401)	(420)
Long-term bank loans	21,064	20,581
MYR denominated loan [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	963	782
SGD denominated loan [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	212	187
Convertible Bond [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	$ 20,290	$ 20,032

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LONG-TERM LOANS (Details 1) $ in Thousands	Dec. 31, 2017 USD ($)
Debt Instrument [Line Items]
January 1, 2018 - December 31, 2018	$ 384
January 1, 2019 - December 31, 2019	20,585
January 1, 2020 - December 31, 2020	204
January 1, 2021 - December 31, 2021	150
January 1, 2022 and onwards	281
long-term loans	$ 21,604

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LONG-TERM LOANS (Details Textual) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Debt Instrument [Line Items]
Interest Payable	$ 512	$ 380

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FAIR VALUE MEASUREMENT (Details) $ in Thousands	6 Months Ended
	Dec. 31, 2017 USD ($)
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance	$ 487
Change in fair-value (included within other expenses, net)	48
Balance	$ 535

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FAIR VALUE MEASUREMENT (Details 1) - USD ($) $ in Thousands		Dec. 31, 2017	Aug. 31, 2017
Assets:
Equity Method Investments, Fair Value Disclosure			$ 2,345
Fair Value, Measurements, Nonrecurring [Member]
Assets:
Goodwill	[1]	$ 2,409
Equity Method Investments, Fair Value Disclosure	[2]	2,345
Total assets measured at fair value on a non-recurring basis		4,754
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Assets:
Goodwill	[1]	0
Equity Method Investments, Fair Value Disclosure	[2]
Total assets measured at fair value on a non-recurring basis		0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Assets:
Goodwill	[1]	0
Equity Method Investments, Fair Value Disclosure	[2]
Total assets measured at fair value on a non-recurring basis		0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Assets:
Goodwill	[1]	2,409
Equity Method Investments, Fair Value Disclosure	[2]	2,345
Total assets measured at fair value on a non-recurring basis		$ 4,754

[1] As of December 31, 2017, the Company’s goodwill of $2,409 was related to the acquisition of Beijing Shuanghe Science & Technology Co., Ltd. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date.

[2] During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

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FAIR VALUE MEASUREMENT (Details Textual) - USD ($) $ in Thousands			6 Months Ended
		Jul. 01, 2017	Dec. 31, 2017
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair Value Inputs, Increase Decrease in Discount Rate			1.00%
Increase in Convertible Debt, Fair Value Disclosures			$ 43
Decrease in Convertible Debt, Fair Value Disclosures			43
Goodwill, Acquired During Period		$ 2,312	2,312
Beijing Shuanghe Science Technology Company Limited [Member]
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Goodwill, Acquired During Period	[1]		$ 2,409

[1] During the year ended December 31, 2017, the investment in Beijing EMCC Technology Co., Ltd. in a form of intangible assets given was measured at fair value with considerations of significant unobservable inputs (Level 3), using a discounted cash flow approach assuming a certain terminal growth rate and discount rate (Note 5).

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STOCKHOLDERS' EQUITY (Details Textual) - $ / shares	1 Months Ended
	Sep. 26, 2017	Sep. 26, 2016
Stockholders Equity Note [Line Items]
Dividends Payable, Amount Per Share	$ 0.12	$ 0.20
Dividends Payable, Date Declared	Sep. 26, 2017	Sep. 26, 2016
Dividends Payable, Date of Record	Oct. 16, 2017	Oct. 26, 2016
Dividends Payable, Date to be Paid	Nov. 06, 2017	Nov. 11, 2016

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INCOME TAX (Details Textual)	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Income Tax Disclosure [Line Items]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	18.40%	12.60%

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INCOME PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
		Dec. 31, 2017	Dec. 31, 2016
Numerator:
Net income attributable to the Company - basic (in dollars)		$ 57,591	$ 31,657
Net income attributable to the Company - diluted (in dollars)	[1]	$ 58,067	$ 31,991
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		60,428,431	59,976,132
Effect of dilutive securities
Convertible Bond		788,800	784,400
Share options		0	256,024
Restricted shares		23,861	7,113
Weighted average ordinary shares outstanding used in computing diluted income per share		61,241,092	61,023,669
Income per share - basic (in dollars per share)		$ 0.95	$ 0.53
Income per share - diluted (in dollars per share)		$ 0.95	$ 0.52

[1] For the six months ended December 31, 2016 and 2017, interest accretion related to the Convertible Bond of $334 and $476, respectively, is added back to derive net income attributable to the Company for computing diluted income per share.

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INCOME PER SHARE (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Earnings Per Share [Line Items]
Interest on Convertible Debt, Net of Tax	$ 476	$ 334
Restricted Stock [Member]
Earnings Per Share [Line Items]
Weighted Average Number Diluted Shares Outstanding Adjustment	86,332	96,882

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COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands	Dec. 31, 2017 USD ($)
Operating Leases Future Minimum Payments Due [Line Items]
January 1, 2018 - December 31, 2018	$ 1,949
January 1, 2019 - December 31, 2019	1,297
January 1, 2020 - December 31, 2020	446
January 1, 2021 - December 31, 2021	198
January 1, 2022 and onwards	70
Total minimum lease payments	$ 3,960

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COMMITMENTS AND CONTINGENCIES (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Jun. 30, 2017
Commitments And Contingencies Disclosure [Line Items]
Operating Leases, Rent Expense	$ 1,582	$ 1,359
Commitments and contingencies
Outstanding Guarantees	59,448
Line of Credit Facility, Amount Outstanding	251,454		$ 257,670
Purchase Obligation, Due in Next Twelve Months	147,089
Capital Commitments [Member]
Commitments And Contingencies Disclosure [Line Items]
Commitments and contingencies	189
Standby Letters of Credit [Member]
Commitments And Contingencies Disclosure [Line Items]
Line of Credit Facility, Amount Outstanding	23,000
Performance Guarantee [Member]
Commitments And Contingencies Disclosure [Line Items]
Restricted Cash and Cash Equivalents	$ 15,530

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SEGMENT REPORTING (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Segment Reporting Information [Line Items]
Revenues from external customers	$ 272,914	$ 202,679
Costs of revenue	168,942	143,851
Gross profit	103,972	58,828
IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	115,130	90,831
Costs of revenue	71,422	55,424
Gross profit	43,708	35,407
Rail [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	104,745	56,297
Costs of revenue	52,680	39,883
Gross profit	52,065	16,414
M&E [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	53,039	55,462
Costs of revenue	44,840	48,503
Gross profit	8,199	6,959
Miscellaneous [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	0	89
Costs of revenue	0	41
Gross profit	$ 0	$ 48

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SEGMENT REPORTING (Details 1) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 272,914	$ 202,679
PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	218,401	140,577
Non-PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 54,513	$ 62,102

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SEGMENT REPORTING (Details 2) - USD ($) $ in Thousands	Dec. 31, 2017	Jun. 30, 2017
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	$ 156,907	$ 143,654
PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	144,176	131,625
Non-PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	$ 12,731	$ 12,029