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

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the Month of March 2022

Commission File Number: 001-33602

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

(Exact name of registrant as specified in its charter)

No.2 Disheng Middle Road

Beijing Economic-Technological Development Area

Beijing, People’s Republic of 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 ☒            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 unaudited six-month interim financial statements.

FORWARD-LOOKING INFORMATION

This Report on Form 6-K contains forward-looking statements and information relating to the Company that are based on the current beliefs, expectations, assumptions, estimates and projections of our management regarding the 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 the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: the duration of the COVID-19 outbreak and its potential impact on the Company’s business and financial performance, continued growth in industry, the ability to retain existing customers and obtain additional business opportunities, the success in penetrating into the railway, conventional and nuclear power market sectors, general economic conditions and the regulatory landscape in China and other jurisdictions where the Company operates businesses, and other risks and uncertainties which are generally set forth under the heading “Key Information” and elsewhere in the Company’s Annual Report on Form 20-F filed with the Securities and Exchange Commission on February 18, 2022 (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 the Company operates 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, the Company undertakes 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
99.1	Selected Consolidated Financial Data
99.2	Unaudited Interim Condensed Consolidated Financial Statements as of December 31, 2021 and for the Six Months ended December 31, 2020 and 2021
99.3	Operating and Financial Review and Prospects
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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/ Steven Wang

Steven Wang

Chief Financial Officer

Date: March 15, 2022

3

EX-99.1

Exhibit 99.1

Selected Consolidated Financial Data

The following selected condensed consolidated statements of comprehensive income and other financial data for the six months ended December 31, 2020 and 2021, and the consolidated balance sheet data as of June 30, 2021 and December 31, 2021 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.

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 financial results is shown as below:

(In USD thousands, except share numbers and per share data)
	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Statement of Comprehensive Income Data
Net revenues
Integrated solutions contract revenue	$	248,174		$	291,068
Product sales		15,026			19,517
Revenue from services		61,595			59,051
Total net revenues		324,795			369,636
Costs of integrated solutions contracts		181,737			213,963
Costs of products sold		2,947			4,898
Costs of services rendered		22,991			20,393
Gross profit		117,120			130,382
Operating expenses
Selling		18,435			23,029
General and administrative		24,757			43,040
Research and development		28,601			36,660
VAT refunds and government subsidies		(8,890	)		(10,782	)
Total operating expenses		62,903			91,947
Income from operations		54,217			38,435
Other income, net		2,774			959
Foreign exchange loss		(5,668	)		(1,714	)
Gains on disposal of an investment in an equity investee		—			7,995
Share of net income of equity investees		4,659			986
Interest income		6,720			6,183
Interest expenses		(277	)		(366	)
Dividend income from equity investments		3			179
Income before income taxes		62,428			52,657
Income tax expenses		10,666			8,669
Net income		51,762			43,988
Less: net losses attributable to non-controlling interests		(151	)		(341	)
Net income attributable to Hollysys Automation Technologies Ltd.	$	51,913		$	44,329
Other comprehensive income, net of tax of nil
Translation adjustments	$	83,653		$	16,559
Comprehensive income		135,415			60,547
Less: comprehensive income (loss) attributable to non-controlling interests		53			(175	)
Comprehensive income attributable to Hollysys Automation Technologies Ltd.	$	135,362			60,722
Net income per share:
Basic	$	0.86		$	0.73
Diluted	$	0.86		$	0.72
Shares used in net income per share computation:
Basic		60,498,431			60,884,346
Diluted		60,693,633			61,556,602

1

	June 30,		December 31,
	2021		2021
			(Unaudited)
Balance Sheet Data
Total current assets		1,387,558		1,519,446
Total assets		1,594,253		1,763,034
Total current liabilities		422,630		526,256
Total liabilities		452,285		553,518
Net assets		1,141,968		1,209,516
Non-controlling interests		4,278		4,798
Stockholders’ equity		1,137,690		1,204,718

2

EX-99.2

Exhibit 99.2

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

CONTENTS

	Page
Unaudited condensed consolidated balance sheets as of June 30, 2021 and December 31, 2021		F-2
Unaudited condensed consolidated statements of comprehensive income for the six months ended December 31, 2020 and 2021		F-4
Unaudited condensed consolidated statements of cash flows for the six months ended December 31, 2020 and 2021		F-6
Unaudited condensed consolidated statements of stockholders’ equity for the six months ended December 31, 2020 and 2021		F-8
Notes to unaudited condensed consolidated financial statements for the six months ended December 31, 2020 and 2021		F-9

F-1

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2021 AND DECEMBER 31, 2021

(In US dollars thousands except for number of shares and per share data)

	Notes		June 30, 2021		December 31, 2021
					(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents			$	664,321	$	715,537
Short-term investments		5		48,808		34,769
Restricted cash				25,294		37,998
Accounts receivable, net of allowance for credit losses of $66,839 and $74,331 as of June 30, 2021 and December 31, 2021, respectively				330,853		359,816
Costs and estimated earnings in excess of billings, net of allowance for credit losses of $11,835 and $11,747 as of June 30, 2021 and December 31, 2021, respectively		7		196,706		222,480
Accounts receivable retention		7		4,943		6,219
Other receivables, net of allowance for credit losses of $6,224 and $16,335 as of June 30, 2021 and December 31, 2021, respectively				18,937		16,318
Advances to suppliers				20,140		29,171
Amounts due from related parties				28,243		28,310
Inventories		4		47,912		67,656
Prepaid expenses				937		779
Income tax recoverable				464		393
Total current assets				1,387,558		1,519,446
Non-current assets:
Restricted cash				5,932		6,015
Costs and estimated earnings in excess of billings		7		1,230		2,482
Accounts receivable retention		7		4,397		4,558
Prepaid expenses				1		2
Property, plant and equipment, net				94,046		109,297
Prepaid land leases, net				16,568		18,120
Intangible assets, net				1,399		12,152
Investments in equity investees				60,166		46,920
Investment securities				2,622		2,659
Goodwill				1,598		22,527
Deferred tax assets				12,480		13,635
Operating lease right-of-use assets				6,256		5,221
Total non-current assets				206,695		243,588
Total assets			$	1,594,253	$	1,763,034
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities (including amounts of the VIE without recourse to the primary beneficiary of $3,230 and $3,183 as of June 30, 2021 and December 31, 2021, respectively):		1

F-2

	Notes		June 30, 2021		December 31, 2021
					(Unaudited)
Short-term bank loans			—		12
Current portion of long-term loans	8		15,308		15,371
Accounts payable			140,235		180,653
Construction costs payable			1,292		3,540
Deferred revenue	7		184,543		208,173
Accrued payroll and related expenses			22,077		33,263
Income tax payable			3,508		6,054
Warranty liabilities	6		5,902		6,474
Other taxes payable			6,373		16,138
Accrued liabilities			38,633		47,653
Amounts due to related parties			1,661		8,544
Operating lease liabilities			3,098		378
Other liability			—		3
Total current liabilities			422,630		526,256
Accrued liabilities			4,569		4,535
Long-term loans	8		698		568
Accounts payable			982		994
Deferred tax liabilities			16,829		13,617
Warranty liabilities	6		3,649		3,038
Operating lease liabilities			2,928		4,432
Other liabilities			—		78
Total non-current liabilities			29,655		27,262
Total liabilities			452,285		553,518
Commitments and contingencies	13		—		—
Stockholders’ equity:
Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 61,367,337 shares and 61,961,324 shares issued and outstanding as of June 30, 2021 and December 31, 2021	10		61		62
Additional paid-in capital			233,768		240,073
Statutory reserves			64,449		76,829
Retained earnings			806,598		838,547
Accumulated other comprehensive income			32,814		49,207
Total Hollysys Automation Technologies Ltd. stockholders’ equity			1,137,690		1,204,718
Non-controlling interests			4,278		4,798
Total equity			1,141,968		1,209,516
Total liabilities and equity		$	1,594,253	$	1,763,034

F-3

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021

(In US dollars thousands except for number of shares and per share data)

			Six months ended December 31,
	Notes		2020			2021
			(Unaudited)			(Unaudited)
Net revenues
Integrated solutions contract revenue			$	248,174		$	291,068
Product sales				15,026			19,517
Revenue from services				61,595			59,051
Total net revenues				324,795			369,636
Costs of integrated solutions contracts				181,737			213,963
Costs of products sold				2,947			4,898
Costs of services rendered				22,991			20,393
Gross profit				117,120			130,382
Operating expenses
Selling				18,435			23,029
General and administrative				24,757			43,040
Research and development				28,601			36,660
VAT refunds and government subsidies				(8,890	)		(10,782	)
Total operating expenses				62,903			91,947
Income from operations				54,217			38,435
Other income, net				2,774			959
Foreign exchange loss				(5,668	)		(1,714	)
Gains on disposal of an investment in an equity investee				—			7,995
Share of net income of equity investees				4,659			986
Interest income				6,720			6,183
Interest expenses				(277	)		(366	)
Dividend income from equity investments				3			179
Income before income taxes				62,428			52,657
Income tax expenses		11		10,666			8,669
Net income				51,762			43,988
Less: net losses attributable to non-controlling interests				(151	)		(341	)
Net income attributable to Hollysys Automation Technologies Ltd.			$	51,913		$	44,329
Other comprehensive (loss) income, net of tax of nil
Translation adjustments			$	83,653		$	16,559

F-4

			Six months ended December 31,
	Notes		2020		2021
			(Unaudited)		(Unaudited)
Comprehensive income			135,415		60,547
Less: comprehensive income (loss) attributable to non-controlling interests			53		(175	)
Comprehensive income attributable to Hollysys Automation Technologies Ltd.		$	135,362		60,722
Net income per share:
Basic	12	$	0.86	$	0.73
Diluted	12	$	0.86	$	0.72
Shares used in net income per share computation:
Basic	12		60,498,431		60,884,346
Diluted	12		60,693,633		61,556,602

F-5

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021

(In US dollars thousands except for number of shares and per share data)

	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income	$	51,762			43,988
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment		4,707			5,084
Amortization of prepaid land leases		209			211
Amortization of intangible assets		155			661
Allowance for credit losses		1,480			8,002
Gains on disposal of property, plant and equipment		(39	)		(1	)
Share of net income of equity investees		(4,659	)		(986	)
Share-based compensation expenses		938			6,306
Deferred income tax benefit		(2,367	)		(4,287	)
Gains on disposal of an investment in an equity investee		—			(7,995	)
Changes in operating assets and liabilities:
Accounts receivable and retention		(75,574	)		(24,810	)
Costs and estimated earnings in excess of billings		(12,605	)		(21,797	)
Inventories		15,597			(12,612	)
Advances to suppliers		1,868			(8,006	)
Other receivables		2,316			3,161
Prepaid expenses and other assets		(337	)		154
Due from related parties		(2,002	)		6,072
Accounts payable		13,448			29,382
Deferred revenue		33,623			11,057
Accruals and other payables		8,426			(2,329	)
Due to related parties		383			6,883
Income tax payable		8,301			2,572
Other tax payables		9,377			10,429
Net cash provided by operating activities	$	55,007		$	51,139
Cash flows from investing activities:
Purchases of short-term investments		(144,705	)		(26,259	)
Maturity of short-term investments		153,651			40,430
Purchases of property, plant and equipment		(6,202	)		(11,095	)
Proceeds from disposal of property, plant and equipment		241			44
Proceeds received for the disposal of an equity investee		—			9,497
Acquisition of a subsidiary, net of cash acquired		—			(8,726	)
Net cash generated by investing activities	$	2,985		$	3,891
Cash flows from financing activities:
Proceeds from short-term bank loans		—			49
Repayments of short-term bank loans		—			(38	)

F-6

	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Proceeds from long-term bank loans		274			228
Repayments of long-term bank loans		(407	)		(365	)
Payment of dividends		(12,107	)		—
Net cash used in financing activities		(12,240	)		(126	)
Effect of foreign exchange rate changes		22,777			9,099
Net increase in cash, cash equivalents and restricted cash	$	68,529		$	64,003
Cash, cash equivalents and restricted cash, beginning of period		319,097			695,547
Cash, cash equivalents and restricted cash, end of period	$	387,626		$	759,550
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets:
Cash and cash equivalents		356,904			715,537
Current portion of restricted cash		9,210			37,998
Non-current portion of restricted cash		21,512			6,015
Total cash, cash equivalents and restricted cash		387,626			759,550
Supplemental cash flow data
Non-cash investing activities:
Acquisition of property, plant and equipment included in construction costs payable and accrued liabilities		3,735			9,287

F-7

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021

(In US dollars thousands except for number of shares)

	Ordinary shares				Additional paid-in capital			Statutory reserves		Retained earnings			Accumulated other comprehensive (loss) income			Total Hollysys Automation Technologies Ltd. stockholders’ equity			Non-controlling interests			Total equity
	Shares		Amount
Balance at June 30, 2020		60,537,099	$	61	$	224,043		$	49,423	$	774,473		$	(63,517	)	$	984,483		$	4,403		$	988,886
Issuance of restricted shares*		318,000		—		—			—		—			—			—			—			—
Share-based compensation		—		—		938			—		—			—			938			—			938
Net income (loss) for the period		—		—		—			—		51,913			—			51,913			(151	)		51,762
Appropriations to statutory reserves		—		—		—			9,531		(9,531	)		—			—			—			—
Dividends paid		—		—		—			—		(12,107	)		—			(12,107	)		—			(12,107	)
Translation adjustments		—		—		—			—		—			83,449			83,449			204			83,653
Effect of change in accounting principle - ASC 326 (note 2)		—		—		—			—		(22,340	)		—			(22,340	)		—			(22,340	)
Balance at December 31, 2020 (Unaudited)		60,855,099		61		224,981			58,954		782,408			19,932			1,086,336			4,456		$	1,090,792
Balance at June 30, 2021		61,367,337	$	61	$	233,768		$	64,449	$	806,598		$	32,814		$	1,137,690		$	4,278		$	1,141,968
Issuance of restricted shares		593,987		1		(1	)		—		—			—			—			—			—
Share-based compensation		—		—		6,306			—		—			—			6,306			—			6,306
Net income (loss) for the period		—		—		—			—		44,329			—			44,329			(341	)		43,988
Appropriations to statutory reserves		—		—		—			12,380		(12,380	)		—			—			—			—
Dividends paid
Translation adjustments		—		—		—			—		—			16,393			16,393			166			16,559
Capital contribution from subsidiaries’ non-controlling interest shareholders		—		—		—			—					—			—			695			695
Balance at December 31, 2021 (Unaudited)		61,961,324		62		240,073			76,829		838,547			49,207			1,204,718			4,798		$	1,209,516

* The impact to ordinary shares and additional paid-in capital upon issuance of restricted shares is less than $1.

F-8

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2018 AND 2019 - continued

(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, 2021, the Company had subsidiaries incorporated in countries and jurisdictions including the People’s Republic of China (“PRC”), Singapore, Malaysia, Macau, Hong Kong, BVI, India, Qatar 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 generally accepted accounting principles (“GAAP”).

In November 2015, Concord Electrical Contracting Ltd., (“CECL”), was established in Doha, Qatar, by Concord Corporation Pte. Ltd. (“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 the majority of the 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 losses from CECL’s operations. In accordance with Accounting Standards Codification (“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, which is a VIE. Therefore, CECL has been consolidated by the Company since inception.

The following tables set forth the financial statement balances and amounts of the VIE that were included in the condensed consolidated financial statements:

	June 30, 2021			December 31, 2021
				(Unaudited)
Current assets	$	5,588		$	5,447
Non-current assets		37			14
Total assets		5,625			5,461
Current liabilities	$	3,230		$	3,183
Total liabilities		3,230			3,183
	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Net revenue	$	20		$	7
Cost of revenue		16			—
Net profit		4			7
Net cash used in operating activities		(555	)		(106	)

F-9

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

As of December 31, 2021, the current assets of the VIE included amounts due from subsidiaries of the Group amounting to $4,229 (June 30, 2021: $4,151), and the current liabilities of the VIE included amounts due to subsidiaries of the Group amounting to $243 (June 30, 2021: $121), 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 through CCPL 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, 2020 and 2021, the Company has not provided financial support other than that which it was contractually required to provide. 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 (“BCPL”), a wholly-owned Singapore subsidiary of the Company, and a Malaysian citizen (the “Trustee”) entered into a trust deed, under which, 49.1% of BCPL’s equity interests in Bond M & E Sdn. Bhd. (“BMJB”), a Malaysian company, which previously was a 100% subsidiary of BCPL, was transferred to the Trustee. According to the trust deed, all of the beneficial interests in BMJB belong to BCPL and the Trustee shall hold the legal title of the transferred shares in trust for and act on behalf of BCPL absolutely. Any dividend, interest and other benefits received or receivable by the Trustee will be transferred to BCPL. The Trustee shall exercise the managerial rights and voting power in a manner directed by a prior written notice from BCPL. The Trustee shall be obligated to vote in the same manner as BCPL 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 BCPL. Therefore, BCPL 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 BMJB, and therefore consolidates BMJB in its condensed consolidated financial statements.

The Company, its subsidiaries and the VIE, (collectively the “Group”) are 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.

In August 2021, the Company completed the acquisition of 100% of the equity of Beijing Hollysys Intelligent Technologies Co., Ltd. (“Hollysys Intelligent”), a wholly owned subsidiary, from Ningbo Hollysys Intelligent Technologies Co Ltd. (“Ningbo Hollysys”), with a cash consideration of approximately $20,901. As a subsidiary of the Company, its financial performance was included in the Company’s consolidated financial statements from the first quarter of fiscal year 2022.

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. GAAP for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited condensed consolidated financial statements for the fiscal year ended June 30, 2021. 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. The results of operations for the six months period ended December 31, 2021 are not necessarily indicative of results to be expected for any other interim period or for the year ended June 30, 2022. The consolidated balance sheet as of June 30, 2021 was derived from the audited condensed 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 condensed consolidated financial statements for the year ended June 30, 2021.

F-10

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

Principles of Consolidation

The condensed 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 includes 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 solutions contracts and service contracts, allowance for credit losses of accounts receivable, costs and estimated earnings in excess of billings, accounts receivable retention and other receivables, fair value of bifurcated derivative, fair value of warranties, valuation allowance of deferred tax assets, impairment of goodwill and other long-lived assets, goodwill related to the acquisition of Beijing Hollysys Intelligent Technologies Co., Ltd. (“Hollysys Intelligent”), Shandong Lukang Pharmaceutical Engineering Design Co., Ltd (“Shandong Lukang”) and Beijing Hollysys Industrial Software Company Ltd (“Hollysys Industrial Software”), provision for loss contracts, incremental borrowing rate (“IBR”) for operating leases, net realizable value of inventory, and valuation and recognition of share-based compensation expenses. Management’s estimates are based 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 dollar (“US dollar” 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, Foreign currency matters (“ASC 830”), the Company uses the US dollar 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 condensed consolidated 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 (loss) income. Transactions dominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the condensed 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.

“RMB” and “CNY” refer to Renminbi, the legal currency of China; “SGD” and “S$” refer to the Singapore dollar, the legal currency of Singapore; “US dollar,” “$” and “US$” refer to the legal currency of the United States; “MYR” refers to the Malaysian Ringgit, the legal currency of Malaysia; “AED” refers to the United Arab Emirates Dirham, the legal currency of United Arab Emirates; “HKD” refers to the Hong Kong dollar, the legal currency of Hong Kong; “MOP” refers to the Macau Pataca, the legal currency of Macau; “INR” refers to the Indian Rupee, the legal currency of India; and “QAR” refers to the Qatar Riyal, the legal currency of Qatar; “IDR” refers to Indonesia Rupiah, the legal currency of Indonesia;

F-11

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

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 in 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 condensed consolidated statements of comprehensive income.

The determination and allocation of fair values of 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, 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.

Acquisition-related costs are recognized as general and administrative expenses in the condensed consolidated 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.

Short-term investments

Short-term investments consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2021, $22,181, $4,278, and $8,310 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, respectively. As of June 30, 2021, $40,254, $4,293, and $4,261 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, 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 time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to five years excluding the warranty period. The majority of the contracts have a duration 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 time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to three years excluding the warranty period. The majority of the contracts have a duration longer than one year.

F-12

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

In accordance with ASC 606, Revenue from Contract with Customers (“ASC 606”), 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 contracts. The Company’s estimates of total costs expected to be incurred for an integrated solutions contract include assumptions regarding the Company’s future effort or input such as direct costs of equipment and materials and direct labor costs. Significant estimation uncertainty exists due to the long construction periods and sensitivity of these assumptions to extent of progress towards completion and estimated total costs of integrated solutions contracts, as both impact revenue and gross profit realization. The significant assumptions are forward-looking and could be affected by future economic and market conditions and changes in the level of efforts and costs required to complete the integrated solutions contracts. The total costs incurred may not always be proportionate to the entity’s progress in satisfying their performance obligations. Changes in the estimated total costs affects the revenue recognized in the current period and in future periods. 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 the contracts at least annually. Revisions to contract revenue and estimated total costs of the contracts are made in the period in which the facts and circumstances that cause the revision become known and are accounted for as changes in estimates. Excluding the impact of change orders, if the estimated total costs of integrated solutions contracts, which were revised during the six months ended December 31, 2020 and 2021, 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, 2020 and 2021 would have been decreased by $5,440 and $17,169, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively. Revisions to the estimated total costs for the six months ended December 31, 2020 and 2021 were made in the ordinary course of business.

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 value-added tax collected on behalf of the government.

Product sales

The Company’s products mainly include hardware and software. Revenue generated from sales of products is recognized when control of promised goods is transferred to the Company’s customers in an amount of consideration to which the Company expects to be entitled to in exchange for those goods. Revenues are presented net of value-added tax collected on behalf of the government.

F-13

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

Services rendered

The Company mainly provides the following services:

The Company provides maintenance service which is generally completed onsite at the customers’ premises. Revenue is recognized over time by using the cost-to-cost method to measure the progress towards the completion of the performance obligation as the customer simultaneously receives and consumes the benefits from the services rendered by the Company. As costs incurred represent work performed, the Company believes this method best depicts transfer of control to the customer. Revenues are presented net of value-added tax collected on behalf of the government.

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 solutions contracts. 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 uses time elapsed to measure the progress toward complete satisfaction of the performance obligation and recognizes revenue ratably over the contractual term. Revenues are presented net of value-added tax collected on behalf of the government.

Excluding the impact of change orders, if the estimated total costs of service contracts, which were revised during the six months ended December 31, 2020 and 2021, had been used as a basis of recognition of service contract revenue since the contract commencement, net income for the six months ended December 31, 2020 and 2021 would have decreased by $5,585 and $3,923, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.06, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021, would have decreased by $0.09 and $0.06, respectively. Revisions to the estimated total costs for the six months ended December 31, 2021 were made in the ordinary course of business.

Contract assets

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Accordingly, the Company includes the following in contract assets: (i) unbilled amounts resulting from revenue recognized exceeding amounts billed to customers for integrated solutions contracts and maintenance service contracts using the cost-to-cost method, which are recorded in the balance sheet as costs and estimated earnings in excess of billing; and (ii) accounts receivable retention amounts which are held by customers from Concord and Bond Groups upon the issuance of the final completion certificate and completion of the defects liability period.

Performance of the integrated solutions contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual terms. There are different billing practices in the PRC, overseas operating subsidiaries and the VIEs (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in the 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) end of the warranty period. The amounts to be billed at each milestone are specified in the contract. All integrated solutions contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated solutions 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 solutions contract is scheduled at the end of a warranty period. There are no significant financing components in the integrate solutions contracts.

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 the issuance of the final completion certificate and completion of the defects liability period. The retained amounts are recorded as accounts receivable retention.

Contract liabilities

Contract liabilities include the amounts that reflect obligations to provide goods or services for which payment has been received. Contract liabilities are presented in the balance sheet as deferred revenue.

F-14

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

The Company receives prepayments for integrated solutions contracts, product sales and service contracts for goods or services to be provided in the future. Prepayments received are recorded as deferred revenue, which is recognized as revenue based on the revenue recognition policies disclosed above for integrated solutions contracts, product sales and services rendered.

Accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention

The carrying value of the Company’s accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention, net of the allowance for credit losses, represents their estimated net realizable value. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company assesses collectability by reviewing accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention on a collective basis where similar characteristics exist, primarily based on similar business segment, service, product offerings or geographic locations and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including historical collectability based on past due status, the age of the accounts receivable balances, costs and estimated earnings in excess of billings balances and account receivable retention balances, credit quality of the Company’s customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from counter parties. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventories

Inventories comprise 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 uses the weighted average cost method as its 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 solutions contracts and/or costs of products sold.

Warranties

Warranties represent a major term under integrated solutions contracts and maintenance service contracts, 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 a service contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for the related 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 - 10 years
Vehicles	5 - 10 years
Electronic and other equipment	3 - 10 years

F-15

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

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 four 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 are amortized using a straight-line method.

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

Category	Estimated useful life
Patents and copyrights		5 - 10 years

Residual values are considered nil.

Operating lease as lessor

The Company classifies a lease as an operating, sales-type or direct financing lease at lease commencement date as appropriate under ASC 842, Leases. For operating leases, the Company recognizes rental income over the non-cancellable lease term on a straight-line basis. The Company does not have any sales-type or direct financing lease for the six months ended December 31, 2020 and 2021.

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.

F-16

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

The Company follows 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. The amount of interest expense is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interests and penalties recognized in accordance with ASC 740 are classified in the financial statements as a component of income tax expense. In accordance with the provisions of ASC 740, the Company recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Company’s estimated liability for unrecognized tax positions which is included in accrued liabilities is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Company’s estimates. As each annual filling is done, adjustments, if any, are recorded in the Company’s financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require the Company to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.

Segment reporting

In accordance with ASC 280, Segment Reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision maker reviews 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 (“IA”), rail transportation (“Rail”) and mechanical and electrical solutions (“M&E”). 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 equity investees and equity securities

The Company accounts for its equity investments under the equity method when the Company has rights and the ability to exercise significant influence over the investees. 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. When dividends from an investee exceed the carrying amount of an equity method investment, the excess distribution is recognized as a gain and reported as share of net income of equity investees, net in the condensed consolidated statements of comprehensive income when the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. In such cases, subsequent equity method earnings are not recorded until subsequent earnings equal the gain recorded. 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 condensed consolidated statements of comprehensive income when the decline in value is considered other than temporary. The Company will discontinue applying the equity method if an investment (plus additional financial support provided to the investee, if any) has been reduced to zero. When the Company has other investments in its equity-method investee and is not required to advance additional funds to that investee, the Company would continue to report its share of equity method losses in its condensed consolidated statement of comprehensive income after its equity-method investment in ordinary shares has been reduced to zero, to the extent of and as an adjustment to the adjusted basis of its other investments in the investee. Such losses are first applied to those investments of a lower liquidation preference before being further applied to the investments of a higher liquidation preference.

F-17

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

The Company uses the cumulative earnings approach to classify distributions received from equity investees. Under this approach, distributions received from equity investees are presumed to be a return on the investment and are classified as cash inflows from operating activities unless the distributions received exceed cumulative equity in earnings recognized by the investor. In such case, the excess is considered a return of investment and is classified as cash inflows from investing activities.

For equity investments other than those accounted for under the equity method or those that result in consolidation of the investee, the Company measures equity investments at fair value and recognizes any changes in fair value in net income. However, for equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company chooses to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting date, the Company is required to make a qualitative assessment as to whether equity investments without a readily determinable fair value for which the measurement alternative is elected is impaired. In the event that a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than the carrying value, the carrying value is written down to its fair value. A variety of factors are considered when determining if a decline in fair value is below carrying value, including, among others, the financial condition and prospects of the investee.

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 earnings per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potentially dilutive securities such as stock options and restricted shares have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive.

Fair value measurements

The Company follows 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-18

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

Recent accounting pronouncements

Recently Adopted Standards

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)(“ASU 2020-01”), which clarifies the interactions of the accounting for certain equity securities under ASC 321, investments accounted for under the equity method of accounting in ASC 323. ASU 2020-01 could change how an entity accounts for an equity security under the measurement alternative. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2020. Early adoption is permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

Standards Effective in Future Years

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04, as amended), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts hedging relationships, certain derivatives and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. ASU 2020-04, as amended, became effective immediately. Management does not believe the adoption of ASU 2020-04, including optional expedients will materially impact our financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is required to be adopted by us in the first quarter of 2023 and must be applied using either a modified or full retrospective approach. The Company is currently assessing the expected impact of the future adoption of this guidance.

NOTE 3 -    OPERATING LEASES AS LESSOR

The Company entered into operating lease arrangements to lease out its buildings located in Beijing with lease terms ranging from ten to fifteen years. The lease arrangements include lease payments that are largely fixed and do not contain variable lease payments. The leases do not contain any contingent rental income clauses or options for a lessee to purchase the buildings.

Total rental income for the six months ended December 31, 2020 and 2021 were $729 and $823, respectively and were recorded as other income on the condensed consolidated statements of comprehensive income.

F-19

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

Future minimum lease payments to be received for these operating lease arrangements for each of the five succeeding fiscal years as of December 31, 2021 are as follows:

	As of December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	3,598
January 1, 2023 – December 31, 2023		3,706
January 1, 2024 – December 31, 2024		2,248
January 1, 2025 – December 31, 2025		1,998
January 1, 2026 – December 31, 2026		2,058
Thereafter		14,119
Total	$	27,727

NOTE 4 -    INVENTORIES

Components of inventories are as follows:

	June 30, 2021		December 31, 2021
			(Unaudited)
Raw materials	$	23,469	$	35,573
Work in progress		12,165		13,259
Finished goods		12,278		18,824
	$	47,912	$	67,656

NOTE 5 -    SHORT-TERM INVESTMENTS

Short-term held-to-maturity securities were mainly deposits in commercial banks with maturities less than one year and structured deposits issued by commercial banks and other financial institutions for which the Company has the positive intent and ability to hold those securities to maturity.

Short-term investments classification as of June 30, 2021 and December 31, 2021 are shown below:

	As of June 30, 2021
	Cost or Amortized cost		Gross unrecognized holding gains		Gross unrecognized holding losses		Gross unrecognized gains		Gross unrecognized losses		Fair value
Held-to-maturity debt investments		48,808		—		—		—		—		48,808

	As of December 31, 2021
	Cost or Amortized cost	Gross unrecognized holding gains	Gross unrecognized holding losses	Gross unrecognized gains	Gross unrecognized losses	Fair value
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Held-to-maturity debt investments	34,769	—	—	—	—	34,769

F-20

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

NOTE 6 -    WARRANTY LIABILITIES

	June 30, 2021			December 31, 2021
				(Unaudited)
Total warranty liabilities	$	9,551		$	9,512
Less: current portion of warranty liabilities		(5,902	)		(6,474	)
Long-term warranty liabilities	$	3,649		$	3,038

The following table shows activity in the warranty liabilities for the six months ended December 31, 2020 and 2021:

	Six months ended
	December 31, 2020			December 31, 2021
	(Unaudited)			(Unaudited)
Beginning balance	$	10,064		$	9,551
Consolidation of subsidiary		—			145
Expense accrued		1,490			1,143
Expense incurred		(1,677	)		(1,389	)
Translation adjustment		600			62
Ending balance	$	10,477		$	9,512

NOTE 7 -    REVENUE FROM CONTRACTS WITH CUSTOMERS

Remaining Unsatisfied Performance Obligations (“RUPO”)

As of December 31, 2021, the Company’s backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was $772.1 million. The Company expects to recognize the majority of its remaining performance obligations as revenue within the next three years.

Disaggregation of revenues

The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related businesses. The geographic locations are consistent with the reportable segments. For more information on the reportable segments, see Note 14, “Segment Reporting”. The following table presents disaggregated revenue information:

	Six months ended December 31, 2021
	PRC		Non-PRC		Total
	(Unaudited)		(Unaudited)		(Unaudited)
Integrated solutions contract revenue	$	250,144		40,924		291,068
Product sales		18,964		553		19,517
Maintenance service contracts		56,062		35		56,097
Extended warranty service revenue		2,954		—		2,954
Total	$	328,124		41,512		369,636

Contract assets and contract liabilities

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Accordingly, the Company includes the following in the contract assets: (i) unbilled amounts resulting from revenue recognized exceeding amounts billed to customers for integrated solutions contracts and maintenance service contracts using the cost-to-cost method, which are included in the consolidated balance sheets as “costs and estimated earnings in excess of billing”; and (ii) accounts receivable retention amounts which were held by customers from Concord and Bond Groups upon the issuance of the final completion certificate and completion of the defects liability period.

F-21

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

Contract liabilities include the amounts that reflect obligations to provide goods or services for which payment has been received. Contract liabilities are presented in the consolidated balance sheets as deferred revenue.

These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of reporting period. The Company recognized revenue of $72,131 for the six months ended December 31, 2021, which was previously deferred and included in the contract liability at the beginning of the year. This revenue was driven primarily by performance obligations satisfied.

Contract assets and contract liabilities are summarized below:

	June 30, 2021		December 31, 2021
			(Unaudited)
Contract assets, current	$	202,462		229,767
Contract assets, non-current		5,627		7,040
Contract liabilities		185,596		209,649

The increase in contract assets was primarily due to new contracts and timing of revenue recognized relative to its billings. The increase in contract liabilities was primarily due to an increase in the receipt of advance payments and the timing of contractual milestones. No other factors materially impacted the change in the contract liabilities balance.

NOTE 8 -     LONG-TERM LOANS

	June 30, 2021			December 31, 2021
				(Unaudited)
MYR denominated loans		842			736
SGD denominated loans		164			203
USD denominated loan		15,000			15,000
	$	16,006		$	15,939
Less: current portion		(15,308	)		(15,371	)
	$	698		$	568

Scheduled principal payments for all outstanding long-term loans as of December 31, 2021 are as follows:

	December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	15,371
January 1, 2023 – December 31, 2023		241
January 1, 2024 – December 31, 2024		125
January 1, 2025 – December 31, 2025		74
January 1, 2026 and onwards		128
	$	15,939

F-22

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

For the six months ended December 31, 2020 and 2021, interest expenses of long-term loans incurred amounted to $277 and $366 respectively, and nil and nil was capitalized as construction in progress respectively.

NOTE 9 -    FAIR VALUE MEASUREMENTS

Financial instruments include cash and cash equivalents, restricted cash, short-term investments, derivative assets accounts receivable, accounts receivable retention, other receivables, amounts due to or from related parties, accounts payable, short-term and long-term bank loans. The carrying values of these financial instruments, other than long-term bank loans and derivative assets (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 approximates its fair value as the long-term bank loans are subject to floating interest rates. The carrying value of the Company’s long-term bank loans which are subject to fixed interest rates approximates its fair value as the market interest rate has not significantly changed from the borrowing date to December 31, 2021. 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.

NOTE 10 -    STOCKHOLDERS’ EQUITY

On October 5, 2020, the Company declared a regular annual cash dividend of $0.20 per share to the holders of the Company’s ordinary shares. The record date was October 22, 2020, and the dividend was paid on November 20, 2020.

NOTE 11 -    INCOME TAX

Effective tax rate

The Company’s effective income tax rate (“ETR”) was 16.5% for the six months ended December 31, 2021 as compared to 17.1% for the six months ended December 31, 2020. These rates differ from the statutory rate of 25% in the PRC because the ETR is subject to the Company’s subsidiaries contributing different pre-tax income at different tax rates.

NOTE 12 -    INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share attributable to the Company’s common shareholders for the six months indicated:

	Six months ended December 31,
	2020		2021
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to common stockholders - basic	$	51,913	$	44,329
Net income attributable to common stockholders - diluted (i)	$	51,913	$	44,329
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		60,498,431		60,884,346
Effect of dilutive securities
Share options		—		87,242
Restricted shares		195,202		585,014
Weighted average ordinary shares outstanding used in computing diluted income per share		60,693,633		61,556,602
Income per share - basic	$	0.86		0.73
Income per share - diluted	$	0.86		0.72

F-23

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

(i) Vested and unissued restricted shares of 15,000 and 15,000 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2020 and 2021, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2020 as its effect would be anti-dilutive.

NOTE 13 -    COMMITMENTS AND CONTINGENCIES

Capital commitments

As of December 31, 2021, the Company had approximately $29,024 in capital obligations for the upcoming twelve months, mainly for the Company’s information system construction.

Purchase obligations

As of December 31, 2021, the Company had $333,784 purchase obligations in total ($280,895, $33,056, $13,222 and $6,611 over the periods of less than one year, one to three years, three to five years and more than five years from December 31, 2021, respectively) for purchases of inventories and services from subcontractors, 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 $703 and outstanding performance guarantees of $59,429 as of December 31, 2021, with restricted cash of $5,805 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 460, Guarantees (“ASC 460”). 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-24

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - continued

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

NOTE 14 -    SEGMENT REPORTING

The CODM of the Company 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, the Company has determined that the reportable segments of the Company consist of (1) IA, (2) Rail, (3) M&E, in accordance with the Company’s organization and internal financial reporting structure. The CODM assesses the performance of the operating segments based on the measures of revenues, costs and gross profit. Other than the information provided below, the CODM does not use any other measures by segments.

Summarized information by segments for the six months ended December 31, 2020, and 2021 is as follows:

	Six months ended December 31, 2020
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	150,245		57,938		39,991		248,174
Product sales		11,819		3,207		—		15,026
Maintenance service revenue		11,372		48,430		20		59,822
Extended warranty service revenue		1,383		390		—		1,773
Total		174,819		109,965		40,011		324,795
Costs of revenue		115,676		56,834		35,165		207,675
Gross profit	$	59,143		53,131		4,846		117,120

	Six months ended December 31, 2021
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	189,031		64,083		37,954		291,068
Product sales		14,549		4,968		—		19,517
Maintenance service revenue		12,010		44,045		42		56,097
Extended warranty service revenue		704		2,250		—		2,954
Total		216,294		115,346		37,996		369,636
Costs of revenue		146,102		58,479		34,673		239,254
Gross profit	$	70,192		56,867		3,323		130,382

F-25

HOLLYSYS AUTOMATION TECHNOLOGIES LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2021 - 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,
	2020		2021
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	283,528	$	328,124
Non-PRC		41,267		41,512
	$	324,795	$	369,636

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

	June 30, 2021		December 31, 2021
			(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	163,343	$	178,165
Non-PRC		11,458		10,983
	$	174,801	$	189,148

NOTE 15 -    SUBSEQUENT EVENTS

In March 2021, the Company entered into an agreement to dispose all of its interest in Cixi HollySys Precision Technology Co., Ltd. (“Cixi Hollysys”) for cash consideration of $16,331. The Company received $5,187 of the proceeds prior to the year ended December 31, 2021 and recorded the amount as a liability as the disposal transaction was not completed as of December 31, 2021. The Company completed the disposal in February 2022.

F-26

EX-99.3

Exhibit 99.3

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

In this report, as used herein, and unless the context suggests otherwise, the terms “Hollysys,” “we,” “us,” or “our,” and the “Company,” refer to the combined business of Hollysys Automation Technologies Ltd., a BVI company, and its consolidated subsidiaries. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States, and references to “RMB” are to the legal currency of China. References to “SGD” are to the Singapore dollar, the legal currency of Singapore.

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, 2021 filed with the Securities and Exchange Commission on February 18, 2022 (the “2021 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 2021 Form 20-F under “Item 3. Key Information—D. Risk Factors” or in other parts of the 2021 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 products, solutions and services for the customers in the industries relating to power, chemical, petro-chemical, food and beverage, pharmaceutical, high speed rail, subway and highway, etc.

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. In the six months ended December 31, 2021, we derive the majority of our total consolidated revenues from the integrated solutions contracts that we have won through a competitive bidding 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 solutions 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.

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, 2020 and 2021 and the backlog at the dates indicated:

	Six months ended December 31,
	2020		2021
Number of new contracts won during the period		4,270		5,232
Total amount of new contracts (million)	$	340.7	$	471.3
Average price per contract	$	79,780	$	90,087

1

	Six months ended December 31,
	2020		2021
Backlog Situation:
Contracts newly entered and unfinished (million)	$	170.1	$	283.2
Contracts entered in prior periods and unfinished (million)	$	431.2	$	488.9
Total amount of backlog (million) as of the end of period	$	601.3	$	772.1

Key Factors Affecting Our Growth, Operating Results and Financial Condition

The following sets forth key factors that affect our future growth, operating results and financial condition.

• 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.

• The 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 ability to secure a steady stream of new customers. In order for our business to continue to succeed and grow, it is vital for us to secure contracts with new customers on a regular basis.

• The ability to secure adequate engineering resources and relatively low cost engineering staff, which 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 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, which 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.

2

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

• The exchange rate fluctuation of RMB and SGD against US dollars, which 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.

• The impact of COVID-19 pandemic. Following the outbreak of COVID-19, our business was adversely affected since the beginning of 2020. Despite the fact that we have seen a gradual recovery of our overall business resulting from improving health statistics in China since March 2020, certain cities in China and several countries and regions overseas are still being impacted by resurgences of the disease. We anticipate the pandemic will continue to have an adverse effect on our overseas business, especially in Southeast Asia and South Asia. The future development will still depend on the duration and severity of COVID-19. We are closely monitoring the pandemic and its impact on us.

A. Operating Results

The following are some financial highlights for the six months ended December 31, 2021:

• Total assets increased by $168.7 million, from $1,594.3 million as of June 30, 2021, to $1,763.0 million as of December 31, 2021. The increase was mainly due to an increase of $51.2 million in cash and cash equivalents, an increase of $28.9 million in accounts receivable, and an increase of $25.8 million in cost and estimated earnings in excess of billings, which were partially offset by a decrease of $14.0 million in short-term investments, and a decrease of $13.3 million in investments in equity investees.

• Cash and cash equivalents increased by $51.2 million, from $664.3 million as of June 30, 2021, to $715.5 million as of December 31, 2021.

• Accounts receivable as of December 31, 2021 were $359.8 million, an increase of approximately $28.9 million, or 8.7%, compared to $330.9 million as of June 30, 2021.

• Cost and estimated earnings in excess of billings as of December 31, 2021 were $222.5 million, compared to 196.7 million as of June 30, 2021, representing an increase of $25.8 million, or 13.1%. 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 $19.8 million, from $47.9 million as of June 30, 2021, to $67.7 million as of December 31, 2021.

• Property, plant and equipment increased by $15.3 million, from $94.0 million as of June 30, 2021, to $109.3 million as of December 31, 2021.

• Investments in equity investees decreased by $13.3 million, from $60.2 million as of June 30, 2021, to $46.9 million as of December 31, 2021.

• Deferred tax assets were $13.6 million as of December 31, 2021, compared to $12.5 million as of June 30, 2021.

• Total liabilities increased by $101.2 million, or 22.4%, from $452.3 million as of June 30, 2021, to $553.5 million as of December 31, 2021.

3

• Accounts payable increased by $40.5 million, or 28.9%, from $140.2 million as of June 30, 2021, to $180.7 million as of December 31, 2021.

• Deferred revenue increased by $23.7 million, or 12.8%, from $184.5 million as of June 30, 2021, to $208.2 million as of December 31, 2021.

Comparison of Six Months Ended December 31, 2021 and 2020

Revenues: For the six months ended December 31, 2021, total revenues amounted to $369.6 million, an increase of $44.8 million from $324.8 million for the same period in the prior year, representing an increase of 13.8%.

For the six months ended December 31, 2021, integrated solutions contract revenue accounted for $291.1 million, an increase of $42.9 million, or 17.3%, compared to $248.2 million for the same period in the prior year. The increase in integrated solutions contract revenues was mainly due to an increase of $38.8 million, or 25.8%, in industrial automation projects and an increase of $6.1 million, or 10.6%, in rail transportation. The revenue increase was offset by a decrease of $2.0 million or 5.1% in mechanical and electrical solutions business.

For the six months ended December 31, 2021, $19.5 million of total revenues was generated from product sales, an increase of $4.5 million, or 30.0%, compared to $15.0 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.

For the six months ended December 31, 2021, $59.1 million of total revenues was generated from service rendered, a decrease of $2.5 million, or 4.1%, compared to $61.6 million for the same period in the prior year.

The following table sets forth the Company’s revenues by segment for the periods indicated.

(In USD millions, except for percentage)

	Six months ended December 31,
	2020				2021
	$		% of Total revenues		$		% of Total revenues
Industrial Automation		174.8		53.8		216.3		58.5
Rail Transportation		110.0		33.9		115.3		31.2
Mechanical and Electrical Solution		40.0		12.3		38.0		10.3
Total		324.8		100.0		369.6		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, 2021 amounted to $772.1 million, representing an increase of $170.8 million, or 28.4%, compared to $601.3 million as of December 31, 2020.

Of the total order backlog as of December 31, 2021, $283.2 million was associated with new contracts signed in the six months ended December 31, 2021 and $488.9 million was associated with contracts carried forward from prior periods. In comparison, of the total order backlog as of December 31, 2020, $170.1 million was associated with new contracts signed in the six months ended December 31, 2020, and $431.2 million was associated with contracts carried forward from prior periods.

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, 2021, the total cost of revenues amounted to $239.3 million, an increase of $31.7 million, or 15.3%, compared to $207.6 million for the same period in the prior year. The increase was due to a $32.3 million, or 17.8%, increase in the cost of integrated contracts, and an increase of $2.0 million, or 69.0%, in the cost of products, which was partially offset by a decrease of $2.6 million, or 11.3%, in the cost of services rendered.

4

The cost of integrated contracts consists primarily of three components: cost of equipment and materials, labor costs and other manufacturing expenses including but not limited to detecting expense, and technology service fee, all of which incurred during the designing, building and delivering customized automation solutions process to customers. The cost components of integrated contracts were determined and varied according to requirements of different customers. The following table sets forth a breakdown of cost of integrated contracts, in absolute amount and as a percentage of total integrated solutions contract revenue, for the periods indicated.

(In USD millions, except for percentage)

	Six months ended December 31,
	2020				2021
	$		% of Total integrated solutions contract revenue		$		% of Total integrated solutions contract revenue
Cost of equipment and materials		112.9		45.5		130.8		44.9
Labor costs		30.3		12.2		28.5		9.8
Other manufacturing expenses		38.5		15.5		54.7		18.8
Total		181.7		73.2		214.0		73.5

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 third party 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, 2021 was $2.9 million, an increase of $2.0 million, compared to $4.9 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, 2021 was $20.4 million, a decrease of $2.6 million, compared to $23.0 million for the same period in the prior year.

Gross margin: For the six months ended December 31, 2021, as a percentage of total revenues, the overall gross margin was 35.3%, compared to 36.1% for the same period in the prior year. The gross margin for integrated contracts was 26.5% for the six months ended December 31, 2021, compared to 26.8% for the same period in the prior year. The decrease in gross margin for integrated contracts was mainly due to our different sales mix during the six months ended December 31, 2021. The gross margin for products sold was 74.9% for the six months ended December 31, 2021, compared to 80.4% for the same period in the prior year. The gross margin for services provided was 65.5% for the six months ended December 31, 2021, compared to 62.7% 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 $23.0 million for the six months ended December 31, 2021, an increase of $4.6 million, or 25.0%, compared to $18.4 million for the same period in the prior year, as we significantly scaled our sales. As a percentage of total revenues, selling expenses accounted for 5.7% and 6.2% for the six months ended December 31, 2020 and 2021, respectively.

5

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 $43.0 million for the six months ended December 31, 2021, representing an increase of $18.2 million, or 73.4%, compared to $24.8 million for the same period in the prior year. The increase was primarily due to a $6.5 million year-over-year increase in allowance for credit losses and our increased investments in strategic planning, internal management, compliance and corporate governance to improve our core competitiveness. In addition, we also spent legal and third-party consulting fees in connection with the evaluation of unsolicited non-binding buyout proposals. Allowance for credit losses amounted to $8.0 million for the six months ended December 31, 2021, compared to $1.5 million in the same period last year, of which one customer had a credit loss of $4.7 million. As a percentage of total revenues, general and administrative expenses were 7.6% and 11.6% for the six months ended December 31, 2020 and 2021, 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, 2020, research and development expenses were $36.7 million, representing an increase of $8.1 million, or 28.3%, compared to $28.6 million for the same period in the prior year. The increase was primarily due to our increased investments in research and development activities, including the upgrading of mainstream products and new products developed to meet the needs of the digital infrastructure market, such as the new-generation DCS Macs V7, smart factory and smart city rail. For the six months ended December 31, 2021, labor costs accounted for 64.6% of total research and development expenses. As a percentage of total revenues, research and development expenses were 8.8% and 9.9% for the six months ended December 31, 2020 and 2021, respectively.

VAT refunds and government subsidies: PRC tax administration provides 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 administration is received. For the six months ended December 31, 2021, VAT refunds were $5.8 million, representing a decrease of $0.4 million, or 6.5%, compared to $6.2 million for the same period in the prior year. As a percentage of total revenues, VAT refunds were 1.9% and 1.6% for the six months ended December 31, 2020 and 2021, 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 increased by $2.3 million, or 85.2%, to $5.0 million for the six months ended December 31, 2021 from $2.7 million for the same period in the prior year.

Income from operations: Income from operations decreased by $15.8 million to $38.4 million for the six months ended December 31, 2021 from $54.2 million for the same period in the prior year.

Other income, net: For the six months ended December 31, 2021, the other income, net decreased by $1.8 million from $2.8 million for the same period in the prior year, to $1.0 million for the current period.

Gains on disposal of an investment in an equity investee: We had $8.0 million gains on disposal of an investment in an equity investee for the six months ended December 31, 2021, which were in relation to our disposal of Hunan LingXiang Maglev Technology Co., Ltd. in October 2021.

Share of net income of equity investees: Our share of net income of equity investees decreased to $1.0 million for the six months ended December from $4.7 million for the same period in the prior year, as a result of our share of decreased net income from our equity investees China Techenergy Co., Ltd and Hunan LingXiang Maglev Technology Co., Ltd.

Interest income: For the six months ended December 31, 2021, interest income decreased by $0.5 million or 7.5% from $6.7 million for the same period in the prior year, to $6.2 million for the current period. As a percentage of total revenue, interest income was 2.1% and 1.7% for the six months ended December 31, 2020 and 2021, respectively. The interest income was mainly earned from short-term investments and cash and cash equivalents.

6

Interest expenses: For the six months ended December 31, 2021, interest expenses increased by $0.1 million, or 33.3% from $0.3 million for the same period in the prior year to $0.4 million for the current period. As a percentage of total revenue, interest expenses were 0.1% for the six months ended December 31, 2020 and 2021, respectively. The interest expenses were incurred by the short-term and long-term loans/bonds we had.

Income tax expenses: For the six months ended December 31, 2021 and 2020, our income tax expenses were $8.7 million and $10.7 million, and the effective tax rate were and 16.5% and 17.1%, respectively. The effective tax rate fluctuates, as the Company’s subsidiaries contributed different pre-tax income at different tax rates.

Net income and earnings per share attributable to Hollysys: For the six months ended December 31, 2021, net income attributable to Hollysys amounted to $44.3 million, representing a decrease of $7.6 million, compared to $51.9 million for the same period in the prior year. The basic and diluted earnings per share were $0.73 and $0.72 for the six months ended December 31, 2021, representing a decrease of $0.13 and $0.14, respectively, compared to $0.86 and $0.86 for the same period in the prior year. The decrease was primarily due to the lower net income attributable to Hollysys compared to same period in the prior year.

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 flows 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.

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 the fiscal year 2022 will be approximately $68.3 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 the fiscal year 2022, our capital expenditures are expected to be $49.2 million, mainly related to purchase of the property, plant and equipment for our manufacturing and operations.

Cash Flow and Working Capital

As of December 31, 2021, we had total assets of $1,763.0 million, of which cash and cash equivalents amounted to $715.5 million, short-term investments amounted to $34.8 million, accounts receivable amounted to $359.8 million and inventories amounted to $67.7 million. As of December 31, 2021, our working capital was $993.2 million, equity amounted to $1,209.5 million and our current ratio was 2.9.

7

The following table sets forth our cash flows with respect to operating activities, investing activities and financing activities for periods indicated.

	Six months ended December 31,
(In USD thousands)	2020			2021
Net cash provided by operating activities	$	55,007		$	51,139
Net cash provided by investing activities	$	2,985		$	3,891
Net cash used in financing activities	$	(12,240	)	$	(126	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	$	22,777		$	9,099
Net increase in cash, cash equivalents and restricted cash	$	68,529		$	64,003
Cash, cash equivalents and restricted cash, beginning of period	$	319,097		$	695,547
Cash, cash equivalents and restricted cash, end of period	$	387,626		$	759,550

Operating activities

For the six months ended December 31, 2021, net cash provided by operating activities was $51.1 million. The net cash inflow of operating activities in the six months ended December 31, 2021 primarily consisted of net income of $44.0 million and $0.2 million provided by working capital. Changes in working capital were primarily attributable to an increase in accounts payable of $29.4 million, an increase in deferred revenue of $11.1 million, an increase in inventories of $15.6 million, an increase in account payable of $13.4 million, an increase in other tax payables of $10.4 million, an increase in due to related parties of $6.9 million, and an increase in due from related parties of $6.1 million, partially offset by a decrease in accounts receivable of $24.8 million, a decrease in costs and estimated earnings in excess of billings of $21.8 million, a decrease in inventories of $12.6 million, and a decrease in advances to suppliers of $8.0 million.

Investing activities

For the six months ended December 31, 2021, net cash provided by investing activities was $3.9 million. The net cash provided by investing activities in the six months ended December 31, 2021, which was primarily attributable to a cash outflow of $26.3 million for purchases of short-term investments, a cash outflow of $11.1 million in purchases of property, plant and equipment, a cash outflow of $8.7 million in acquisition of a subsidiary, partially offset by a cash inflow of $40.4 million from maturity of short-term investments and a cash inflow of $9.5 million from proceeds from disposal of investments in equity investee.

Financing activities

For the six months ended December 31, 2021, net cash used in financing activities was $0.1 million, which was primarily attributable to the proceeds from long-term bank loans of $228 thousand, partially offset by the repayments of long-term bank loans of $365 thousand.

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.

Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations, including short- and long-term loans and operating leases and capital and operational commitments as of December 31, 2021.

(In USD thousands)	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Short-term & Long-term Loans
-Principal		15,951		15,383		365		105		98
-Interest		237		180		27		10		20
Operating Lease Obligations(1)		6,696		4,618		2,078		—		—
Purchase Obligations(2)		333,784		280,895		33,056		13,222		6,611
Capital Obligations(3)		61,216		29,024		30,259		1,933		—
Standby Letters of Credit(4)		703		703		—		—		—
Performance Guarantees(5)		59,429		32,086		26,159		1,184		—
Total		478,016		362,889		91,944		16,454		6,729

8

Notes:

(1) Operating lease obligations represent the future minimum payments under non-cancelable operating leases.

(2) As of December 31, 2021, we had approximately $333.8 million in purchase obligations 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) As of December 31, 2021, we had approximately $280.9 million in capital obligations for the coming 12 months, mainly associated with our information system construction.

(4) 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, 2021, we had approximately $0.7 million in standby letters of credit obligations.

(5) 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 expires. As of December 31, 2021, we had approximately $59.4 million performance guarantees obligation, with $5.8 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 short- and long-term debt obligations, operating lease obligations, capital commitments, purchase obligations or other long-term liabilities as of December 31, 2021.

9

XML

Cover Page	6 Months Ended
	Dec. 31, 2021
Cover [Abstract]
Document Type	6-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2021
Entity Registrant Name	HOLLYSYS AUTOMATION TECHNOLOGIES LTD.
Entity Central Index Key	0001357450
Current Fiscal Year End Date	--06-30

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Current assets:
Cash and cash equivalents	$ 715,537	$ 664,321
Short-term investments	34,769	48,808
Restricted cash	37,998	25,294
Accounts receivable, net of allowance for credit losses of $66,839 and $74,331 as of June 30, 2021 and December 31, 2021, respectively	359,816	330,853
Costs and estimated earnings in excess of billings, net of allowance for credit losses of $11,835 and $11,747 as of June 30, 2021 and December 31, 2021, respectively	222,480	196,706
Accounts receivable retention	6,219	4,943
Other receivables, net of allowance for credit losses of $6,224 and $16,335 as of June 30, 2021 and December 31, 2021, respectively	16,318	18,937
Advances to suppliers	29,171	20,140
Amounts due from related parties	28,310	28,243
Inventories	67,656	47,912
Prepaid expenses	779	937
Income tax recoverable	393	464
Total current assets	1,519,446	1,387,558
Non-current assets:
Restricted cash	6,015	5,932
Costs and estimated earnings in excess of billings	2,482	1,230
Accounts receivable retention	4,558	4,397
Prepaid expenses	2	1
Property, plant and equipment, net	109,297	94,046
Prepaid land leases, net	18,120	16,568
Intangible assets, net	12,152	1,399
Investments in equity investees	46,920	60,166
Investment securities	2,659	2,622
Goodwill	22,527	1,598
Deferred tax assets	13,635	12,480
Operating lease right-of-use assets	5,221	6,256
Total non-current assets	243,588	206,695
Total assets	1,763,034	1,594,253
Current liabilities (including amounts of the VIE without recourse to the primary beneficiary of $3,230 and $3,183 as of June 30, 2021 and December 31, 2021, respectively):
Short-term bank loans	12	0
Accounts payable	180,653	140,235
Current portion of long-term loans	15,371	15,308
Construction costs payable	3,540	1,292
Accrued payroll and related expenses	33,263	22,077
Deferred revenue	208,173	184,543
Income tax payable	6,054	3,508
Warranty liabilities	6,474	5,902
Accrued liabilities	47,653	38,633
Other taxes payable	16,138	6,373
Amounts due to related parties	8,544	1,661
Operating lease liabilities	378	3,098
Other liability	3
Total current liabilities	526,256	422,630
Liabilities, Noncurrent [Abstract]
Accrued liabilities	4,535	4,569
Long-term loans	568	698
Accounts payable	994	982
Deferred tax liabilities	13,617	16,829
Warranty liabilities	3,038	3,649
Operating lease liabilities	4,432	2,928
Other liabilities	78
Total non-current liabilities	27,262	29,655
Total liabilities	553,518	452,285
Commitments and contingencies	0	0
Stockholders' equity:
Ordinary shares, par value $0.001 per share, 100,000,000 shares authorized; 61,367,337 shares and 61,961,324 shares issued and outstanding as of June 30, 2021 and December 31, 2021	62	61
Additional paid-in capital	240,073	233,768
Statutory reserves	76,829	64,449
Retained earnings	838,547	806,598
Accumulated other comprehensive income	49,207	32,814
Total Hollysys Automation Technologies Ltd. stockholders' equity	1,204,718	1,137,690
Non-controlling interests	4,798	4,278
Total equity	1,209,516	1,141,968
Total liabilities and equity	$ 1,763,034	$ 1,594,253

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Allowance for doubtful accounts, accounts receivable	$ 74,331	$ 66,839
Allowance for doubtful accounts of costs and estimated earnings in excess of billings	11,747	11,835
Allowance for doubtful accounts, other receivables	$ 16,335	$ 6,224
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)	61,961,324	61,367,337
Common stock, shares outstanding (in shares)	61,961,324	61,367,337
Liabilities, Current	$ 526,256	$ 422,630
Variable Interest Entity, Not Primary Beneficiary [Member]
Liabilities, Current	$ 3,183	$ 3,230

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Net revenues
Total net revenues	$ 369,636	$ 324,795
Gross profit	130,382	117,120
Operating expenses
Selling	23,029	18,435
General and administrative	43,040	24,757
Research and development	36,660	28,601
VAT refunds and government subsidies	(10,782)	(8,890)
Total operating expenses	91,947	62,903
Other income, net	959	2,774
Income from operations	38,435	54,217
Foreign exchange loss	(1,714)	(5,668)
Gains on disposal of an investment in an equity investee	7,995	0
Share of net income of equity investees	986	4,659
Interest income	6,183	6,720
Interest expenses	(366)	(277)
Dividend income from equity investments	179	3
Income before income taxes	52,657	62,428
Income tax expenses	8,669	10,666
Net income	43,988	51,762
Less: net losses attributable to non-controlling interests	(341)	(151)
Net income attributable to Hollysys Automation Technologies Ltd.	44,329	51,913
Other comprehensive (loss) income, net of tax of nil
Translation adjustments	16,559	83,653
Comprehensive income	60,547	135,415
Less: comprehensive income (loss) attributable to non-controlling interests	(175)	53
Comprehensive income attributable to Hollysys Automation Technologies Ltd.	$ 60,722	$ 135,362
Net income per share:
Basic	$ 0.73	$ 0.86
Diluted	$ 0.72	$ 0.86
Shares used in net income per share computation:
Basic	60,884,346	60,498,431
Diluted	61,556,602	60,693,633
Integrated Solution Contracts [Member]
Net revenues
Total net revenues	$ 291,068	$ 248,174
Cost of revenue	213,963	181,737
Product sales [Member]
Net revenues
Total net revenues	19,517	15,026
Cost of revenue	4,898	2,947
Service [Member]
Net revenues
Total net revenues	59,051	61,595
Cost of revenue	$ 20,393	$ 22,991

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Cash flows from operating activities:
Net income	$ 43,988	$ 51,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	5,084	4,707
Amortization of prepaid land leases	211	209
Amortization of intangible assets	661	155
Allowance for credit losses	8,002	1,480
Gains on disposal of property, plant and equipment	(1)	(39)
Share of net income of equity investees	(986)	(4,659)
Share-based compensation expenses	6,306	938
Deferred income tax benefit	(4,287)	(2,367)
Gains on disposal of an investment in an equity investee	(7,995)	0
Changes in operating assets and liabilities:
Accounts receivable and retention	(24,810)	(75,574)
Costs and estimated earnings in excess of billings	(21,797)	(12,605)
Inventories	(12,612)	15,597
Advances to suppliers	(8,006)	1,868
Other receivables	3,161	2,316
Prepaid expenses and other assets	154	(337)
Due from related parties	6,072	(2,002)
Accounts payable	29,382	13,448
Deferred revenue	11,057	33,623
Accruals and other payables	(2,329)	8,426
Due to related parties	6,883	383
Income tax payable	2,572	8,301
Other tax payables	10,429	9,377
Net cash provided by operating activities	51,139	55,007
Cash flows from investing activities:
Purchases of short-term investments	(26,259)	(144,705)
Maturity of short-term investments	40,430	153,651
Purchases of property, plant and equipment	(11,095)	(6,202)
Proceeds from disposal of property, plant and equipment	44	241
Proceeds received for the disposal of an equity investee	9,497	0
Acquisition of a subsidiary, net of cash acquired	(8,726)	0
Net cash generated by investing activities	3,891	2,985
Cash flows from financing activities:
Proceeds from short-term bank loans	49	0
Repayments of short-term bank loans	(38)	0
Proceeds from long-term bank loans	228	274
Repayments of long-term bank loans	(365)	(407)
Payment of dividends	0	(12,107)
Net cash used in financing activities	(126)	(12,240)
Effect of foreign exchange rate changes	9,099	22,777
Net increase in cash, cash equivalents and restricted cash	64,003	68,529
Cash, cash equivalents and restricted cash, beginning of period	695,547	319,097
Cash, cash equivalents and restricted cash, end of period	759,550	387,626
Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets:
Cash and cash equivalents	715,537	356,904
Current portion of restricted cash	37,998	9,210
Non-current portion of restricted cash	6,015	21,512
Total cash, cash equivalents and restricted cash	759,550	387,626
Supplemental cash flow data Non-cash investing activities:
Acquisition of property, plant and equipment included in construction costs payable and accrued liabilities	$ 9,287	$ 3,735

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands		Total	Ordinary shares [Member]	Additional Paid-in Capital [Member]	Statutory Reserves [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive (Loss) Income [Member]	Total Hollysys Automation Technologies Ltd. Stockholders' Equity [Member]	Noncontrolling Interest [Member]
Balance at Jun. 30, 2020		$ 988,886	$ 61	$ 224,043	$ 49,423	$ 774,473	$ (63,517)	$ 984,483	$ 4,403
Balance (in shares) at Jun. 30, 2020			60,537,099
Issuance of restricted shares (in shares)	[1]		318,000
Share-based compensation		938		938				938
Net income (loss) for the period		51,762				51,913		51,913	(151)
Appropriations to statutory reserves					9,531	(9,531)
Dividends paid		(12,107)				(12,107)		(12,107)
Translation adjustments		83,653					83,449	83,449	204
Effect of change in accounting principle - ASC 326 (note 2)		(22,340)				(22,340)		(22,340)
Balance at Dec. 31, 2020		1,090,792	$ 61	224,981	58,954	782,408	19,932	1,086,336	4,456
Balance (in shares) at Dec. 31, 2020			60,855,099
Balance at Jun. 30, 2021		1,141,968	$ 61	233,768	64,449	806,598	32,814	1,137,690	4,278
Balance (in shares) at Jun. 30, 2021			61,367,337
Issuance of restricted shares			$ 1	(1)
Issuance of restricted shares (in shares)			593,987
Share-based compensation		6,306		6,306				6,306
Net income (loss) for the period		43,988				44,329		44,329	(341)
Appropriations to statutory reserves					12,380	(12,380)
Capital contribution from subsidiaries' non-controlling interest shareholders		695							695
Translation adjustments		16,559					16,393	16,393	166
Balance at Dec. 31, 2021		$ 1,209,516	$ 62	$ 240,073	$ 76,829	$ 838,547	$ 49,207	$ 1,204,718	$ 4,798
Balance (in shares) at Dec. 31, 2021			61,961,324

[1] The impact to ordinary shares and additional paid-in capital upon issuance of restricted shares is less than $1.

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ORGANIZATION AND BUSINESS BACKGROUND

6 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

ORGANIZATION AND BUSINESS BACKGROUND

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, 2021, the Company had subsidiaries incorporated in countries and jurisdictions including the People’s Republic of China (“PRC”), Singapore, Malaysia, Macau, Hong Kong, BVI, India, Qatar 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 generally accepted accounting principles (“GAAP”).

In November 2015, Concord Electrical Contracting Ltd., (“CECL”), was established in Doha, Qatar, by Concord Corporation Pte. Ltd. (“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 the majority of the 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 losses from CECL’s operations. In accordance with Accounting Standards Codification (“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, which is a VIE. Therefore, CECL has been consolidated by the Company since inception.

The following tables set forth the financial statement balances and amounts of the VIE that were included in the condensed consolidated financial statements:

	June 30, 2021			December 31, 2021
				(Unaudited)
Current assets	$	5,588		$	5,447
Non-current assets		37			14
Total assets		5,625			5,461
Current liabilities	$	3,230		$	3,183
Total liabilities		3,230			3,183
	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Net revenue	$	20		$	7
Cost of revenue		16			—
Net profit		4			7
Net cash used in operating activities		(555	)		(106	)

As of December 31, 2021, the current assets of the VIE included amounts due from subsidiaries of the Group amounting to $4,229 (June 30, 2021: $4,151), and the current liabilities of the VIE included amounts due to subsidiaries of the Group amounting to $243 (June 30, 2021: $121), 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 through CCPL 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, 2020 and 2021, the Company has not provided financial support other than that which it was contractually required to provide. 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 (“BCPL”), a wholly-owned Singapore subsidiary of the Company, and a Malaysian citizen (the “Trustee”) entered into a trust deed, under which, 49.1% of BCPL’s equity interests in Bond M & E Sdn. Bhd. (“BMJB”), a Malaysian company, which previously was a 100% subsidiary of BCPL, was transferred to the Trustee. According to the trust deed, all of the beneficial interests in BMJB belong to BCPL and the Trustee shall hold the legal title of the transferred shares in trust for and act on behalf of BCPL absolutely. Any dividend, interest and other benefits received or receivable by the Trustee will be transferred to BCPL. The Trustee shall exercise the managerial rights and voting power in a manner directed by a prior written notice from BCPL. The Trustee shall be obligated to vote in the same manner as BCPL 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 BCPL. Therefore, BCPL 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 BMJB, and therefore consolidates BMJB in its condensed consolidated financial statements.

The Company, its subsidiaries and the VIE, (collectively the “Group”) are 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.

In August 2021, the Company completed the acquisition of 100% of the equity of Beijing Hollysys Intelligent Technologies Co., Ltd. (“Hollysys Intelligent”), a wholly owned subsidiary, from Ningbo Hollysys Intelligent Technologies Co Ltd. (“Ningbo Hollysys”), with a cash consideration of approximately $20,901. As a subsidiary of the Company, its financial performance was included in the Company’s consolidated financial statements from the first quarter of fiscal year 2022.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. GAAP for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited condensed consolidated financial statements for the fiscal year ended June 30, 2021. 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. The results of operations for the six months period ended December 31, 2021 are not necessarily indicative of results to be expected for any other interim period or for the year ended June 30, 2022. The consolidated balance sheet as of June 30, 2021 was derived from the audited condensed 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 condensed consolidated financial statements for the year ended June 30, 2021.

Principles of Consolidation

The condensed 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 includes 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 solutions contracts and service contracts, allowance for credit losses of accounts receivable, costs and estimated earnings in excess of billings, accounts receivable retention and other receivables, fair value of bifurcated derivative, fair value of warranties, valuation allowance of deferred tax assets, impairment of goodwill and other long-lived assets, goodwill related to the acquisition of Beijing Hollysys Intelligent Technologies Co., Ltd. (“Hollysys Intelligent”), Shandong Lukang Pharmaceutical Engineering Design Co., Ltd (“Shandong Lukang”) and Beijing Hollysys Industrial Software Company Ltd (“Hollysys Industrial Software”), provision for loss contracts, incremental borrowing rate (“IBR”) for operating leases, net realizable value of inventory, and valuation and recognition of share-based compensation expenses. Management’s estimates are based 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 dollar (“US dollar” 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, Foreign currency matters (“ASC 830”), the Company uses the US dollar 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 condensed consolidated 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 (loss) income. Transactions dominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the condensed 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.

“RMB” and “CNY” refer to Renminbi, the legal currency of China; “SGD” and “S$” refer to the Singapore dollar, the legal currency of Singapore; “US dollar,” “$” and “US$” refer to the legal currency of the United States; “MYR” refers to the Malaysian Ringgit, the legal currency of Malaysia; “AED” refers to the United Arab Emirates Dirham, the legal currency of United Arab Emirates; “HKD” refers to the Hong Kong dollar, the legal currency of Hong Kong; “MOP” refers to the Macau Pataca, the legal currency of Macau; “INR” refers to the Indian Rupee, the legal currency of India; and “QAR” refers to the Qatar Riyal, the legal currency of Qatar; “IDR” refers to Indonesia Rupiah, the legal currency of Indonesia;

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 in 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 condensed consolidated statements of comprehensive income.

The determination and allocation of fair values of 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, 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.

Acquisition-related costs are recognized as general and administrative expenses in the condensed consolidated 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.

Short-term investments

Short-term investments consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2021, $22,181, $4,278, and $8,310 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, respectively. As of June 30, 2021, $40,254, $4,293, and $4,261 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, 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 time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to five years excluding the warranty period. The majority of the contracts have a duration 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 time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to three years excluding the warranty period. The majority of the contracts have a duration longer than one year.

In accordance with ASC 606, Revenue from Contract with Customers (“ASC 606”), 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 contracts. The Company’s estimates of total costs expected to be incurred for an integrated solutions contract include assumptions regarding the Company’s future effort or input such as direct costs of equipment and materials and direct labor costs. Significant estimation uncertainty exists due to the long construction periods and sensitivity of these assumptions to extent of progress towards completion and estimated total costs of integrated solutions contracts, as both impact revenue and gross profit realization. The significant assumptions are forward-looking and could be affected by future economic and market conditions and changes in the level of efforts and costs required to complete the integrated solutions contracts. The total costs incurred may not always be proportionate to the entity’s progress in satisfying their performance obligations. Changes in the estimated total costs affects the revenue recognized in the current period and in future periods. 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 the contracts at least annually. Revisions to contract revenue and estimated total costs of the contracts are made in the period in which the facts and circumstances that cause the revision become known and are accounted for as changes in estimates. Excluding the impact of change orders, if the estimated total costs of integrated solutions contracts, which were revised during the six months ended December 31, 2020 and 2021, 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, 2020 and 2021 would have been decreased by $5,440 and $17,169, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively. Revisions to the estimated total costs for the six months ended December 31, 2020 and 2021 were made in the ordinary course of business.

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 value-added tax collected on behalf of the government.

Product sales

The Company’s products mainly include hardware and software. Revenue generated from sales of products is recognized when control of promised goods is transferred to the Company’s customers in an amount of consideration to which the Company expects to be entitled to in exchange for those goods. Revenues are presented net of value-added tax collected on behalf of the government.

Services rendered

The Company mainly provides the following services:

The Company provides maintenance service which is generally completed onsite at the customers’ premises. Revenue is recognized over time by using the cost-to-cost method to measure the progress towards the completion of the performance obligation as the customer simultaneously receives and consumes the benefits from the services rendered by the Company. As costs incurred represent work performed, the Company believes this method best depicts transfer of control to the customer. Revenues are presented net of value-added tax collected on behalf of the government.

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 solutions contracts. 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 uses time elapsed to measure the progress toward complete satisfaction of the performance obligation and recognizes revenue ratably over the contractual term. Revenues are presented net of value-added tax collected on behalf of the government.

Excluding the impact of change orders, if the estimated total costs of service contracts, which were revised during the six months ended December 31, 2020 and 2021, had been used as a basis of recognition of service contract revenue since the contract commencement, net income for the six months ended December 31, 2020 and 2021 would have decreased by $5,585 and $3,923, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.06, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021, would have decreased by $0.09 and $0.06, respectively. Revisions to the estimated total costs for the six months ended December 31, 2021 were made in the ordinary course of business.

Contract assets

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Accordingly, the Company includes the following in contract assets: (i) unbilled amounts resulting from revenue recognized exceeding amounts billed to customers for integrated solutions contracts and maintenance service contracts using the cost-to-cost method, which are recorded in the balance sheet as costs and estimated earnings in excess of billing; and (ii) accounts receivable retention amounts which are held by customers from Concord and Bond Groups upon the issuance of the final completion certificate and completion of the defects liability period.

Performance of the integrated solutions contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual terms. There are different billing practices in the PRC, overseas operating subsidiaries and the VIEs (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in the 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) end of the warranty period. The amounts to be billed at each milestone are specified in the contract. All integrated solutions contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated solutions 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 solutions contract is scheduled at the end of a warranty period. There are no significant financing components in the integrate solutions contracts.

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 the issuance of the final completion certificate and completion of the defects liability period. The retained amounts are recorded as accounts receivable retention.

Contract liabilities

Contract liabilities include the amounts that reflect obligations to provide goods or services for which payment has been received. Contract liabilities are presented in the balance sheet as deferred revenue.

The Company receives prepayments for integrated solutions contracts, product sales and service contracts for goods or services to be provided in the future. Prepayments received are recorded as deferred revenue, which is recognized as revenue based on the revenue recognition policies disclosed above for integrated solutions contracts, product sales and services rendered.

Accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention

The carrying value of the Company’s accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention, net of the allowance for credit losses, represents their estimated net realizable value. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company assesses collectability by reviewing accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention on a collective basis where similar characteristics exist, primarily based on similar business segment, service, product offerings or geographic locations and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including historical collectability based on past due status, the age of the accounts receivable balances, costs and estimated earnings in excess of billings balances and account receivable retention balances, credit quality of the Company’s customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from counter parties. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventories

Inventories comprise 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 uses the weighted average cost method as its 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 solutions contracts and/or costs of products sold.

Warranties

Warranties represent a major term under integrated solutions contracts and maintenance service contracts, 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 a service contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for the related 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 - 10 years
Vehicles	5 - 10 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 four 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 are amortized using a straight-line method.

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

Category	Estimated useful life
Patents and copyrights		5 - 10 years

Residual values are considered nil.

Operating lease as lessor

The Company classifies a lease as an operating, sales-type or direct financing lease at lease commencement date as appropriate under ASC 842, Leases. For operating leases, the Company recognizes rental income over the non-cancellable lease term on a straight-line basis. The Company does not have any sales-type or direct financing lease for the six months ended December 31, 2020 and 2021.

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 follows 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. The amount of interest expense is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interests and penalties recognized in accordance with ASC 740 are classified in the financial statements as a component of income tax expense. In accordance with the provisions of ASC 740, the Company recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Company’s estimated liability for unrecognized tax positions which is included in accrued liabilities is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Company’s estimates. As each annual filling is done, adjustments, if any, are recorded in the Company’s financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require the Company to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.

Segment reporting

In accordance with ASC 280, Segment Reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision maker reviews 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 (“IA”), rail transportation (“Rail”) and mechanical and electrical solutions (“M&E”). 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 equity investees and equity securities

The Company accounts for its equity investments under the equity method when the Company has rights and the ability to exercise significant influence over the investees. 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. When dividends from an investee exceed the carrying amount of an equity method investment, the excess distribution is recognized as a gain and reported as share of net income of equity investees, net in the condensed consolidated statements of comprehensive income when the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. In such cases, subsequent equity method earnings are not recorded until subsequent earnings equal the gain recorded. 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 condensed consolidated statements of comprehensive income when the decline in value is considered other than temporary. The Company will discontinue applying the equity method if an investment (plus additional financial support provided to the investee, if any) has been reduced to zero. When the Company has other investments in its equity-method investee and is not required to advance additional funds to that investee, the Company would continue to report its share of equity method losses in its condensed consolidated statement of comprehensive income after its equity-method investment in ordinary shares has been reduced to zero, to the extent of and as an adjustment to the adjusted basis of its other investments in the investee. Such losses are first applied to those investments of a lower liquidation preference before being further applied to the investments of a higher liquidation preference.

The Company uses the cumulative earnings approach to classify distributions received from equity investees. Under this approach, distributions received from equity investees are presumed to be a return on the investment and are classified as cash inflows from operating activities unless the distributions received exceed cumulative equity in earnings recognized by the investor. In such case, the excess is considered a return of investment and is classified as cash inflows from investing activities.

For equity investments other than those accounted for under the equity method or those that result in consolidation of the investee, the Company measures equity investments at fair value and recognizes any changes in fair value in net income. However, for equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company chooses to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting date, the Company is required to make a qualitative assessment as to whether equity investments without a readily determinable fair value for which the measurement alternative is elected is impaired. In the event that a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than the carrying value, the carrying value is written down to its fair value. A variety of factors are considered when determining if a decline in fair value is below carrying value, including, among others, the financial condition and prospects of the investee.

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 earnings per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potentially dilutive securities such as stock options and restricted shares have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive.

Fair value measurements

The Company follows 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

Recently Adopted Standards

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)(“ASU 2020-01”), which clarifies the interactions of the accounting for certain equity securities under ASC 321, investments accounted for under the equity method of accounting in ASC 323. ASU 2020-01 could change how an entity accounts for an equity security under the measurement alternative. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2020. Early adoption is permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

Standards Effective in Future Years

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04, as amended), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts hedging relationships, certain derivatives and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. ASU 2020-04, as amended, became effective immediately. Management does not believe the adoption of ASU 2020-04, including optional expedients will materially impact our financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is required to be adopted by us in the first quarter of 2023 and must be applied using either a modified or full retrospective approach. The Company is currently assessing the expected impact of the future adoption of this guidance.

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OPERATING LEASES AS LESSOR

6 Months Ended

Dec. 31, 2021

OPERATING LEASES AS LESSOR

OPERATING LEASES AS LESSOR

NOTE 3 -    OPERATING LEASES AS LESSOR

The Company entered into operating lease arrangements to lease out its buildings located in Beijing with lease terms ranging from ten to fifteen years. The lease arrangements include lease payments that are largely fixed and do not contain variable lease payments. The leases do not contain any contingent rental income clauses or options for a lessee to purchase the buildings.

Total rental income for the six months ended December 31, 2020 and 2021 were $729 and $823, respectively and were recorded as other income on the condensed consolidated statements of comprehensive income.

Future minimum lease payments to be received for these operating lease arrangements for each of the five succeeding fiscal years as of December 31, 2021 are as follows:

	As of December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	3,598
January 1, 2023 – December 31, 2023		3,706
January 1, 2024 – December 31, 2024		2,248
January 1, 2025 – December 31, 2025		1,998
January 1, 2026 – December 31, 2026		2,058
Thereafter		14,119
Total	$	27,727

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INVENTORIES

6 Months Ended

Dec. 31, 2021

Inventory Disclosure [Abstract]

INVENTORIES

NOTE 4 -    INVENTORIES

Components of inventories are as follows:

	June 30, 2021		December 31, 2021
			(Unaudited)
Raw materials	$	23,469	$	35,573
Work in progress		12,165		13,259
Finished goods		12,278		18,824
	$	47,912	$	67,656

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SHORT-TERM INVESTMENTS

6 Months Ended

Dec. 31, 2021

Short-term Investments [Abstract]

SHORT-TERM INVESTMENTS

NOTE 5 -    SHORT-TERM INVESTMENTS

Short-term held-to-maturity securities were mainly deposits in commercial banks with maturities less than one year and structured deposits issued by commercial banks and other financial institutions for which the Company has the positive intent and ability to hold those securities to maturity.

Short-term investments classification as of June 30, 2021 and December 31, 2021 are shown below:

	As of June 30, 2021
	Cost or Amortized cost		Gross unrecognized holding gains		Gross unrecognized holding losses		Gross unrecognized gains		Gross unrecognized losses		Fair value
Held-to-maturity debt investments		48,808		—		—		—		—		48,808

	As of December 31, 2021
	Cost or Amortized cost	Gross unrecognized holding gains	Gross unrecognized holding losses	Gross unrecognized gains	Gross unrecognized losses	Fair value
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Held-to-maturity debt investments	34,769	—	—	—	—	34,769

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WARRANTY LIABILITIES

6 Months Ended

Dec. 31, 2021

WARRANTY LIABILITIES

WARRANTY LIABILITIES

NOTE 6 -    WARRANTY LIABILITIES

	June 30, 2021			December 31, 2021
				(Unaudited)
Total warranty liabilities	$	9,551		$	9,512
Less: current portion of warranty liabilities		(5,902	)		(6,474	)
Long-term warranty liabilities	$	3,649		$	3,038

The following table shows activity in the warranty liabilities for the six months ended December 31, 2020 and 2021:

	Six months ended
	December 31, 2020			December 31, 2021
	(Unaudited)			(Unaudited)
Beginning balance	$	10,064		$	9,551
Consolidation of subsidiary		—			145
Expense accrued		1,490			1,143
Expense incurred		(1,677	)		(1,389	)
Translation adjustment		600			62
Ending balance	$	10,477		$	9,512

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REVENUE FROM CONTRACTS WITH CUSTOMERS

6 Months Ended

Dec. 31, 2021

REVENUE FROM CONTRACTS WITH CUSTOMERS

REVENUE FROM CONTRACTS WITH CUSTOMERS

NOTE 7 -    REVENUE FROM CONTRACTS WITH CUSTOMERS

Remaining Unsatisfied Performance Obligations (“RUPO”)

As of December 31, 2021, the Company’s backlog relating to unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers was $772.1 million. The Company expects to recognize the majority of its remaining performance obligations as revenue within the next three years.

Disaggregation of revenues

The Company assesses revenues based upon the nature or type of goods or services it provides and the geographic location of the related businesses. The geographic locations are consistent with the reportable segments. For more information on the reportable segments, see Note 14, “Segment Reporting”. The following table presents disaggregated revenue information:

	Six months ended December 31, 2021
	PRC		Non-PRC		Total
	(Unaudited)		(Unaudited)		(Unaudited)
Integrated solutions contract revenue	$	250,144		40,924		291,068
Product sales		18,964		553		19,517
Maintenance service contracts		56,062		35		56,097
Extended warranty service revenue		2,954		—		2,954
Total	$	328,124		41,512		369,636

Contract assets and contract liabilities

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Accordingly, the Company includes the following in the contract assets: (i) unbilled amounts resulting from revenue recognized exceeding amounts billed to customers for integrated solutions contracts and maintenance service contracts using the cost-to-cost method, which are included in the consolidated balance sheets as “costs and estimated earnings in excess of billing”; and (ii) accounts receivable retention amounts which were held by customers from Concord and Bond Groups upon the issuance of the final completion certificate and completion of the defects liability period.

Contract liabilities include the amounts that reflect obligations to provide goods or services for which payment has been received. Contract liabilities are presented in the consolidated balance sheets as deferred revenue.

These contract assets and liabilities are calculated on a contract-by-contract basis and reported on a net basis at the end of reporting period. The Company recognized revenue of $72,131 for the six months ended December 31, 2021, which was previously deferred and included in the contract liability at the beginning of the year. This revenue was driven primarily by performance obligations satisfied.

Contract assets and contract liabilities are summarized below:

	June 30, 2021		December 31, 2021
			(Unaudited)
Contract assets, current	$	202,462		229,767
Contract assets, non-current		5,627		7,040
Contract liabilities		185,596		209,649

The increase in contract assets was primarily due to new contracts and timing of revenue recognized relative to its billings. The increase in contract liabilities was primarily due to an increase in the receipt of advance payments and the timing of contractual milestones. No other factors materially impacted the change in the contract liabilities balance.

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LONG-TERM LOANS

6 Months Ended

Dec. 31, 2021

LONG-TERM LOANS

LONG-TERM LOANS

NOTE 8 -     LONG-TERM LOANS

	June 30, 2021			December 31, 2021
				(Unaudited)
MYR denominated loans		842			736
SGD denominated loans		164			203
USD denominated loan		15,000			15,000
	$	16,006		$	15,939
Less: current portion		(15,308	)		(15,371	)
	$	698		$	568

Scheduled principal payments for all outstanding long-term loans as of December 31, 2021 are as follows:

	December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	15,371
January 1, 2023 – December 31, 2023		241
January 1, 2024 – December 31, 2024		125
January 1, 2025 – December 31, 2025		74
January 1, 2026 and onwards		128
	$	15,939

For the six months ended December 31, 2020 and 2021, interest expenses of long-term loans incurred amounted to $277 and $366 respectively, and nil and nil was capitalized as construction in progress respectively.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Dec. 31, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

NOTE 9 -    FAIR VALUE MEASUREMENTS

Financial instruments include cash and cash equivalents, restricted cash, short-term investments, derivative assets accounts receivable, accounts receivable retention, other receivables, amounts due to or from related parties, accounts payable, short-term and long-term bank loans. The carrying values of these financial instruments, other than long-term bank loans and derivative assets (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 approximates its fair value as the long-term bank loans are subject to floating interest rates. The carrying value of the Company’s long-term bank loans which are subject to fixed interest rates approximates its fair value as the market interest rate has not significantly changed from the borrowing date to December 31, 2021. 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.

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STOCKHOLDERS' EQUITY

6 Months Ended

Dec. 31, 2021

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 10 -    STOCKHOLDERS’ EQUITY

On October 5, 2020, the Company declared a regular annual cash dividend of $0.20 per share to the holders of the Company’s ordinary shares. The record date was October 22, 2020, and the dividend was paid on November 20, 2020.

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INCOME TAX

6 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAX

NOTE 11 -    INCOME TAX

Effective tax rate

The Company’s effective income tax rate (“ETR”) was 16.5% for the six months ended December 31, 2021 as compared to 17.1% for the six months ended December 31, 2020. These rates differ from the statutory rate of 25% in the PRC because the ETR is subject to the Company’s subsidiaries contributing different pre-tax income at different tax rates.

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INCOME PER SHARE

6 Months Ended

Dec. 31, 2021

Earnings Per Share [Abstract]

INCOME PER SHARE

NOTE 12 -    INCOME PER SHARE

The following table sets forth the computation of basic and diluted net income per share attributable to the Company’s common shareholders for the six months indicated:

	Six months ended December 31,
	2020		2021
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to common stockholders - basic	$	51,913	$	44,329
Net income attributable to common stockholders - diluted (i)	$	51,913	$	44,329
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		60,498,431		60,884,346
Effect of dilutive securities
Share options		—		87,242
Restricted shares		195,202		585,014
Weighted average ordinary shares outstanding used in computing diluted income per share		60,693,633		61,556,602
Income per share - basic	$	0.86		0.73
Income per share - diluted	$	0.86		0.72

(i) Vested and unissued restricted shares of 15,000 and 15,000 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2020 and 2021, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2020 as its effect would be anti-dilutive.

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Dec. 31, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

NOTE 13 -    COMMITMENTS AND CONTINGENCIES

Capital commitments

As of December 31, 2021, the Company had approximately $29,024 in capital obligations for the upcoming twelve months, mainly for the Company’s information system construction.

Purchase obligations

As of December 31, 2021, the Company had $333,784 purchase obligations in total ($280,895, $33,056, $13,222 and $6,611 over the periods of less than one year, one to three years, three to five years and more than five years from December 31, 2021, respectively) for purchases of inventories and services from subcontractors, 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 $703 and outstanding performance guarantees of $59,429 as of December 31, 2021, with restricted cash of $5,805 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 460, Guarantees (“ASC 460”). 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, 2021

Segment Reporting [Abstract]

SEGMENT REPORTING

NOTE 14 -    SEGMENT REPORTING

The CODM of the Company 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, the Company has determined that the reportable segments of the Company consist of (1) IA, (2) Rail, (3) M&E, in accordance with the Company’s organization and internal financial reporting structure. The CODM assesses the performance of the operating segments based on the measures of revenues, costs and gross profit. Other than the information provided below, the CODM does not use any other measures by segments.

Summarized information by segments for the six months ended December 31, 2020, and 2021 is as follows:

	Six months ended December 31, 2020
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	150,245		57,938		39,991		248,174
Product sales		11,819		3,207		—		15,026
Maintenance service revenue		11,372		48,430		20		59,822
Extended warranty service revenue		1,383		390		—		1,773
Total		174,819		109,965		40,011		324,795
Costs of revenue		115,676		56,834		35,165		207,675
Gross profit	$	59,143		53,131		4,846		117,120

	Six months ended December 31, 2021
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	189,031		64,083		37,954		291,068
Product sales		14,549		4,968		—		19,517
Maintenance service revenue		12,010		44,045		42		56,097
Extended warranty service revenue		704		2,250		—		2,954
Total		216,294		115,346		37,996		369,636
Costs of revenue		146,102		58,479		34,673		239,254
Gross profit	$	70,192		56,867		3,323		130,382

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,
	2020		2021
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	283,528	$	328,124
Non-PRC		41,267		41,512
	$	324,795	$	369,636

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

	June 30, 2021		December 31, 2021
			(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	163,343	$	178,165
Non-PRC		11,458		10,983
	$	174,801	$	189,148

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SUBSEQUENT EVENTS

6 Months Ended

Dec. 31, 2021

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 15 -    SUBSEQUENT EVENTS

In March 2021, the Company entered into an agreement to dispose all of its interest in Cixi HollySys Precision Technology Co., Ltd. (“Cixi Hollysys”) for cash consideration of $16,331. The Company received $5,187 of the proceeds prior to the year ended December 31, 2021 and recorded the amount as a liability as the disposal transaction was not completed as of December 31, 2021. The Company completed the disposal in February 2022.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Basis of Presentation

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. GAAP for interim financial information using accounting policies that are consistent with those used in the preparation of the Group’s audited condensed consolidated financial statements for the fiscal year ended June 30, 2021. 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. The results of operations for the six months period ended December 31, 2021 are not necessarily indicative of results to be expected for any other interim period or for the year ended June 30, 2022. The consolidated balance sheet as of June 30, 2021 was derived from the audited condensed 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 condensed consolidated financial statements for the year ended June 30, 2021.

Principles of Consolidation

Principles of Consolidation

The condensed 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 includes the results of operations of acquired businesses from the respective dates of acquisition.

Use of estimates

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 solutions contracts and service contracts, allowance for credit losses of accounts receivable, costs and estimated earnings in excess of billings, accounts receivable retention and other receivables, fair value of bifurcated derivative, fair value of warranties, valuation allowance of deferred tax assets, impairment of goodwill and other long-lived assets, goodwill related to the acquisition of Beijing Hollysys Intelligent Technologies Co., Ltd. (“Hollysys Intelligent”), Shandong Lukang Pharmaceutical Engineering Design Co., Ltd (“Shandong Lukang”) and Beijing Hollysys Industrial Software Company Ltd (“Hollysys Industrial Software”), provision for loss contracts, incremental borrowing rate (“IBR”) for operating leases, net realizable value of inventory, and valuation and recognition of share-based compensation expenses. Management’s estimates are based 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

Foreign currency translations and transactions

The Company’s functional currency is the United States dollar (“US dollar” 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, Foreign currency matters (“ASC 830”), the Company uses the US dollar 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 condensed consolidated 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 (loss) income. Transactions dominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing on the transaction dates, and the exchange gains or losses are reflected in the condensed 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.

“RMB” and “CNY” refer to Renminbi, the legal currency of China; “SGD” and “S$” refer to the Singapore dollar, the legal currency of Singapore; “US dollar,” “$” and “US$” refer to the legal currency of the United States; “MYR” refers to the Malaysian Ringgit, the legal currency of Malaysia; “AED” refers to the United Arab Emirates Dirham, the legal currency of United Arab Emirates; “HKD” refers to the Hong Kong dollar, the legal currency of Hong Kong; “MOP” refers to the Macau Pataca, the legal currency of Macau; “INR” refers to the Indian Rupee, the legal currency of India; and “QAR” refers to the Qatar Riyal, the legal currency of Qatar; “IDR” refers to Indonesia Rupiah, the legal currency of Indonesia;

Business combinations

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 in 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 condensed consolidated statements of comprehensive income.

The determination and allocation of fair values of 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, 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.

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

Cash and cash equivalents

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.

Short-term investments

Short-term investments

Short-term investments consist of deposits placed with financial institutions with original maturity terms from four months to one year. As of December 31, 2021, $22,181, $4,278, and $8,310 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, respectively. As of June 30, 2021, $40,254, $4,293, and $4,261 of short-term investments were placed in financial institutions in the PRC, Singapore, and Malaysia, respectively.

Restricted cash

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

Revenue recognition

Integrated solutions contracts

Revenues generated from designing, building, and delivering customized integrated industrial automation systems are recognized over time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to five years excluding the warranty period. The majority of the contracts have a duration 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 time as the customer simultaneously receives and consumes the benefits provided by the Company’s performance as it occurs or because the customers control the related asset as it is created or enhanced. 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 six months to three years excluding the warranty period. The majority of the contracts have a duration longer than one year.

In accordance with ASC 606, Revenue from Contract with Customers (“ASC 606”), 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 contracts. The Company’s estimates of total costs expected to be incurred for an integrated solutions contract include assumptions regarding the Company’s future effort or input such as direct costs of equipment and materials and direct labor costs. Significant estimation uncertainty exists due to the long construction periods and sensitivity of these assumptions to extent of progress towards completion and estimated total costs of integrated solutions contracts, as both impact revenue and gross profit realization. The significant assumptions are forward-looking and could be affected by future economic and market conditions and changes in the level of efforts and costs required to complete the integrated solutions contracts. The total costs incurred may not always be proportionate to the entity’s progress in satisfying their performance obligations. Changes in the estimated total costs affects the revenue recognized in the current period and in future periods. 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 the contracts at least annually. Revisions to contract revenue and estimated total costs of the contracts are made in the period in which the facts and circumstances that cause the revision become known and are accounted for as changes in estimates. Excluding the impact of change orders, if the estimated total costs of integrated solutions contracts, which were revised during the six months ended December 31, 2020 and 2021, 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, 2020 and 2021 would have been decreased by $5,440 and $17,169, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.28, respectively. Revisions to the estimated total costs for the six months ended December 31, 2020 and 2021 were made in the ordinary course of business.

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 value-added tax collected on behalf of the government.

Product sales

The Company’s products mainly include hardware and software. Revenue generated from sales of products is recognized when control of promised goods is transferred to the Company’s customers in an amount of consideration to which the Company expects to be entitled to in exchange for those goods. Revenues are presented net of value-added tax collected on behalf of the government.

Services rendered

The Company mainly provides the following services:

The Company provides maintenance service which is generally completed onsite at the customers’ premises. Revenue is recognized over time by using the cost-to-cost method to measure the progress towards the completion of the performance obligation as the customer simultaneously receives and consumes the benefits from the services rendered by the Company. As costs incurred represent work performed, the Company believes this method best depicts transfer of control to the customer. Revenues are presented net of value-added tax collected on behalf of the government.

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 solutions contracts. 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 uses time elapsed to measure the progress toward complete satisfaction of the performance obligation and recognizes revenue ratably over the contractual term. Revenues are presented net of value-added tax collected on behalf of the government.

Excluding the impact of change orders, if the estimated total costs of service contracts, which were revised during the six months ended December 31, 2020 and 2021, had been used as a basis of recognition of service contract revenue since the contract commencement, net income for the six months ended December 31, 2020 and 2021 would have decreased by $5,585 and $3,923, respectively; basic net income per share for the six months ended December 31, 2020 and 2021 would have decreased by $0.09 and $0.06, respectively; and diluted net income per share for the six months ended December 31, 2020 and 2021, would have decreased by $0.09 and $0.06, respectively. Revisions to the estimated total costs for the six months ended December 31, 2021 were made in the ordinary course of business.

Contract assets

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Accordingly, the Company includes the following in contract assets: (i) unbilled amounts resulting from revenue recognized exceeding amounts billed to customers for integrated solutions contracts and maintenance service contracts using the cost-to-cost method, which are recorded in the balance sheet as costs and estimated earnings in excess of billing; and (ii) accounts receivable retention amounts which are held by customers from Concord and Bond Groups upon the issuance of the final completion certificate and completion of the defects liability period.

Performance of the integrated solutions contracts will often extend over long periods and the Company’s right to receive payments depends on its performance in accordance with the contractual terms. There are different billing practices in the PRC, overseas operating subsidiaries and the VIEs (Concord and Bond Groups). For the Company’s PRC subsidiaries, billings are issued based on milestones specified in the 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) end of the warranty period. The amounts to be billed at each milestone are specified in the contract. All integrated solutions contracts have the first milestone, but not all contracts require prepayments. The length of each interval between two continuous billings under an integrated solutions 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 solutions contract is scheduled at the end of a warranty period. There are no significant financing components in the integrate solutions contracts.

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 the issuance of the final completion certificate and completion of the defects liability period. The retained amounts are recorded as accounts receivable retention.

Contract liabilities

Contract liabilities include the amounts that reflect obligations to provide goods or services for which payment has been received. Contract liabilities are presented in the balance sheet as deferred revenue.

The Company receives prepayments for integrated solutions contracts, product sales and service contracts for goods or services to be provided in the future. Prepayments received are recorded as deferred revenue, which is recognized as revenue based on the revenue recognition policies disclosed above for integrated solutions contracts, product sales and services rendered.

Accounts receivable and costs and estimated earnings in excess of billings

Accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention

The carrying value of the Company’s accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention, net of the allowance for credit losses, represents their estimated net realizable value. The allowance for credit losses reflects the Company’s current estimate of credit losses expected to be incurred over the life of the receivables. The Company assesses collectability by reviewing accounts receivable, costs and estimated earnings in excess of billings and accounts receivable retention on a collective basis where similar characteristics exist, primarily based on similar business segment, service, product offerings or geographic locations and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses including historical collectability based on past due status, the age of the accounts receivable balances, costs and estimated earnings in excess of billings balances and account receivable retention balances, credit quality of the Company’s customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from counter parties. The Company’s monitoring activities include timely account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. The Company does not require collateral from its customers and does not charge interest for late payments by its customers.

Inventories

Inventories

Inventories comprise 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 uses the weighted average cost method as its 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 solutions contracts and/or costs of products sold.

Warranties

Warranties

Warranties represent a major term under integrated solutions contracts and maintenance service contracts, 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 a service contract as a percentage of revenue recognized, which is derived from its historical experience, in order to recognize the warranty cost for the related contract throughout the contract period.

Property, plant and equipment, net

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 - 10 years
Vehicles	5 - 10 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 leases, net

Prepaid land lease payments, for the land use right of four 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, 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 are amortized using a straight-line method.

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

Category	Estimated useful life
Patents and copyrights		5 - 10 years

Residual values are considered nil.

Operating lease as lessor

Operating lease as lessor

The Company classifies a lease as an operating, sales-type or direct financing lease at lease commencement date as appropriate under ASC 842, Leases. For operating leases, the Company recognizes rental income over the non-cancellable lease term on a straight-line basis. The Company does not have any sales-type or direct financing lease for the six months ended December 31, 2020 and 2021.

Income taxes

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 follows 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. The amount of interest expense is computed by applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interests and penalties recognized in accordance with ASC 740 are classified in the financial statements as a component of income tax expense. In accordance with the provisions of ASC 740, the Company recognizes in its financial statements the impact of a tax position if a tax return position or future tax position is “more likely than not” to prevail based on the facts and technical merits of the position. Tax positions that meet the “more likely than not” recognition threshold are measured at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Company’s estimated liability for unrecognized tax positions which is included in accrued liabilities is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Company’s estimates. As each annual filling is done, adjustments, if any, are recorded in the Company’s financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require the Company to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.

Segment reporting

Segment reporting

In accordance with ASC 280, Segment Reporting (“ASC 280”), segment reporting is determined based on how the Company’s chief operating decision maker reviews 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 (“IA”), rail transportation (“Rail”) and mechanical and electrical solutions (“M&E”). 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 equity investees and equity securities

Investments in equity investees and equity securities

The Company accounts for its equity investments under the equity method when the Company has rights and the ability to exercise significant influence over the investees. 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. When dividends from an investee exceed the carrying amount of an equity method investment, the excess distribution is recognized as a gain and reported as share of net income of equity investees, net in the condensed consolidated statements of comprehensive income when the Company is not liable for the obligations of the investee nor otherwise committed to provide financial support. In such cases, subsequent equity method earnings are not recorded until subsequent earnings equal the gain recorded. 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 condensed consolidated statements of comprehensive income when the decline in value is considered other than temporary. The Company will discontinue applying the equity method if an investment (plus additional financial support provided to the investee, if any) has been reduced to zero. When the Company has other investments in its equity-method investee and is not required to advance additional funds to that investee, the Company would continue to report its share of equity method losses in its condensed consolidated statement of comprehensive income after its equity-method investment in ordinary shares has been reduced to zero, to the extent of and as an adjustment to the adjusted basis of its other investments in the investee. Such losses are first applied to those investments of a lower liquidation preference before being further applied to the investments of a higher liquidation preference.

The Company uses the cumulative earnings approach to classify distributions received from equity investees. Under this approach, distributions received from equity investees are presumed to be a return on the investment and are classified as cash inflows from operating activities unless the distributions received exceed cumulative equity in earnings recognized by the investor. In such case, the excess is considered a return of investment and is classified as cash inflows from investing activities.

For equity investments other than those accounted for under the equity method or those that result in consolidation of the investee, the Company measures equity investments at fair value and recognizes any changes in fair value in net income. However, for equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company chooses to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting date, the Company is required to make a qualitative assessment as to whether equity investments without a readily determinable fair value for which the measurement alternative is elected is impaired. In the event that a qualitative assessment indicates that the investment is impaired and the fair value of the investment is less than the carrying value, the carrying value is written down to its fair value. A variety of factors are considered when determining if a decline in fair value is below carrying value, including, among others, the financial condition and prospects of the investee.

Income per share

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 earnings per share is computed using the weighted average number of ordinary shares and, if dilutive, potential ordinary shares outstanding during the period. Potentially dilutive securities such as stock options and restricted shares have been excluded from the computation of diluted net income per share if their inclusion is anti-dilutive.

Fair value measurements

Fair value measurements

The Company follows 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

Recent accounting pronouncements

Recently Adopted Standards

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force)(“ASU 2020-01”), which clarifies the interactions of the accounting for certain equity securities under ASC 321, investments accounted for under the equity method of accounting in ASC 323. ASU 2020-01 could change how an entity accounts for an equity security under the measurement alternative. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2020. Early adoption is permitted. The Company adopted this guidance on July 1, 2021, and the adoption of this guidance did not have material impact to the Company’s consolidated financial statements and related disclosures.

Standards Effective in Future Years

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04, as amended), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts hedging relationships, certain derivatives and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. ASU 2020-04, as amended, became effective immediately. Management does not believe the adoption of ASU 2020-04, including optional expedients will materially impact our financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options and Derivative and Hedging - Contracts in Entity’s Own Equity, which simplifies the accounting for convertible instruments. This guidance eliminates certain models that require separate accounting for embedded conversion features, in certain cases. Additionally, among other changes, the guidance eliminates certain of the conditions for equity classification for contracts in an entity’s own equity. The guidance also requires entities to use the if-converted method for all convertible instruments in the diluted earnings per share calculation and include the effect of share settlement for instruments that may be settled in cash or shares, except for certain liability-classified share-based payment awards. This guidance is required to be adopted by us in the first quarter of 2023 and must be applied using either a modified or full retrospective approach. The Company is currently assessing the expected impact of the future adoption of this guidance.

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ORGANIZATION AND BUSINESS BACKGROUND (Tables)

6 Months Ended

Dec. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of financial statement balances and amounts of the VIE

The following tables set forth the financial statement balances and amounts of the VIE that were included in the condensed consolidated financial statements:

	June 30, 2021			December 31, 2021
				(Unaudited)
Current assets	$	5,588		$	5,447
Non-current assets		37			14
Total assets		5,625			5,461
Current liabilities	$	3,230		$	3,183
Total liabilities		3,230			3,183
	Six months ended December 31,
	2020			2021
	(Unaudited)			(Unaudited)
Net revenue	$	20		$	7
Cost of revenue		16			—
Net profit		4			7
Net cash used in operating activities		(555	)		(106	)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

Schedule of depreciation expense using the straight-line method over the estimated useful lives of the assets

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 - 10 years
Vehicles	5 - 10 years
Electronic and other equipment	3 - 10 years

Schedule of estimated useful lives for the intangible assets

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

Category	Estimated useful life
Patents and copyrights		5 - 10 years

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OPERATING LEASES AS LESSOR (Tables)

6 Months Ended

Dec. 31, 2021

OPERATING LEASES AS LESSOR

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments to be received for these operating lease arrangements for each of the five succeeding fiscal years as of December 31, 2021 are as follows:

	As of December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	3,598
January 1, 2023 – December 31, 2023		3,706
January 1, 2024 – December 31, 2024		2,248
January 1, 2025 – December 31, 2025		1,998
January 1, 2026 – December 31, 2026		2,058
Thereafter		14,119
Total	$	27,727

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INVENTORIES (Tables)

6 Months Ended

Dec. 31, 2021

Inventory Disclosure [Abstract]

Schedule of Inventory, Current

Components of inventories are as follows:

	June 30, 2021		December 31, 2021
			(Unaudited)
Raw materials	$	23,469	$	35,573
Work in progress		12,165		13,259
Finished goods		12,278		18,824
	$	47,912	$	67,656

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SHORT-TERM INVESTMENTS (Table)

6 Months Ended

Dec. 31, 2021

Short-term Investments [Abstract]

Summary of short-term investments

Short-term investments classification as of June 30, 2021 and December 31, 2021 are shown below:

	As of June 30, 2021
	Cost or Amortized cost		Gross unrecognized holding gains		Gross unrecognized holding losses		Gross unrecognized gains		Gross unrecognized losses		Fair value
Held-to-maturity debt investments		48,808		—		—		—		—		48,808

	As of December 31, 2021
	Cost or Amortized cost	Gross unrecognized holding gains	Gross unrecognized holding losses	Gross unrecognized gains	Gross unrecognized losses	Fair value
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Held-to-maturity debt investments	34,769	—	—	—	—	34,769

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WARRANTY LIABILITIES (Tables)

6 Months Ended

Dec. 31, 2021

WARRANTY LIABILITIES

Schedule of Warranty Liability

	June 30, 2021			December 31, 2021
				(Unaudited)
Total warranty liabilities	$	9,551		$	9,512
Less: current portion of warranty liabilities		(5,902	)		(6,474	)
Long-term warranty liabilities	$	3,649		$	3,038

The following table shows activity in the warranty liabilities for the six months ended December 31, 2020 and 2021:

	Six months ended
	December 31, 2020			December 31, 2021
	(Unaudited)			(Unaudited)
Beginning balance	$	10,064		$	9,551
Consolidation of subsidiary		—			145
Expense accrued		1,490			1,143
Expense incurred		(1,677	)		(1,389	)
Translation adjustment		600			62
Ending balance	$	10,477		$	9,512

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REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

6 Months Ended

Dec. 31, 2021

REVENUE FROM CONTRACTS WITH CUSTOMERS

Summary of disaggregated revenue information

	Six months ended December 31, 2021
	PRC		Non-PRC		Total
	(Unaudited)		(Unaudited)		(Unaudited)
Integrated solutions contract revenue	$	250,144		40,924		291,068
Product sales		18,964		553		19,517
Maintenance service contracts		56,062		35		56,097
Extended warranty service revenue		2,954		—		2,954
Total	$	328,124		41,512		369,636

Summary of contract assets and contract liabilities

Contract assets and contract liabilities are summarized below:

	June 30, 2021		December 31, 2021
			(Unaudited)
Contract assets, current	$	202,462		229,767
Contract assets, non-current		5,627		7,040
Contract liabilities		185,596		209,649

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LONG-TERM LOANS (Tables)

6 Months Ended

Dec. 31, 2021

LONG-TERM LOANS

Schedule Of Debt Instruments

	June 30, 2021			December 31, 2021
				(Unaudited)
MYR denominated loans		842			736
SGD denominated loans		164			203
USD denominated loan		15,000			15,000
	$	16,006		$	15,939
Less: current portion		(15,308	)		(15,371	)
	$	698		$	568

Schedule of principal and interest payments for all outstanding long-term loans

Scheduled principal payments for all outstanding long-term loans as of December 31, 2021 are as follows:

	December 31, 2021
	(Unaudited)
January 1, 2022 – December 31, 2022	$	15,371
January 1, 2023 – December 31, 2023		241
January 1, 2024 – December 31, 2024		125
January 1, 2025 – December 31, 2025		74
January 1, 2026 and onwards		128
	$	15,939

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INCOME PER SHARE (Tables)

6 Months Ended

Dec. 31, 2021

Earnings Per Share [Abstract]

Schedule of the computation of basic and diluted net income per share

The following table sets forth the computation of basic and diluted net income per share attributable to the Company’s common shareholders for the six months indicated:

	Six months ended December 31,
	2020		2021
	(Unaudited)		(Unaudited)
Numerator:
Net income attributable to common stockholders - basic	$	51,913	$	44,329
Net income attributable to common stockholders - diluted (i)	$	51,913	$	44,329
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		60,498,431		60,884,346
Effect of dilutive securities
Share options		—		87,242
Restricted shares		195,202		585,014
Weighted average ordinary shares outstanding used in computing diluted income per share		60,693,633		61,556,602
Income per share - basic	$	0.86		0.73
Income per share - diluted	$	0.86		0.72

(i) Vested and unissued restricted shares of 15,000 and 15,000 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2020 and 2021, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2020 as its effect would be anti-dilutive.

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SEGMENT REPORTING (Tables)

6 Months Ended

Dec. 31, 2021

Segment Reporting [Abstract]

Schedule of Reconciliation of revenue from segments to consolidated

Summarized information by segments for the six months ended December 31, 2020, and 2021 is as follows:

	Six months ended December 31, 2020
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	150,245		57,938		39,991		248,174
Product sales		11,819		3,207		—		15,026
Maintenance service revenue		11,372		48,430		20		59,822
Extended warranty service revenue		1,383		390		—		1,773
Total		174,819		109,965		40,011		324,795
Costs of revenue		115,676		56,834		35,165		207,675
Gross profit	$	59,143		53,131		4,846		117,120

	Six months ended December 31, 2021
	(Unaudited)
	IA		Rail		M&E		Consolidated
Revenues from external customers
Integrated solutions contract revenue	$	189,031		64,083		37,954		291,068
Product sales		14,549		4,968		—		19,517
Maintenance service revenue		12,010		44,045		42		56,097
Extended warranty service revenue		704		2,250		—		2,954
Total		216,294		115,346		37,996		369,636
Costs of revenue		146,102		58,479		34,673		239,254
Gross profit	$	70,192		56,867		3,323		130,382

Schedule of Revenues by geographical area

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,
	2020		2021
	(Unaudited)		(Unaudited)
Revenues:
PRC	$	283,528	$	328,124
Non-PRC		41,267		41,512
	$	324,795	$	369,636

Schedule of long-lived assets other than goodwill and intangible assets by geographical area

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

	June 30, 2021		December 31, 2021
			(Unaudited)
Long-lived assets other than goodwill and acquired intangible assets
PRC	$	163,343	$	178,165
Non-PRC		11,458		10,983
	$	174,801	$	189,148

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ORGANIZATION AND BUSINESS BACKGROUND (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2021
Equity Method Investment Summarized Financial Information [Line Items]
Current assets	$ 1,519,446		$ 1,387,558
Non-current assets	243,588		206,695
Total assets	1,763,034		1,594,253
Current liabilities	526,256		422,630
Total liabilities	553,518		452,285
Net revenue	369,636	$ 324,795
Net profit	43,988	51,762
Net cash used in operating activities	51,139	55,007
Variable Interest Entity (VIE) or Potential VIE, Information Unavailability [Member]
Equity Method Investment Summarized Financial Information [Line Items]
Current assets	5,447		5,588
Non-current assets	14		37
Total assets	5,461		5,625
Current liabilities	3,183		3,230
Total liabilities	3,183		$ 3,230
Net revenue	7	20
Cost of revenue		16
Net profit	7	4
Net cash used in operating activities	$ (106)	$ (555)

XML

ORGANIZATION AND BUSINESS BACKGROUND - Additional Information (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Aug. 31, 2021	Dec. 31, 2021	Jun. 30, 2021	Jul. 31, 2017
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Percentage Of Variable ReturnsLoss attributable to CCPL		95.00%
Series of Individually Immaterial Business Acquisitions [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Business Acquisition, Equity Interest Issued or Issuable, Description		In November 2015, Concord Electrical Contracting Ltd., (“CECL”), was established in Doha, Qatar, by Concord Corporation Pte. Ltd. (“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.
Subsidiaries [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Due to Affiliate, Current		$ 243	$ 121
Due from Affiliate, Current		$ 4,229	$ 4,151
Bond M E Sdn Bhd [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent				100.00%
Hollysys Intelligent [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Noncontrolling Interest, Ownership Percentage by Parent	100.00%
Payments to Acquire Equity Method Investments	$ 20,901
Bond Corporation Pte Ltd [Member] | Bond M E Sdn Bhd [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Equity Method Investment, Ownership Percentage				49.10%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Property, plant and equipment, net (Details)	6 Months Ended
	Dec. 31, 2021
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	10 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	10 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

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Intangible assets, net (Details) - Patents And Copyrights [Member]	6 Months Ended
	Dec. 31, 2021
Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	10 years
Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	5 years

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2021
Accounting Policies [Line Items]
Percentage Of Recognized Contractual Revenue	100.00%
Integrated Solutions Contracts Range Minimum	6 months
Integrated Solutions Contracts Range Maximum	5 years
Increased (Decreased) in net income	$ 17,169	$ 5,440
Increased (Decreased) net income per share basic	$ 0.28	$ 0.09
Increased (Decreased) net income per share diluted	$ 0.28	$ 0.09
Service [Member]
Accounting Policies [Line Items]
Increased (Decreased) in net income	$ 3,923	$ 5,585
Increased (Decreased) net income per share basic	$ 0.06	$ 0.09
Increased (Decreased) net income per share diluted	$ 0.06	$ 0.09
Malaysia [Member]
Accounting Policies [Line Items]
Deposits Assets	$ 8,310		$ 4,261
Singapore [Member]
Accounting Policies [Line Items]
Deposits Assets	4,278		4,293
PRC [Member]
Accounting Policies [Line Items]
Deposits Assets	$ 22,181		$ 40,254
Minimum [Member]
Accounting Policies [Line Items]
Contract Period	6 months
Minimum [Member] | Investments In Equity Investees And Equity Securities [Member]
Accounting Policies [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired	20.00%
Minimum [Member] | Use Rights [Member]
Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life	49 years
Maximum [Member]
Accounting Policies [Line Items]
Contract Period	3 years
Maximum [Member] | Investments In Equity Investees And Equity Securities [Member]
Accounting Policies [Line Items]
Business Acquisition, Percentage of Voting Interests Acquired	50.00%
Maximum [Member] | Use Rights [Member]
Accounting Policies [Line Items]
Finite-Lived Intangible Asset, Useful Life	88 years

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OPERATING LEASES AS LESSOR - Summary of Operating Lease Payments (Details) $ in Thousands	Dec. 31, 2021 USD ($)
Operating Leases, Future Minimum Payments Receivable [Abstract]
January 1, 2022 – December 31, 2022	$ 3,598
January 1, 2023 – December 31, 2023	3,706
January 1, 2024 – December 31, 2024	2,248
January 1, 2025 – December 31, 2025	1,998
January 1, 2026 – December 31, 2026	2,058
Thereafter	14,119
Total minimum lease payments to be received in the next five years	$ 27,727

XML

OPERATING LEASES AS LESSOR - Additional Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
OPERATING LEASES AS LESSOR
Rental Income	$ 823	$ 729

XML

INVENTORIES (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Inventory [Line Items]
Raw materials	$ 35,573	$ 23,469
Work in progress	13,259	12,165
Finished goods	18,824	12,278
Inventories	$ 67,656	$ 47,912

XML

SHORT-TERM INVESTMENTS (Detail) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Short-term Investments [Abstract]
Cost or Amortized cost	$ 34,769	$ 48,808
Gross unrecognized gains	0	0
Gross unrecognized losses	0	0
Fair value	$ 34,769	$ 48,808

XML

WARRANTY LIABILITIES (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020	Jun. 30, 2021
WARRANTY LIABILITIES
Total warranty liabilities	$ 9,512		$ 9,551
Less: current portion of warranty liabilities	(6,474)		(5,902)
Long-term warranty liabilities	3,038		3,649
Beginning balance	9,551	$ 10,064	10,064
Consolidation of subsidiary	145
Expense accrued	1,143	1,490
Expense incurred	(1,389)	(1,677)
Translation adjustment	62	600
Ending balance	$ 9,512	$ 10,477	$ 9,551

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS - Additional Information (Details) $ in Millions	6 Months Ended
	Dec. 31, 2021 USD ($)
REVENUE FROM CONTRACTS WITH CUSTOMERS
Unsatisfied (or partially unsatisfied) performance obligations in contracts with its customers	$ 772.1
Period over which the entity expects to recognize the majority of its remaining performance obligations as revenue	3 years

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS - Disaggregated Revenue Information (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Disaggregation of Revenue [Line Items]
Revenues	$ 369,636	$ 324,795
PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	328,124	283,528
Non-PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	41,512	$ 41,267
Integrated solutions contract revenue
Disaggregation of Revenue [Line Items]
Revenues	291,068
Integrated solutions contract revenue | PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	250,144
Integrated solutions contract revenue | Non-PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	40,924
Product sales [Member]
Disaggregation of Revenue [Line Items]
Revenues	19,517
Product sales [Member] | PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	18,964
Product sales [Member] | Non-PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	553
Maintenance service contracts [Member]
Disaggregation of Revenue [Line Items]
Revenues	56,097
Maintenance service contracts [Member] | PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	56,062
Maintenance service contracts [Member] | Non-PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	35
Extended Warranty Service Revenue [Member]
Disaggregation of Revenue [Line Items]
Revenues	2,954
Extended Warranty Service Revenue [Member] | PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	2,954
Extended Warranty Service Revenue [Member] | Non-PRC [Member]
Disaggregation of Revenue [Line Items]
Revenues	$ 0

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS - Contract assets and contract liabilities (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Jun. 30, 2021
REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue recognized which was previously deferred	$ 72,131
Contract assets and contract liabilities
Contract assets, current	229,767	$ 202,462
Contract assets, non-current	7,040	5,627
Contract liabilities	$ 209,649	$ 185,596

XML

LONG-TERM LOANS (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Debt Instrument [Line Items]
Loans Payable to Bank	$ 15,939	$ 16,006
Less: current portion	(15,371)	(15,308)
Long-term bank loans	568	698
MYR-denominated loans [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	736	842
SGD-denominated loans [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	203	164
US Dollar Denominated Loan [Member]
Debt Instrument [Line Items]
Loans Payable to Bank	$ 15,000	$ 15,000

XML

LONG-TERM LOANS - Scheduled principal and interest payments (Details) $ in Thousands	Dec. 31, 2021 USD ($)
LONG-TERM LOANS
January 1, 2022 – December 31, 2022	$ 15,371
January 1, 2023 – December 31, 2023	241
January 1, 2024 – December 31, 2024	125
January 1, 2025 – December 31, 2025	74
January 1, 2026 and onwards	128
Loans Payable to Bank	$ 15,939

XML

LONG-TERM LOANS - Additional Information (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Interest Payable	$ 366	$ 277

XML

STOCKHOLDERS' EQUITY (Details Textual)	Oct. 05, 2020 $ / shares
Stockholders Equity Note [Line Items]
Dividends Payable, Amount Per Share	$ 0.20
Dividends Payable, Date Declared	Oct. 05, 2020
Dividends Payable, Date of Record	Oct. 22, 2020
Dividends Payable, Date to be Paid	Nov. 20, 2020

XML

INCOME TAX - Additional Information (Details)	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Line Items]
Effective Income Tax Rate Reconciliation, Foreign Income Tax Rate Differential	16.50%	17.10%

XML

INCOME PER SHARE - Computation of Basic And Diluted Net Income Per Share Attributable (Details) - USD ($) $ / shares in Units, $ in Thousands		6 Months Ended
		Dec. 31, 2021	Dec. 31, 2020
Numerator:
Net income attributable to common stockholders - basic		$ 44,329	$ 51,913
Net income attributable to common stockholders - diluted	[1]	$ 44,329	$ 51,913
Denominator:
Weighted average ordinary shares outstanding used in computing basic income per share		60,884,346	60,498,431
Effect of dilutive securities
Share options		87,242
Restricted shares		585,014	195,202
Weighted average ordinary shares outstanding used in computing diluted income per share		61,556,602	60,693,633
Income per share - basic (in dollars per share)		$ 0.73	$ 0.86
Income per share - diluted (in dollars per share)		$ 0.72	$ 0.86

[1] Vested and unissued restricted shares of 15,000 and 15,000 shares are included in the computation of basic and diluted income per share for the six months ended December 31, 2020 and 2021, respectively. The effects of share options have been excluded from the computation of diluted income per share for the six months ended December 31, 2020 as its effect would be anti-dilutive.

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INCOME PER SHARE - Additional Information (Details) - shares	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Vested and Unissued Restricted Shares [Member]
Earnings Per Share [Line Items]
Weighted Average Number Diluted Shares Outstanding Vested And Unissued Restricted Shares	15,000	15,000

XML

COMMITMENTS AND CONTINGENCIES - Additional Information (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Commitments And Contingencies Disclosure [Line Items]
Commitments and contingencies	$ 0	$ 0
Outstanding Guarantees	59,429
Purchase Obligation	333,784
Purchase Obligation, Due in Next Twelve Months	280,895
Purchase Obligation 1-3 Years	33,056
Purchase Obligation 3-4 Years	13,222
Purchase Obligation after 5 Years	6,611
Capital Commitments [Member]
Commitments And Contingencies Disclosure [Line Items]
Commitments and contingencies	29,024
Standby Letters of Credit [Member]
Commitments And Contingencies Disclosure [Line Items]
Line of Credit Facility, Amount Outstanding	703
Performance Guarantee [Member]
Commitments And Contingencies Disclosure [Line Items]
Restricted Cash and Cash Equivalents	$ 5,805

XML

SEGMENT REPORTING - Summary of Information By Segment (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Segment Reporting Information [Line Items]
Revenues from external customers	$ 369,636	$ 324,795
Gross profit	130,382	117,120
IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	216,294	174,819
Costs of revenue	146,102	115,676
Gross profit	70,192	59,143
Integrated solutions contracts revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	291,068
Integrated solutions contracts revenue [Member] | IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	189,031	150,245
Product sales [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	19,517
Costs of revenue	4,898	2,947
Product sales [Member] | IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	14,549	11,819
Maintenance service contracts [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	56,097
Maintenance service contracts [Member] | IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	12,010	11,372
Extended Warranty Service Revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	2,954
Extended Warranty Service Revenue [Member] | IA [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	704	1,383
Rail [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	115,346	109,965
Costs of revenue	58,479	56,834
Gross profit	56,867	53,131
Rail [Member] | Integrated solutions contracts revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	64,083	57,938
Rail [Member] | Product sales [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	4,968	3,207
Rail [Member] | Maintenance service contracts [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	44,045	48,430
Rail [Member] | Extended Warranty Service Revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	2,250	390
M&E [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	37,996	40,011
Costs of revenue	34,673	35,165
Gross profit	3,323	4,846
M&E [Member] | Integrated solutions contracts revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	37,954	39,991
M&E [Member] | Product sales [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	0	0
M&E [Member] | Maintenance service contracts [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	42	20
M&E [Member] | Extended Warranty Service Revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	0	0
Consolidated [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	369,636	324,795
Costs of revenue	239,254	207,675
Gross profit	130,382	117,120
Consolidated [Member] | Integrated solutions contracts revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	291,068	248,174
Consolidated [Member] | Product sales [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	19,517	15,026
Consolidated [Member] | Maintenance service contracts [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	56,097	59,822
Consolidated [Member] | Extended Warranty Service Revenue [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	$ 2,954	$ 1,773

XML

SEGMENT REPORTING - Revenues by Geographical Area (Details) - USD ($) $ in Thousands	6 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 369,636	$ 324,795
PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	328,124	283,528
Non-PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Revenues	$ 41,512	$ 41,267

XML

SEGMENT REPORTING - Long-lived Assets Other Than Goodwill and Intangible Assets by Geographical Area (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Jun. 30, 2021
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	$ 189,148	$ 174,801
PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	178,165	163,343
Non-PRC [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Long-lived assets other than goodwill and acquired intangible assets	$ 10,983	$ 11,458

XML

SUBSEQUENT EVENTS - Additional Information (Details) - USD ($) $ in Thousands	1 Months Ended	6 Months Ended
	Mar. 31, 2021	Dec. 31, 2021	Dec. 31, 2020
SUBSEQUENT EVENTS
Proceeds received from disposal of equity investments		$ 9,497	$ 0
Cixi Hollysys [Member]
SUBSEQUENT EVENTS
Proceeds received from disposal of equity investments	$ 5,187
Cixi Hollysys [Member] | Maximum [Member]
SUBSEQUENT EVENTS
Proceeds received from disposal of equity investments	$ 16,331