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HLS Systems International, Ltd. (HOLI) Reports Fourth Quarter Profits Quadruple

HLS Systems International, Ltd. (HOLI), a provider of automation control systems to the nuclear, rail, and industrial markets in China, reported fourth quarter and full fiscal year 2008 financial results yesterday afternoon after the close. Revenues in the quarter fell slightly to $31.9 million from $33.6 million in the same period last year, and were impacted by the earthquake that struck Sichuan Province in May. Net income soared 414% to $6.3 million, or 14 cents per share, compared to $1.2 million, or 4 cents per share. For fiscal 2008, revenues rose 19.3% to $121.5 million, from $101.9 million in 2007. Net loss on a GAAP basis was $1.2 million, compared to GAAP net income of $13.1 million last year. Excluding non-cash stock compensation expense of $17.0 million, non-GAAP net income increased 20.9% to $15.8 million.

“We were pleased with our results for FY 2008,” said Dr. Wang Changli, HLS’ Chief Executive Officer. “We remain focused on growing all elements of our business, maintaining a streamlined cost infrastructure, expanding our vast portfolio of intellectual property, and pursuing additional markets where expansion fits our criteria. We feel fortunate to be well-positioned for long-term growth in a challenging global economy. Our target markets in industrial, rail, and nuclear automation are expected to be beneficially affected by China’s growth in infrastructure and focus on clean energy.

“We feel very confident in our financial position and our ability to grow the Company, both in 2009 and in the years ahead,” continued Dr. Wang. “In light of this confidence, we are providing investors with an annual estimate for FY 2009 of revenues between $150 million and $165 million and gross margins between 30% and 35%. We feel that our business is better judged annually as fluctuations in contract awards or events such as weather conditions, which we experienced in the first half of 2008, can affect the Company on a quarterly basis. We are also reiterating the $32 million incentive share earnings target for the calendar year ending December 31, 2008 (which is based on comprehensive income and excludes stock compensation expenses), and through the first six months of calendar 2008 have reported approximately $14.6 million in comprehensive income. Again, we look forward to continued growth and are very optimistic about HLS’ long-term plans and success.”

Project backlog rose to $178.5 million at year-end, an increase of 75.1% from $101.9 million at the close of fiscal 2007 and 16.1% sequentially. Backlog does not include a nuclear plant control system project of $97 million. Shares of HOLI closed at $4.75 yesterday and have traded between $3.85 and $7.90 since listing on the Nasdaq on August 1, 2008. With 43.9 million shares outstanding, HOLI has a market cap of $208.5 million and stockholders’ equity of $147.8 million.

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