UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F

(Mark one)

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ____________to ____________

Commission file number 001-38505

CLPS Incorporation

(Exact name of the Registrant as specified in its charter)

Cayman Islands

(Jurisdiction of incorporation or organization)

c/o Unit 1000, 10th Floor, Millennium City III

370 Kwun Tong Road, Kwun Tong, Kowloon

Hong Kong SAR

Tel: (852) 37073600

(Address of principal executive office)

Raymond Ming Hui Lin, Chief Executive Officer

c/o Unit 1000, 10th Floor, Millennium City III

370 Kwun Tong Road, Kwun Tong, Kowloon

Hong Kong SAR

Tel: (852) 37073600

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common Shares, par value $0.0001 |  | CLPS |  | The NASDAQ Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

On September 24, 2023, the issuer had 25,586,122 shares outstanding.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an “emerging growth company.” See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

☐ Large Accelerated filer | ☐ Accelerated filer | ☒ Non-accelerated filer

Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

☒ US GAAP | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Table of Contents

|  | Page
PART I |  | 1
ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1
ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1
ITEM 3. | KEY INFORMATION | 1
ITEM 4. | INFORMATION ON THE COMPANY | 43
ITEM 4A. | UNRESOLVED STAFF COMMENTS | 74
ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECT | 74
ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 100
ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 113
ITEM 8. | FINANCIAL INFORMATION | 117
ITEM 9. | THE OFFER AND LISTING | 118
ITEM 10. | ADDITIONAL INFORMATION | 118
ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 125
ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 125
PART II |  | 126
ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 126
ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 126
ITEM 15. | CONTROLS AND PROCEDURES | 126
ITEM 16. | RESERVED | 126
ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT. | 126
ITEM 16B. | CODE OF ETHICS. | 126
ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. | 127
ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES. | 127
ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS. | 127
ITEM 16F. | CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT. | 127
ITEM 16G. | CORPORATE GOVERNANCE | 127
ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. | 127
PART III |  | 128
ITEM 17. | FINANCIAL STATEMENTS | 128
ITEM 18. | FINANCIAL STATEMENTS | 128
ITEM 19. | EXHIBITS | 129

i

CERTAIN INFORMATION

Unless otherwise indicated, numerical figures included in this Annual Report on Form 20-F (the “Annual Report”) have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them.

For the sake of clarity, this Annual Report follows the English naming convention of first name followed by last name, regardless of whether an individual’s name is Chinese or English. Certain market data and other statistical information contained in this Annual Report are based on information from independent industry organizations, publications, surveys and forecasts. Some market data and statistical information contained in this Annual Report are also based on management’s estimates and calculations, which are derived from our review and interpretation of the independent sources listed above, our internal research and our knowledge of the PRC information technology industry. While we believe such information is reliable, we have not independently verified any third-party information and our internal data has not been verified by any independent source.

Except where the context otherwise requires and for purposes of this Annual Report only:

| ● | Depending on the context, the terms “we,” “us,” “our company,” and “our” refer to CLPS Incorporation, a Cayman Islands company, and its subsidiary and affiliated companies:

| ● | “Qinheng” refers to Qinheng Co., Limited, a Hong Kong company;

| ● | “Qiner” refers to Qiner Co., Limited, a Hong Kong company;

| ● | “CLPS QC (WOFE)” refers to Shanghai Qincheng Information Technology Co., Ltd., a PRC company;

| ● | “CLPS Shanghai” refers to CLPS Shanghai Co., Ltd., formerly ChinaLink Professional Services Co., Ltd., a PRC company;

| ● | “CLPS Dalian” refers to CLPS Dalian Co., Ltd., a PRC company;

| ● | “CLPS RC” refers to CLPS Ruicheng Co., Ltd., a PRC company;

| ● | “CLPS Beijing” refers to CLPS Beijing Hengtong Co., Ltd., a PRC company;

| ● | “JAJI China” refers to JAJI (Shanghai) Co., Ltd., formerly Judge (Shanghai) Co., Ltd.., a PRC company;

| ● | “JAJI HR” refers to JAJI (Shanghai) Human Resource Co., Ltd. formerly Judge (Shanghai) Human Resource Co., Ltd., a PRC company;

| ● | “Ridik AU” refers to Ridik Technology (Australia) Pty. Ltd., formerly CLPS-Ridik Technology (Australia) Pty. Ltd., an Australian company;

| ● | “CLPS SG” refers to CLPS Technology (Singapore) Pte. Ltd., a Singaporean company;

| ● | “CLPS Hong Kong” refers to CLPS Technology (Hong Kong) Co., Limited, a Hong Kong company;

| ● | “CLPS Shenzhen” refers to CLPS Shenzhen Co., Ltd., a PRC company;

| ● | “Huanyu” refers to Tianjin Huanyu Qinshang Network Technology Co., Ltd., a PRC company

| ● | “CLPS Guangzhou” refers to CLPS Guangzhou Co., Ltd., a PRC company.

| ● | “CLPS US” refers to CLPS Technology (US) Ltd., a Delaware company.

| ● | “CLPS California” refers to CLPS Technology (California) Inc., a California company.

ii

| ● | “CLPS Lihong” refers to CLPS Lihong Financial Information Services Co., Ltd., formerly Lihong Financial Information Services Co., Ltd. before the investment, a PRC company.
| ● | “Infogain” refers to Infogain Solutions Pte. Ltd., a Singaporean company.
| ● | “EMIT” refers to Economic Modeling Information Technology Co., Ltd., a PRC company.
| ● | “CLPS Hangzhou” refers to CLPS Hangzhou Co. Ltd., a PRC company.
| ● | “CLPS Guangdong Zhichuang” refers to CLPS Guangdong Zhichuang Software Technology Co., Ltd. a PRC company.
| ● | “CLPS Shenzhen Robotics” refers to CLPS Shenzhen Robotics Co. Ltd., a PRC company.
| ● | “Ridik Pte.” refers to Ridik Pte. Ltd., a Singaporean company.
| ● | “Ridik Consulting” refers to Ridik Consulting Private Limited, an Indian company.
| ● | “Ridik Sdn.” refers to Ridik Sdn. Bhd., a Malaysian company.
| ● | “Ridik Software Pte.” refers to Ridik Software Solutions Pte. Ltd., a Singaporean company.
| ● | “Ridik Software” refers to Ridik Software Solutions Ltd., a UK company.
| ● | “Suzhou Ridik” refers to Suzhou Ridik Information Technology Co., Ltd., a PRC company.
| ● | “CLPS Japan” refers to CLPS Technology Japan, a Japanese company.
| ● | “Qinson” refers to Qinson Credit Card Services Limited, a Hong Kong company.

| ● | “CLPS Hainan” refers to Hainan Qincheng Software Technology Co., Ltd., a PRC company.
| ● | “SSIT” refers to Shanghai Shier Information Technology Co., Ltd., a PRC company.
| ● | “CareerWin” refers to CareerWin Executive Search Co., Ltd., a PRC company.
| ● | “CLPS Xi’an” refers to CLPS Xi’an Co., Ltd., a PRC company.
| ● | “Growth Ring” refers to Growth Ring Ltd., a British Virgin Islands company.
| ● | “Arabian Jasmine” refers to Arabian Jasmine Ltd., a British Virgin Islands company.
| ● | “Shanghai Chenqin” refers to Shanghai Chenqin Information Technology Services Co., Ltd., a PRC company.
| ● | “Noni Singapore” refers to Noni (Singapore) Pte. Ltd., a Singaporean company.
| ● | “CLPS-Beefinance” refers to CLPS-Beefinance Holding Limited, a British Virgin Islands company.
| ● | “Qinson Ltd.” refers to Qinson Ltd., a British Virgin Islands company.
| ● | “LQE” refers to LQE Ltd., a British Virgin Islands company.
| ● | “LinkCrypto” refers to LinkCrypto Finance Technology Limited, a Hong Kong company.

iii

| ● | “MNYC” refers to MNYC HOLDINGS (HK) LIMITED, a Hong Kong company.
| ● | “MSCT” refers to MSCT Investment Holdings Limited, a British Virgin Islands company.

| ● | “CLPS Philippines” refers to CLPS TECHNOLOGY (PHILIPPINES) CORP., a Philippine company.

| ● | “Beijing Bozhuo” refers to Beijing Bozhuo Education Technology Co., Ltd., a PRC company.
| ● | “Haikou Huaqin” refers to Haikou Huaqin Minshang Software Development Co., Ltd., a PRC company.
| ● | “UniDev” refers to Beijing UniDev Software Co., Ltd., a PRC company.
| ● | “Fuson” refers to Fuson Group Limited, a Hong Kong company.
| ● | “CLPS Chengdu” refers to CLPS Chengdu Co., Ltd., a PRC company.
| ● | “CLPS Investment” refers to CLPS Investment Management Ltd., a British Virgin Islands company.
| ● | “JAJI Global” refers to JAJI Global Incorporation, a Cayman Islands company.
| ● | “JAJI Singapore” refers to JAJI Singapore Pte. Ltd., a Singaporean company.
| ● | “Ridik Canada” refers to Ridik Technology Canada Limited, a Canadian company.
| ● | “Qinson Singapore” refers to Qinson Singapore Pte. Ltd., a Singaporean company.
| ● | “Yingjia Technology” refers to Shanghai Yingjia Technology Limited, a PRC company.
| ● | all references to “RMB,” “yuan” and “Renminbi” are to the legal currency of China, and all references to “USD,” and “U.S. dollars” are to the legal currency of the United States.

| ● | “Shares” and “Common Shares” refer to our shares, $0.0001 par value per share;

| ● | “China” and “PRC” refer to the People’s Republic of China; and

| ● | “EBIT margin” refers to earnings before interest and taxes margin.

Unless otherwise noted, all currency figures in this filing are in U.S. dollars. Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is U.S. dollar and our functional currency is Renminbi. This Annual Report contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Other than in accordance with relevant accounting rules and as otherwise stated, all translations of Renminbi into U.S. dollars in this Annual Report were made at the rate of RMB 7.2513 to USD1.00, the noon buying rate on June 30, 2023, as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. Where we make period-on-period comparisons of operational metrics, such calculations are based on the Renminbi amount and not the translated U.S. dollar equivalent. We make no representation that the Renminbi or U.S. dollar amounts referred to in this Annual Report could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all.

iv

FORWARD-LOOKING STATEMENTS

This Annual Report contains “forward-looking statements” that represent our beliefs, projections and predictions about future events. All statements other than statements of historical fact are “forward-looking statements” including any projections of earnings, revenue or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements concerning proposed new projects or other developments, any statements regarding future economic conditions or performance, any statements of management’s beliefs, goals, strategies, intentions and objectives, and any statements of assumptions underlying any of the foregoing. Words such as “may”, “will”, “should”, “could”, “would”, “predicts”, “potential”, “continue”, “expects”, “anticipates”, “future”, “intends”, “plans”, “believes”, “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements.

These statements are necessarily subjective and involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly available information with respect to the factors upon which our business strategy is based for the success of our business.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to, those factors discussed under the headings “Risk Factors”, “Operating and Financial Review and Prospects,” “Information on the Company” and elsewhere in this Annual Report.

This Annual Report should be read in conjunction with our audited financial statements and the accompanying notes thereto, which are included in Item 18 of this Annual Report.

v

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not required.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not required.

ITEM 3. KEY INFORMATION

| A. | Selected financial data

The following selected consolidated financial data as of and for the years ended June 30, 2023, 2022, and 2021 have been derived from the audited consolidated financial statements of the Company included in this Annual Report. This information is only a summary and should be read together with the consolidated financial statements, the related notes, the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included in this Annual Report. The Company’s results of operations in any period may not necessarily be indicative of the results that may be expected for any future period. See “Risk Factors” included elsewhere in this Annual Report.

The following table presents our summary consolidated statements of comprehensive income for the fiscal years ended June 30, 2023, 2022, and 2021, respectively.

Selected Consolidated Statement of Comprehensive Income

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Revenue from third parties |  | $ | 150,298,963 |  |  | $ | 151,970,357 |  |  | $ | 125,792,221 |
Revenue from related parties |  |  | 57,576 |  |  |  | 52,024 |  |  |  | 269,472 |
Cost of revenue from third parties |  |  | (115,827,597 | ) |  |  | (110,989,394 | ) |  |  | (85,664,401 | )
Cost of revenue from related parties |  |  | (47,212 | ) |  |  | (43,951 | ) |  |  | (226,356 | )
Gross profit |  |  | 34,481,730 |  |  |  | 40,989,036 |  |  |  | 40,170,936 |
Operating income (expenses): |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing expenses |  |  | (3,300,555 | ) |  |  | (4,103,066 | ) |  |  | (3,753,236 | )
Research and development (R&D) expenses |  |  | (8,336,999 | ) |  |  | (7,971,145 | ) |  |  | (13,337,913 | )
General and administrative expenses |  |  | (21,641,317 | ) |  |  | (23,045,664 | ) |  |  | (16,784,688 | )
Impairment of goodwill |  |  | (2,382,538 | ) |  |  | - |  |  |  | - |
Subsidies and other operating income |  |  | 1,256,070 |  |  |  | 1,536,394 |  |  |  | 2,080,087 |
Total operating expenses |  |  | (34,405,339 | ) |  |  | (33,583,481 | ) |  |  | (31,795,750 | )
Income from operations |  |  | 76,391 |  |  |  | 7,405,555 |  |  |  | 8,375,186 |
Other income |  |  | 1,123,612 |  |  |  | 854,250 |  |  |  | 296,319 |
Other expenses |  |  | (430,357 | ) |  |  | (575,605 | ) |  |  | (351,045 | )
Income before income tax and share of income in equity investees |  |  | 769,646 |  |  |  | 7,684,200 |  |  |  | 8,320,460 |
Provision for income taxes |  |  | 674,344 |  |  |  | 3,045,992 |  |  |  | 1,257,124 |
Income before share of income in equity investees |  |  | 95,302 |  |  |  | 4,638,208 |  |  |  | 7,063,336 |
Share of income (loss) in equity investees, net of tax |  |  | 70,263 |  |  |  | (50,297 | ) |  |  | (44,121 | )
Net income |  |  | 165,565 |  |  |  | 4,587,911 |  |  |  | 7,019,215 |
Less: Net (loss) income attributable to noncontrolling interests |  |  | (26,964 | ) |  |  | 132,483 |  |  |  | 202,643 |
Net income attributable to CLPS Incorporation’s shareholders |  | $ | 192,529 |  |  | $ | 4,455,428 |  |  | $ | 6,816,572 |
Other comprehensive (loss) income |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation (loss) income |  | $ | (3,532,507 | ) |  | $ | (1,828,542 | ) |  | $ | 2,695,223 |
Less: Foreign currency translation (loss) income attributable to noncontrolling interests |  |  | (92,161 | ) |  |  | (48,211 | ) |  |  | 102,475 |
Other comprehensive (loss) income attributable to CLPS Incorporation’s shareholders |  | $ | (3,440,346 | ) |  | $ | (1,780,331 | ) |  | $ | 2,592,748 |
Comprehensive (loss) income attributable to CLPS Incorporation’s shareholders |  | $ | (3,247,817 | ) |  | $ | 2,675,097 |  |  | $ | 9,409,320 |
Comprehensive (loss) income attributable to noncontrolling interests |  |  | (119,125 | ) |  |  | 84,272 |  |  |  | 305,118 |
Comprehensive (loss) income |  | $ | (3,366,942 | ) |  | $ | 2,759,369 |  |  | $ | 9,714,438 |
Basic earnings per common share |  |  | 0.01 |  |  |  | 0.21 |  |  |  | 0.39 |
Weighted average number of share outstanding – basic |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Diluted earnings per common share |  |  | 0.01 |  |  |  | 0.21 |  |  |  | 0.39 |
Weighted average number of share outstanding – diluted |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |
Supplemental information: |  |  |  |  |  |  |  |  |  |  |  |
Non-GAAP income before income tax and share of income of equity investees |  |  | 5,630,480 |  |  |  | 14,869,062 |  |  |  | 13,449,156 |
Non-GAAP net income |  |  | 5,026,399 |  |  |  | 11,772,773 |  |  |  | 12,147,911 |
Non-GAAP net income attributable to CLPS Incorporation’s shareholders |  |  | 5,053,363 |  |  |  | 11,640,290 |  |  |  | 11,945,268 |
Non-GAAP basic earnings per common share |  |  | 0.22 |  |  |  | 0.56 |  |  |  | 0.69 |
Weighted average number of share outstanding – basic |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Non-GAAP diluted earnings per common share |  |  | 0.22 |  |  |  | 0.55 |  |  |  | 0.68 |
Weighted average number of share outstanding – diluted |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |

1

The following table presents our consolidated balance sheet data as of June 30, 2023 and 2022, respectively.

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 22,214,029 |  |  | $ | 18,396,987 |
Restricted cash |  |  | 87,604 |  |  |  | - |
Accounts receivable, net |  |  | 48,515,467 |  |  |  | 53,769,887 |
Prepayments, deposits and other assets, net |  |  | 1,665,736 |  |  |  | 4,215,414 |
Amounts due from related parties |  |  | 391,271 |  |  |  | 377,642 |
Total Current Assets |  | $ | 72,874,107 |  |  | $ | 76,759,930 |
Non-current assets: |  |  |  |  |  |  |  |
Property and equipment, net |  |  | 20,112,305 |  |  |  | 20,601,098 |
Intangible assets, net |  |  | 726,175 |  |  |  | 970,044 |
Goodwill |  |  | - |  |  |  | 2,363,841 |
Operating lease right-of-use assets |  |  | 815,324 |  |  |  | - |
Long-term investments |  |  | 456,598 |  |  |  | 610,386 |
Prepayments, deposits and other assets, net |  |  | 252,656 |  |  |  | 248,456 |
Deferred tax assets, net |  |  | 81,899 |  |  |  | 327,040 |
Total Assets |  | $ | 95,319,064 |  |  | $ | 101,880,795 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Bank loans |  | $ | 10,554,617 |  |  | $ | 14,474,363 |
Accounts payable |  |  | 690,035 |  |  |  | 343,597 |
Accrued expenses and other current liabilities |  |  | 324,021 |  |  |  | 352,402 |
Tax payables |  |  | 2,503,375 |  |  |  | 2,355,066 |
Contract liabilities |  |  | 918,470 |  |  |  | 587,140 |
Salaries and benefits payable |  |  | 10,586,239 |  |  |  | 12,203,933 |
Operating lease liabilities |  |  | 712,302 |  |  |  | - |
Amounts due to related party |  |  | 24,889 |  |  |  | 66,884 |
Total current liabilities |  | $ | 26,313,948 |  |  | $ | 30,383,385 |
Non-current liabilities: |  |  |  |  |  |  |  |
Operating lease liabilities |  |  | 104,114 |  |  |  | - |
Deferred tax liabilities |  |  | 185,382 |  |  |  | 150,547 |
Unrecognized tax benefit |  |  | 2,320,918 |  |  |  | 2,587,194 |
Other non-current liabilities |  |  | 885,901 |  |  |  | 959,069 |
Total Liabilities |  | $ | 29,810,263 |  |  | $ | 34,080,195 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Shareholders’ Equity: |  |  |  |  |  |  |  |
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,650,122 shares issued and outstanding as of June 30, 2023; 22,444,822 shares issued and outstanding as of June 30, 2022 |  |  | 2,365 |  |  |  | 2,244 |
Additional paid-in capital |  |  | 58,183,383 |  |  |  | 55,705,209 |
Statutory reserves |  |  | 5,356,828 |  |  |  | 5,071,876 |
Retained earnings |  |  | 5,029,021 |  |  |  | 6,323,792 |
Accumulated other comprehensive losses |  |  | (3,990,594 | ) |  |  | (550,248 | )
Total CLPS Incorporation’s Shareholders’ Equity |  |  | 64,581,003 |  |  |  | 66,552,873 |
Noncontrolling interests |  |  | 927,798 |  |  |  | 1,247,727 |
Total Shareholders’ Equity |  |  | 65,508,801 |  |  |  | 67,800,600 |
Total Liabilities and Shareholders’ Equity |  | $ | 95,319,064 |  |  | $ | 101,880,795 |

2

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On September 29, 2023, the buying rate announced by the Federal Reserve Statistical Release was RMB 7.2960 to $1.00.

|  | Spot Exchange Rate |
|  | Period Ended |  |  | Average (1) |  |  | Low |  |  | High |
Period |  | (RMB per US$1.00) |
2020 |  |  | 6.5250 |  |  |  | 6.9043 |  |  |  | 6.5208 |  |  |  | 7.1681 |
2021 |  |  | 6.3726 |  |  |  | 6.4382 |  |  |  | 6.3640 |  |  |  | 6.5518 |
2022 |  |  | 6.8972 |  |  |  | 6.7290 |  |  |  | 6.3084 |  |  |  | 7.3048 |
2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 6.7540 |  |  |  | 6.7904 |  |  |  | 6.7010 |  |  |  | 6.9135 |
February |  |  | 6.9325 |  |  |  | 6.8380 |  |  |  | 6.7266 |  |  |  | 6.9545 |
March |  |  | 6.8676 |  |  |  | 6.8909 |  |  |  | 6.8188 |  |  |  | 6.9630 |
April |  |  | 6.9110 |  |  |  | 6.8876 |  |  |  | 6.8677 |  |  |  | 6.9320 |
May |  |  | 7.1100 |  |  |  | 6.9854 |  |  |  | 6.9094 |  |  |  | 7.1100 |
June |  |  | 7.2513 |  |  |  | 7.1614 |  |  |  | 7.0827 |  |  |  | 7.2515 |
July |  |  | 7.1426 |  |  |  | 7.1863 |  |  |  | 7.1340 |  |  |  | 7.2500 |
August |  |  | 7.2582 |  |  |  | 7.2486 |  |  |  | 7.1651 |  |  |  | 7.2985 |
September |  |  | 7.2960 |  |  |  | 7.2979 |  |  |  | 7.2606 |  |  |  | 7.3430 |

Source: https://www.federalreserve.gov/releases/h10/hist/default.htm

(1) | Annual averages, lows, and highs are calculated from month-end rates. Monthly averages, lows, and highs are calculated using the average of the daily rates during the relevant period.

| B. | Capitalization and Indebtedness

Not required.

| C. | Reasons for the Offer and Use of Proceeds

Not required.

3

| D. | Risk factors

You should carefully consider the following risk factors, together with all of the other information included in this Annual Report. Investment in our securities involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this Annual Report before making an investment decision. The risks and uncertainties described below represent our known material risks to our business. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, you may lose all or part of your investment. A summary of risk factors is provided concisely below:

Risks Related to Our Business

| ● | Risks Related to Our Ability to Manage Our Business and Growth

| ● | Risks Related to Adverse Economic Conditions Affecting Our Clients’ Purchase

| ● | Risks Related to Intense Competition from Other Service Provider

| ● | Risks Related to Lack of Skilled Employees

| ● | Risks Related to Lack of Diverse Clients

| ● | Risks Related to Collection of Account Receivables

| ● | Risks Related to Our Inability to Develop New Technology and Services

| ● | Risks Related to Our Inability to Continue Mergers and Acquisitions

| ● | Risks Related to Our Inability to Post-merger Integration

| ● | Risks Related to Our Inability to Generate New Businesses

| ● | Risks Related to Complexity to Evaluate Our Business

| ● | Risks Related to Lack of Full Utilization of Resources

| ● | Risks Related to Underestimate of Cap on Our Service Fees

| ● | Risks Related to Our Exposure to Wage-related High Costs

| ● | Risks Related to Pricing Pressure due to Competition

| ● | Risks Related to Unauthorized Disclosure of Confidential Client Information by Us

| ● | Risks Related to Unauthorized Use of Our Intellectual Property by Others

| ● | Risks Related to Our Inability to Raise Additional Capital

| ● | Risks Related to Our Business Interruptions

| ● | Risks Related to COVID-19 Pandemic

| ● | Risks Related to Fluctuation of Renminbi to US dollar Exchange Rate

| ● | Risks Related to Lack of Effective Internal Control in Our Company

4

Risks Related to Corporate Structure

| ● | Risks Related to Our Refusal to Declare Dividends

| ● | Risks Related to Our Subsidiaries’ Bankruptcy

| ● | Risks Related to Our Subsidiaries’ Lack of Regulatory Approval by Chinese Authorities

| ● | Risks Related to Our Subsidiaries’ Chops Being Lost or Stolen

| ● | Risks Related to Our Non-compliance with PRC regulations

Risks Related to Doing Business in China

| ● | Risks Related to Adverse Economic Conditions in China

| ● | Risks Related to Lack of Permission to Do Business in China

| ● | Risks Related to Uncertainty on Compliance with Cybersecurity Law of China

| ● | Risks Related to Government Regulations on US-listed Chinese Companies

| ● | Risks Related to US Regulator’s Inability to Conduct Investigation in China

| ● | Risks Related to Tax Reporting Obligations in China

| ● | Risks Related to PRC Regulations Governing Offshore Special Purpose Companies

| ● | Risks Related to PRC Regulations Governing Inter-company Loans

| ● | Risks Related to Government Control on Currency Conversion

| ● | Risks Related to Complex M&A Rules Governing Our Acquisitions

| ● | Risks Related to PRC Regulations Governing Registration of Employee Stock Ownership

| ● | Risks Related to Our Subsidiaries’ Ability to Pay Dividends to Us

| ● | Risks Related to PRC Labor Law’s Restriction on Our Employment Practice

| ● | Risks Related to PCAOB’s Inability to Inspect Our Independent Auditors

| ● | Risks Related to Uncertainty as to the Cooperation between PCAOB and CSRC of China

| ● | Risks Related to Our Possible Delisting under HFCAA

| ● | Risks Related to Accelerated Compliance Schedule under HFCAA

| ● | Risks Related to Our Exposure to Direct Scrutiny by US Regulators

| ● | Risks Related to Regulations by Cyberspace Administration of China

5

Risks Related to Our Business

We may be unable to effectively manage our rapid growth, which could place significant strain on our management personnel, systems and resources. We may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

Our revenues grew from $126.1 million in fiscal 2021 to $152.0 million in fiscal 2022 and decreased to $150.4 million in fiscal 2023. We maintain 20 delivery and/or R&D centers, of which 10 are located in Mainland China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and ten are located globally (Hong Kong SAR, the United States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, Vietnam, and Canada), to serve different customers in various geographic locations. The number of our total employees grew from 3,352 in fiscal 2021 to 3,824 in fiscal 2022. As of June 30, 2023 we had 3,509 full-time employees. We are actively looking for additional locations to establish new offices and expand our current offices and sales and delivery centers. We intend to continue our expansion in the foreseeable future to pursue existing and potential market opportunities. Our growth has placed and will continue to place significant demands on our management and our administrative, operational and financial infrastructure. Continued expansion increases the challenges we face in:

| ● | recruiting, training, developing and retaining sufficient IT talent and management personnel;

| ● | creating and capitalizing upon economies of scale;

| ● | managing a larger number of clients in a greater number of industries and locations;

| ● | maintaining effective oversight of personnel and offices;

| ● | coordinating work among offices and project teams and maintaining high resource utilization rates;

| ● | integrating new management personnel and expanded operations while preserving our culture and core values;

| ● | developing and improving our internal administrative infrastructure, particularly our financial, operational, human resources, communications and other internal systems, procedures and controls; and

| ● | adhering to and further improving our high quality and process execution standards and maintaining high levels of client satisfaction.

Moreover, as we introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and it may require substantial management efforts and skills to mitigate these risks and challenges. As a result of any of these challenges associated with expansion, our business, results of operations and financial condition could be materially and adversely affected. Furthermore, we may not be able to achieve anticipated growth, which could materially and adversely affect our business and prospects.

6

Adverse changes in the economic environment, either in China or globally, could reduce our clients’ purchases from us and increase pricing pressure, which could materially and adversely affect our revenues and results of operations.

The IT services industry is particularly sensitive to the economic environment, whether in China or globally, and tends to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to the economic environment, especially for regions in which we and our clients operate. During an economic downturn, our clients may cancel, reduce or delay their IT spending or change their IT outsourcing strategy, and reduce their purchases from us. The recent global economic slowdown and any future economic slowdown, and the resulting reduction in IT spending, could also lead to increased pricing pressure from our clients. The occurrence of any of these events could materially and adversely affect our revenues and results of operations.

We face intense competition from onshore and offshore IT services companies, and, if we are unable to compete effectively, we may lose clients, and our revenues may decline.

The market for IT services is highly competitive, and we expect competition to persist and intensify. We believe that the principal competitive factors in our markets are industry expertise, breadth and depth of service offerings, quality of the services offered, reputation and track record, marketing and selling skills, scalability of infrastructure and price. In addition, the trend towards offshore outsourcing, international expansion by foreign and domestic competitors and continuing technological changes will result in new and different competitors entering our markets. In the IT outsourcing market, clients tend to engage multiple outsourcing service providers instead of using an exclusive service provider, which could reduce our revenues to the extent that clients obtain services from other competing providers. Clients may prefer service providers that have facilities located globally or that are based in countries more cost-competitive than in China. Our ability to compete also depends in part on a number of factors beyond our control, including the ability of our competitors to recruit, train, develop and retain highly skilled professionals, the price at which our competitors offer comparable services and our competitors’ responsiveness to client needs. Therefore, we cannot assure you that we will be able to retain our clients while competing against such competitors. Increased competition, our inability to compete successfully against competitors, pricing pressures or loss of market share could harm our business, financial condition and results of operations.

Due to intense competition for highly skilled personnel, we may fail to attract and retain enough sufficiently trained personnel to support our operations; as a result, our ability to bid for and obtain new projects may be negatively affected and our revenues could decline.

The IT services industry relies on skilled personnel, and our success depends to a significant extent on our ability to recruit, train, develop and retain qualified personnel, especially experienced middle and senior level management. The IT services industry in China has experienced significant levels of employee attrition. Our annual voluntarily attrition rates were 15% and 15.4% in fiscal 2021 and fiscal 2022, respectively; in fiscal 2023, this rate was 18%. We may encounter higher attrition rates in the future, particularly if China continues to experience strong economic growth. There is significant competition in China for skilled personnel, especially experienced middle and senior level management, with the skills necessary to perform the services we offer to our clients. Increased competition for these personnel, in the IT industry or otherwise, could have an adverse effect on us. Spearheaded by the institution that provides continuing education to all CLPS staff and develop new talents from partner universities to further drive the Company’s growth (“CLPS Academy”), we have established Talent Creation Program (“TCP”) and Talent Development Program (“TDP”) to increase our human capital and employee loyalty, however, a significant increase in our attrition rate could decrease our operating efficiency and productivity and could lead to a decline in demand for our services. Additionally, failure to recruit, train, develop and retain personnel with the qualifications necessary to fulfill the needs of our existing and future clients or to assimilate new personnel successfully could have a material adverse effect on our business, financial condition and results of operations. Failure to retain our key personnel on client projects or find suitable replacements for key personnel upon their departure may lead to termination of some of our client contracts or cancellation of some of our projects, which could materially and adversely affect our business.

7

Our success depends substantially on the continuing efforts of our senior executives and other key personnel, and our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our senior executives and other key employees. In particular, we rely on the expertise, experience, client relationships and reputation of Xiao Feng Yang, our Chairman of the Board. We currently do not maintain key-man life insurance for any of the senior members of our management team or other key personnel. If one or more of our senior executives or key employees are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily or at all. In addition, competition for senior executives and key personnel in our industry is intense, and we may be unable to retain our senior executives and key personnel or attract and retain new senior executive and key personnel in the future, in which case our business may be severely disrupted, and our financial condition and results of operations may be materially and adversely affected. If any of our senior executives or key personnel joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and key professionals and staff members to them. Also, if any of our business development managers, who generally keep a close relationship with our clients, joins a competitor or forms a competing company, we may lose clients, and our revenues may be materially and adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, practices or procedures by such personnel. Most of our executives and key personnel have entered into employment agreements with us that contain non-competition provisions, non-solicitation and nondisclosure covenants. However, if any dispute arises between our executive officers and key personnel and us, such non-competition, non-solicitation and nondisclosure provisions might not provide effective protection to us, especially in China in light of the uncertainties with China’s legal system.

We generate a significant portion of our revenues from a relatively small number of major clients and loss of business from these clients could reduce our revenues and significantly harm our business.

We believe that in the foreseeable future we will continue to derive a significant portion of our revenues from a small number of major clients. For the years ended June 30, 2023, 2022, and 2021, Citibank and its affiliates accounted for 21.4%, 20.6%, and 19.1% of the Company’s total revenues, respectively. For fiscal 2023 and 2022, substantially all the service provided by the Company to Citibank was IT consulting services and billed through time-and-expense contracts. The Company has not entered into any material long term contracts with Citibank. Our ability to maintain close relationships with these and other major clients is essential to the growth and profitability of our business. However, the volume of work performed for a specific client is likely to vary from year to year, especially since we are generally not our clients’ exclusive IT services provider, and we do not have long-term commitments from any of our clients to purchase our services. The typical term for our service agreements is between one and three years. A major client in one year may not provide the same level of revenues for us in any subsequent year. The IT services we provide to our clients, and the revenues and income from those services, may decline or vary as the type and quantity of IT services we provide change over time. In addition, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service. In addition, a number of factors other than our performance could cause the loss of or reduction in business or revenues from a client, and these factors are not predictable. These factors may include corporate restructuring, pricing pressure, changes to its outsourcing strategy, switching to another services provider or returning work in-house. In the future, a small number of customers may continue to represent a significant portion of our total revenues in any given period. The loss of any of our major clients could adversely affect our financial condition and results of operations.

If we are unable to collect our receivables from our clients, our results of operations and cash flows could be adversely affected.

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. As of June 30, 2023 and 2022, our accounts receivable balance, net of allowance, amounted to approximately $48.5 million and $53.8 million, respectively. As of the years ended June 30, 2023 and 2022, Citibank accounted for 32.3% and 30.2% and of the Company’s total accounts receivable balance. Since we generally do not require collateral or other security from our clients, we establish an allowance for doubtful accounts based upon estimates, historical experience and other factors surrounding the credit risk of specific clients. However, actual losses on client receivables balance could differ from those that we anticipate and as a result we might need to adjust our allowance. There is no guarantee that we will accurately assess the creditworthiness of our clients. Macroeconomic conditions, including related turmoil in the global financial system, could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy, and as a result could cause clients to delay payments to us, request modifications to their payment arrangements that could increase our receivables balance, or default on their payment obligations to us. As a result, an extended delay or default in payment relating to a significant account will have a material and adverse effect on the aging schedule and turnover days of our accounts receivable. If we are unable to collect our receivables from our clients in accordance with the contracts with our clients, our results of operations and cash flows could be adversely affected.

8

The growth and success of our business depends on our ability to anticipate and develop new services and enhance existing services in order to keep pace with rapid changes in technology and in the industries we focus on.

The market for our services is characterized by rapid technological changes, evolving industry standards, changing client preferences and new product and service introductions. Our future growth and success depend significantly on our ability to anticipate developments in IT services, develop and offer new product and service lines to meet our clients’ evolving needs. We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services or technologies we develop may not be successful in the marketplace. The development of some of the services and technologies may involve significant upfront investments, and the failure of these services and technologies may result in our being unable to recover these investments, in part or in full. Further, services or technologies that are developed by our competitors may render our services uncompetitive or obsolete. In addition, new technologies may be developed that allow our clients to more cost-effectively perform the services that we provide, thereby reducing demand for our services. Should we fail to adapt to the rapidly changing IT services market, or if we fail to develop suitable services to meet the evolving and increasingly sophisticated requirements of our clients in a timely manner, our business and results of operations could be materially and adversely affected.

We may be unsuccessful in entering into strategic alliances or identifying and acquiring suitable acquisition candidates, which could impede our growth and negatively affect our revenues and net income.

We have pursued and may continue to pursue strategic alliances and strategic acquisition opportunities to increase our scale and geographic presence, expand our service offerings and capabilities and enhance our industry and technical expertise. However, it is possible that in the future we may not succeed in identifying suitable alliances or acquisition candidates. Even if we identify suitable candidates, we may not be able to consummate these arrangements on terms commercially acceptable to us or to obtain necessary regulatory approvals in the case of acquisitions. Many of our competitors are likely to be seeking to enter into similar arrangements or acquire the same targets that we are looking to enter into or acquire. Such competitors may have substantially greater financial resources than we do and may be more attractive to our strategic partners or be able to outbid us for the targets. In addition, we may also be unable to timely deploy our existing cash balances to effect a potential acquisition, as use of cash balances located onshore in China may require specific governmental approvals or result in withholding and other tax payments. If we are unable to enter into suitable strategic alliances or complete suitable acquisitions, our growth strategy may be impeded, and our revenues and net income could be negatively affected.

If we fail to integrate or manage acquired companies efficiently, or if the acquired companies do not perform to our expectations, we may not be able to realize the benefits envisioned for such acquisitions, and our overall profitability and growth plans may be adversely affected.

Historically, we have expanded our service capabilities and gained new clients through selective acquisitions. Our ability to successfully integrate an acquired entity and realize the benefits of any acquisition requires, among other things, successful integration of technologies, operations and personnel. Challenges we face in the acquisition and integration process include:

| ● | integrating operations, services and personnel in a timely and efficient manner;

| ● | unforeseen or undisclosed liabilities;

| ● | generating sufficient revenue and net income to offset acquisition costs;
| ● | potential loss of, or harm to, employee or client relationships;

9

| ● | properly structuring our acquisition consideration and any related post-acquisition earn-outs and successfully monitoring any earn-out calculations and payments;

| ● | retaining key senior management and key sales and marketing and research and development personnel;

| ● | potential incompatibility of solutions, services and technology or corporate cultures;

| ● | consolidating and rationalizing corporate, information technology and administrative infrastructures;

| ● | integrating and documenting processes and controls;

| ● | entry into unfamiliar markets; and

| ● | increased complexity from potentially operating additional geographically dispersed sites, particularly if we acquire a company or business with facilities or operations outside of China.

In addition, the primary value of many potential targets in the outsourcing industry lies in their skilled professionals and established client relationships. Transitioning these types of assets to our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors. For example, some newly acquired employees may decide not to work with us or to leave shortly after their move to our company and some acquired clients may decide to discontinue their commercial relationships with us. These challenges could disrupt our ongoing business, distract our management and employees and increase our expenses, including causing us to incur significant one-time expenses and write-offs, and make it more difficult and complex for our management to effectively manage our operations. If we are not able to successfully integrate an acquired entity and its operations and to realize the benefits envisioned for such acquisition, our overall growth and profitability plans may be adversely affected.

If we do not succeed in attracting new clients for our services and or growing revenues from existing clients, we may not achieve our revenue growth goals.

We plan to significantly expand the number of clients we serve to diversify our client base and grow our revenues. Revenues from a new client often rise quickly over the first several years following our initial engagement as we expand the services we provide to that client. Therefore, obtaining new clients is important for us to achieve rapid revenue growth. We also plan to grow revenues from our existing clients by identifying and selling additional services to them. Our ability to attract new clients, as well as our ability to grow revenues from existing clients, depends on a number of factors, including our ability to offer high quality services at competitive prices, the strength of our competitors and the capabilities of our sales and marketing teams. If we are not able to continue to attract new clients or to grow revenues from our existing clients in the future, we may not be able to grow our revenues as quickly as we anticipate or at all.

As a result of our significant recent growth, evaluating our business and prospects may be difficult and our past results may not be indicative of our future performance.

Our future success depends on our ability to significantly increase revenue and maintain profitability from our operations. Our business has grown and evolved significantly in recent years. Our growth in recent years makes it difficult to evaluate our historical performance and makes a period-to-period comparison of our historical operating results less meaningful. We may not be able to achieve a similar growth rate or maintain profitability in future periods. Therefore, you should not rely on our past results or our historic rate of growth as an indication of our future performance. You should consider our future prospects in light of the risks and challenges encountered by a company seeking to grow and expand in a competitive industry that is characterized by rapid technological change, evolving industry standards, changing client preferences and new product and service introductions. These risks and challenges include, among others:

| ● | the uncertainties associated with our ability to continue our growth and maintain profitability;

| ● | preserving our competitive position in the IT services industry in China;

| ● | offering consistent and high-quality services to retain and attract clients;

10

| ● | implementing our strategy and modifying it from time to time to respond effectively to competition and changes in client preferences;

| ● | managing our expanding operations and successfully expanding our solution and service offerings;

| ● | responding in a timely manner to technological or other changes in the IT services industry;

| ● | managing risks associated with intellectual property; and

| ● | recruiting, training, developing and retaining qualified managerial and other personnel.

If we are unsuccessful in addressing any of these risks or challenges, our business may be materially and adversely affected.

We face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.

We have a long selling cycle for our technology services, which requires significant investment of capital, human resources and time by both our clients and us. In our consulting service request, we collect service fees on monthly and quarterly basis; in our solution services segment – by performance obligation fulfillment. Before committing to use our services, potential clients require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients’ decision to choose alternatives to our services (such as other providers or in-house resources) and the timing of our clients’ budget cycles and approval processes. Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology, thereby further delaying the implementation process. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients to which we have devoted significant time and resources, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Our profitability will suffer if we are not able to maintain our resource utilization levels and continue to improve our productivity levels.

Our gross margin and profitability are significantly impacted by our utilization levels of human resources as well as other resources, such as computers, IT infrastructure and office space, and our ability to increase our productivity levels. We have expanded our operations significantly in recent years through organic growth and external acquisitions, which has resulted in a significant increase in our headcount and fixed overhead costs. We may face difficulties maintaining high levels of utilization, especially for our newly established or newly acquired businesses and resources. The master service agreements with our clients typically do not impose a minimum or maximum purchase amount and allow our clients to place service orders from time to time at their discretion. Client demand may fall to zero or surge to a level that we cannot cost-effectively satisfy. Although we try to use all commercially reasonable efforts to accurately estimate service orders and resource requirements from our clients, we may overestimate or underestimate, which may result in unexpected cost and strain or redundancy of our human capital and adversely impact our utilization levels. In addition, some of our professionals are specially trained to work for specific clients or on specific projects, and some of our sales and delivery center facilities are dedicated to specific clients or specific projects. Our ability to continually increase our productivity levels depends significantly on our ability to recruit, train, develop and retain high-performing professionals, staff projects appropriately and optimize our mix of services and delivery methods. If we experience a slowdown or stoppage of work for any client or on any project for which we have dedicated professionals or facilities, we may not be able to efficiently reallocate these professionals and facilities to other clients and projects to keep their utilization and productivity levels high. If we are not able to maintain high resource utilization levels without corresponding cost reductions or price increases, our profitability will suffer.

11

A portion of our income is generated, and will in the future continue to be generated, on a project basis with a fixed price; we may not be able to accurately estimate costs and determine resource requirements in relation to our projects, which would reduce our margins and profitability.

A portion of our income is generated, and will in the future continue to be generated, from fees we receive for our projects with a fixed price. Our projects often involve complex technologies, entail the coordination of operations and workforces in multiple locations, utilizing workforces with different skill sets and competencies and geographically distributed service centers, and must be completed within compressed timeframes and meet client requirements that are subject to change and increasingly stringent. In addition, some of our fixed-price projects are multi-year projects that require us to undertake significant projections and planning related to resource utilization and costs. If we fail to accurately assess the time and resources required for completing projects and to price our projects profitably, our business, results of operations and financial condition could be adversely affected.

Increases in wages for professionals in China could prevent us from sustaining our competitive advantage and could reduce our profit margins.

Our most significant costs are the salaries and other compensation expenses for our professionals and other employees. Wage costs for professionals in China are lower than those in more developed countries and India. However, because of rapid economic growth, increased productivity levels, and increased competition for skilled employees in China, wages for highly skilled employees in China, in particular middle- and senior-level managers, are increasing at a faster rate than in the past. We may need to increase the levels of employee compensation more rapidly than in the past to remain competitive in attracting and retaining the quality and number of employees that our business requires. Increases in the wages and other compensation we pay our employees in China could reduce our competitive advantage unless we are able to increase the efficiency and productivity of our professionals as well as the prices we can charge for our services. In addition, any appreciation in the value of the Renminbi relative to U.S. dollar and other foreign currencies will cause an increase in the relative wage levels in China, which could further reduce our competitive advantage and adversely impact our profit margin.

The international nature of our business exposes us to risks that could adversely affect our financial condition and results of operations.

We conduct our business throughout the world in multiple locations. As a result, we are exposed to risks typically associated with conducting business internationally, many of which are beyond our control. These risks include:

| ● | significant currency fluctuations between the Renminbi and the U.S. dollar and other currencies in which we transact business;

| ● | legal uncertainty owing to the overlap and inconsistencies of different legal regimes, problems in asserting contractual or other rights across international borders and the burden and expense of complying with the laws and regulations of various jurisdictions;

| ● | potentially adverse tax consequences, such as scrutiny of transfer pricing arrangements by authorities in the countries in which we operate;

| ● | current and future tariffs and other trade barriers, including restrictions on technology and data transfers;

| ● | unexpected changes in regulatory requirements; and

| ● | terrorist attacks and other acts of violence or war.

The occurrence of any of these events could have a material adverse effect on our results of operations and financial condition.

12

Our net revenues and results of operations are affected by seasonal trends.

Our business is affected by seasonal trends. In particular, our net revenues are typically progressively higher in the second, third and fourth quarters of each year compared to the first quarter of each year due to seasonal trends, such as: (i) a general slowdown in business activities and a reduced number of working days for our professionals during the first quarter of each year as a result of the Chinese New Year holiday period, and (ii) our customers in general tend to spend their IT budgets in the second half of the year and in particular the fourth quarter. Other factors that may cause our quarterly operating results to fluctuate include, among others, changes in general economic conditions in China and the impact of unforeseen events. We believe that our net revenues will continue to be affected in the future by seasonal trends. As a result, you may not be able to rely on period to period comparisons of our operating results as an indication of our future performance, and we believe it is more meaningful to evaluate our business on an annual basis.

We may be forced to reduce the prices of our services due to increased competition and reduced bargaining power with our clients, which could lead to reduced revenues and profitability.

The services outsourcing industry in China is developing rapidly, and related technology trends are constantly evolving. This results in the frequent introduction of new services and significant price competition from our competitors. We may be unable to offset the effect of declining average sales prices through increased sales volumes and/or reductions in our costs. Furthermore, we may be forced to reduce the prices of our services in response to offerings made by our competitors. Finally, we may not have the same level of bargaining power we have enjoyed in the past when it comes to negotiating the prices of our services.

If we cause disruptions to our clients’ businesses or provide inadequate service, our clients may have claims for substantial damages against us, and as a result our profits may be substantially reduced.

If our professionals make errors in the course of delivering services to our clients or fail to consistently meet service requirements of a client, these errors or failures could disrupt the client’s business, which could result in a reduction in our net revenues or a claim for substantial damages against us. In addition, a failure or inability to meet a contractual requirement could seriously damage our reputation and affect our ability to attract new business. The services we provide are often critical to our clients’ businesses. We generally provide customer support from three months to one year after our customized application is delivered. Certain of our client contracts require us to comply with security obligations including maintaining network security and back-up data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees that work with our clients by conducting background checks. Any failure in a client’s system or breach of security relating to the services we provide to the client could damage our reputation or result in a claim for substantial damages against us. Any significant failure of our equipment or systems, or any major disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, reduce our revenues and harm our business. Under our contracts with our clients, our liability for breach of our obligations is in some cases limited to a certain percentage of contract price. Such limitations may be unenforceable or otherwise may not protect us from liability for damages. In addition, certain liabilities, such as claims of third parties for which we may be required to indemnify our clients, are generally not limited under our contracts. We currently do not have commercial general or public liability insurance. The successful assertion of one or more large claims against us could have a material adverse effect on our business, reputation, results of operations, financial condition and cash flows. Even if such assertions against us are unsuccessful, we may incur reputational harm and substantial legal fees.

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We may be liable to our clients for damages caused by unauthorized disclosure of sensitive and confidential information, whether through our employees or otherwise.

We are typically required to manage, utilize and store sensitive or confidential client data in connection with the services we provide. Under the terms of our client contracts, we are required to keep such information strictly confidential. We use network security technologies, surveillance equipment and other methods to protect sensitive and confidential client data. We also require our employees and subcontractors to enter into confidentiality agreements to limit access to and distribution of our clients’ sensitive and confidential information as well as our own trade secrets. We can give no assurance that the steps taken by us in this regard will be adequate to protect our clients’ confidential information. If our clients’ proprietary rights are misappropriated by our employees or our subcontractors or their employees, in violation of any applicable confidentiality agreements or otherwise, our clients may consider us liable for those acts and seek damages and compensation from us. Any such acts could cause us to lose existing and future business and damage our reputation in the market. In addition, we currently do not have any insurance coverage for mismanagement or misappropriation of such information by our subcontractors or employees. Any litigation with respect to unauthorized disclosure of sensitive and confidential information might result in substantial costs and diversion of resources and management attention.

We may not be able to prevent others from unauthorized use of intellectual property of our clients, which could harm our business and competitive position.

We rely on software licenses from our clients with respect to certain projects. To protect proprietary information and other intellectual property of our clients, we require our employees, subcontractors, consultants, advisors and collaborators to enter into confidentiality agreements with us. These agreements may not provide effective protection for trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, protection of intellectual property rights and confidentiality in China may not be as effective as that in the United States or other developed countries. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of proprietary technology of our clients. Reverse engineering, unauthorized copying or other misappropriation of proprietary technologies of our clients could enable third parties to benefit from our or our clients’ technologies without paying us and our clients for doing so, and our clients may hold us liable for that act and seek damages and compensation from us, which could harm our business and competitive position.

We may not be able to prevent others from unauthorized use of our intellectual property, which could cause a loss of clients, reduce our revenues and harm our competitive position.

We rely on a combination of copyright, trademark, software registration, anti-unfair competition and trade secret laws, as well as confidentiality agreements and other methods to protect our intellectual property rights. To protect our trade secrets and other proprietary information, employees, clients, subcontractors, consultants, advisors and collaborators are required to enter into confidentiality agreements. These agreements might not provide effective protection for the trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. Implementation of intellectual property-related laws in China has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as those in the United States or other developed countries, and infringement of intellectual property rights continues to pose a serious risk of doing business in China. Policing unauthorized use of proprietary technology is difficult and expensive. The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Reverse engineering, unauthorized copying, other misappropriation, or negligent or accidental leakage of our proprietary technologies could enable third parties to benefit from our technologies without obtaining our consent or paying us for doing so, which could harm our business and competitive position. Though we are not currently involved in any litigation with respect to intellectual property, we may need to enforce our intellectual property rights through litigation. Litigation relating to our intellectual property may not prove successful and might result in substantial costs and diversion of resources and management attention.

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We may face intellectual property infringement claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights and may be unable to continue providing our existing services.

Our success largely depends on our ability to use and develop our technology and services without infringing the intellectual property rights of third parties, including copyrights, trade secrets and trademarks. We may be subject to litigation involving claims of violation of other intellectual property rights of third parties. We typically indemnify clients who purchase our services and solutions against potential infringement of intellectual property rights underlying our services and solutions, which subjects us to the risk of indemnification claims. The holders of other intellectual property rights potentially relevant to our service offerings may make it difficult for us to acquire a license on commercially acceptable terms. Also, we may be unaware of intellectual property registrations or applications relating to our services that may give rise to potential infringement claims against us. There may also be technologies licensed to and relied on by us that are subject to infringement or other corresponding allegations or claims by third parties which may damage our ability to rely on such technologies. We are subject to additional risks as a result of our recent and proposed acquisitions and the hiring of new employees who may misappropriate intellectual property from their former employers. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property. Intellectual property litigation is expensive and time-consuming and could divert management’s attention from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages, develop non-infringing technology, or re-brand our name or enter into royalty or license agreements that may not be available on acceptable terms, if at all, and cease making, licensing or using products that have infringed a third party’s intellectual property rights. Protracted litigation could also result in existing or potential clients deferring or limiting their purchase or use of our products until resolution of such litigation, or could require us to indemnify our clients against infringement claims in certain instances. Any intellectual property claim or litigation in this area, whether we ultimately win or lose, could damage our reputation and have a material adverse effect on our business, results of operations or financial condition.

We may need additional capital and any failure by us to raise additional capital on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

We believe that our current cash, cash flow from operations and the available lines of credit from financial institutions should be sufficient to meet our anticipated cash needs for at least the next 12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

| ● | investors’ perception of, and demand for, securities of technology services outsourcing companies;

| ● | conditions of the U.S. and other capital markets in which we may seek to raise funds;

| ● | our future results of operations and financial condition;

| ● | PRC government regulation of foreign investment in China;

| ● | economic, political and other conditions in China; and

| ● | PRC government policies relating to the borrowing and remittance outside China of foreign currency.

Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to grow our business and develop or enhance our product and service offerings to respond to market demand or competitive challenges.

Failure to adhere to regulations that govern our clients’ businesses could result in breaches of contracts with our clients. Failure to adhere to the regulations that govern our business could result in our being unable to effectively perform our services.

Our clients’ business operations are subject to certain rules and regulations in China or elsewhere. Our clients may contractually require that we perform our services in a manner that would enable them to comply with such rules and regulations. Failure to perform our services in such a manner could result in breaches of contract with our clients and, in some limited circumstances, civil fines and criminal penalties for us. In addition, we are required under various Chinese laws to obtain and maintain permits and licenses to conduct our business. If we do not maintain our licenses or other qualifications to provide our services, we may not be able to provide services to existing clients or be able to attract new clients and could lose revenues, which could have a material adverse effect on our business and results of operations.

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We may incur losses resulting from business interruptions resulting from occurrence of natural disasters, health epidemics and other outbreaks or events.

Our operational facilities may be damaged in natural disasters such as earthquakes, floods, heavy rains, and storms, tsunamis and cyclones, or other events such as fires. Such natural disasters or other events may lead to disruption of information systems and telephone service for sustained periods. Damage or destruction that interrupts our provision of outsourcing services could damage our relationships with our clients and may cause us to incur substantial additional expenses to repair or replace damaged equipment or facilities. We may also be liable to our clients for disruption in service resulting from such damage or destruction. Prolonged disruption of our services as a result of natural disasters or other events may also entitle our clients to terminate their contracts with us. We currently do not have insurance against business interruptions.

Our results of operations may be negatively impacted by the COVID-19 pandemic.

In December 2019, the 2019 novel coronavirus (COVID-19) surfaced in Wuhan, China. The World Health Organization declared a global emergency on January 30, 2020 with respect to the outbreak then characterized it as a pandemic on March 11, 2020. The outbreak has spread throughout Europe and the Middle East, and there have been many cases of COVID-19 in Canada and the United States, causing companies and various international jurisdictions to impose restrictions, such as quarantines, closures, cancellations and travel restrictions. While these effects are expected to be temporary, the duration of the business disruptions internationally and related operational impact are expected to last until the end of fiscal 2023 and beyond. Similarly, we cannot estimate whether or to what extent this outbreak and potential financial impact may extend to countries outside of those currently impacted. At this point, the extent to which the coronavirus has slowed down our projected revenue growth is reflected in our fiscal 2023 financial statements and may continue to slow down our growth in the future.

Fluctuation in the value of the Renminbi and other currencies may have a material adverse effect on the value of your investment.

Our financial statements are expressed in U.S. dollars. However, a majority of our revenues and expenses are denominated in Renminbi (RMB). Our exposure to foreign exchange risk primarily relates to the limited cash denominated in currencies other than the functional currencies of each entity and limited revenue contracts dominated in Singapore dollar (SGD), Hong Kong dollar (HKD), Australian dollar (AUD), Indian rupee (INR), Malaysian ringgit (MYR), Japanese yen (JPY), and Philippine peso (PHP) in certain of our operating subsidiaries. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. However, the value of your investment in our common shares will be affected by the foreign exchange rate between U.S. dollars and RMB because the primary value of our business is effectively denominated in RMB, while the common shares will be traded in U.S. dollars. The value of the RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The People’s Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rate and achieve certain exchange rate targets, and through such intervention kept the U.S. dollar-RMB exchange rate relatively stable.

As we may rely on dividends paid to us by our PRC subsidiaries, any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of any dividends payable on our common shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars we maintain into RMB, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB into U.S. dollars for the purpose of making payments for dividends on our common shares or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Furthermore, appreciation or depreciation in the value of the RMB relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. We cannot predict the impact of future exchange rate fluctuations on our results of operations and may incur net foreign exchange losses in the future. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert into foreign currencies.

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Fluctuations in exchange rates could adversely affect our business and the value of our securities.

Changes in the value of the RMB against the U.S. dollar, euro and other foreign currencies are affected by, among other things, changes in China’s political and economic conditions. Any significant revaluation of the RMB may have a material adverse effect on our revenues and financial condition, and the value of, and any dividends payable on our shares in U.S. dollar terms. Conversely, if we decide to convert our RMB into U.S. dollar for the purpose of paying dividends on our common stock or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. Since July 2005, the RMB is no longer pegged to the U.S. dollar, although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in future, PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market. Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.

Legislation in certain countries in which we have clients may restrict companies in those countries from outsourcing work to us.

Offshore outsourcing is a politically sensitive issue in the United States. For example, many organizations and public figures in the United States have publicly expressed concern about a perceived association between offshore outsourcing providers and the loss of jobs in their home countries. A number of U.S. states have passed legislation that restricts state government entities from outsourcing certain work to offshore service providers. Other U.S. federal and state legislation has been proposed that, if enacted, would provide tax disincentives for offshore outsourcing or require disclosure of jobs outsourced abroad. Similar legislation could be enacted in other countries in which we have clients. Any expansion of existing laws or the enactment of new legislation restricting or discouraging offshore outsourcing by companies in the United States, or other countries in which we have clients could adversely impact our business operations and financial results. In addition, from time to time there has been publicity about negative experiences associated with offshore outsourcing, such as theft and misappropriation of sensitive client data. As a result, current or prospective clients may elect to perform such services themselves or may be discouraged from transferring these services from onshore to offshore providers. Any slowdown or reversal of existing industry trends towards offshore outsourcing in response to political pressure or negative publicity would harm our ability to compete effectively with competitors that operate out of onshore facilities and adversely affect our business and financial results.

Disruptions in telecommunications or significant failure in our IT systems could harm our service model, which could result in a reduction of our revenue.

A significant element of our business strategy is to continue to leverage and expand our sales and delivery centers strategically located in China. We believe that the use of a strategically located network of sales and delivery centers will provide us with cost advantages, the ability to attract highly skilled personnel in various regions of the country and the world, and the ability to service clients on a regional and global basis. Part of our service model is to maintain active voice and data communications, financial control, accounting, customer service and other data processing systems between our main offices in Shanghai, our clients’ offices, and our other deliveries centers and support facilities. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these IT or communication systems, which could be caused by, among other things, software malfunction, computer virus attacks, conversion errors due to system upgrading, damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry or other events beyond our control. Loss of all or part of the systems for a period of time could hinder our performance or our ability to complete client projects on time which, in turn, could lead to a reduction of our revenue or otherwise have a material adverse effect on our business and business reputation. We may also be liable to our clients for breach of contract for interruptions in service.

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Our computer networks may be vulnerable to security risks that could disrupt our services and adversely affect our results of operations.

Our computer networks may be vulnerable to unauthorized access, computer hackers, computer viruses and other security problems caused by unauthorized access to, or improper use of, systems by third parties or employees. A hacker who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in our operations. Although we intend to continue to implement security measures, computer attacks or disruptions may jeopardize the security of information stored in and transmitted through our computer systems. Actual or perceived concerns that our systems may be vulnerable to such attacks or disruptions may deter our clients from using our solutions or services. As a result, we may be required to expend significant resources to protect against the threat of these security breaches or to alleviate problems caused by these breaches. Data networks are also vulnerable to attacks, unauthorized access and disruptions. For example, in a number of public networks, hackers have bypassed firewalls and misappropriated confidential information. It is possible that, despite existing safeguards, an employee could misappropriate our clients’ proprietary information or data, exposing us to a risk of loss or litigation and possible liability. Losses or liabilities that are incurred as a result of any of the foregoing could have a material adverse effect on our business.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations on a timely basis, or prevent fraud, and investor confidence and the market price of our shares may be materially and adversely affected.

We are required to evaluate the effectiveness of disclosure controls and procedures and internal control over financial reporting. As defined in standards established by the United States Public Company Accounting Oversight Board, or the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. It is possible that, had our independent registered public accounting firm conducted an audit of our internal control over financial reporting, such firm might have identified additional material weaknesses and deficiencies.

We are a public company in the United States subject to the Sarbanes Oxley Act of 2002. Section 404 of the Sarbanes Oxley Act, or Section 404, requires us to include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. Although we cease to be an “emerging growth company” on June 30, 2023 as such term is defined in the Jumpstart Our Business Startups Act (the “JOBS Act”), we are a non-accelerated filer and are exempt from Section 404 requirement to have auditor attestation on our internal control over financial reporting, therefore affording investors less statutory protection. Even if our management concludes that our internal control over financial reporting is effective in the future, our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse opinion if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Moreover, our internal control over financial reporting may not prevent or detect all errors and fraud. A control system, no matter how well it is designed and operated, cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

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If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the market price of our common shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Our insurance coverage may be inadequate to protect us against losses.

Although we maintain property insurance coverage for certain of our facilities and equipment, we do not have any loss of data or business interruption insurance coverage for our operations. If any claims for damage are brought against us, or if we experience any business disruption, litigation or natural disaster, we might incur substantial costs and diversion of resources.

Risks Relating to Our Corporate Structure

We will likely not pay dividends in the foreseeable future.

Dividend policy is subject to the discretion of our Board of Directors and will depend on, among other things, our earnings, financial condition, capital requirements and other factors. Although we paid a special dividend of $0.05 per share of common stock on January 10, 2023, there is no assurance that our Board of Directors will continue to declare dividends even if we are profitable. The payment of dividends by entities organized in China is subject to limitations as described herein. Under Cayman Islands law, we may only pay dividends from profits of the Company, or credits standing in the Company’s share premium account, and we must be solvent before and after the dividend payment in the sense that we will be able to satisfy our liabilities as they become due in the ordinary course of business; and the realizable value of assets of our Company will not be less than the sum of our total liabilities, other than deferred taxes as shown on our books of account, and our capital. Pursuant to the Chinese enterprise income tax law, dividends payable by a foreign investment entity to its foreign investors are subject to a withholding tax of 10%. Similarly, dividends payable by a foreign investment entity to its Hong Kong investor who owns 25% or more of the equity of the foreign investment entity is subject to a withholding tax of 5%. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. The transfer to this reserve must be made before distribution of any dividend to shareholders. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. Furthermore, if our subsidiaries in China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If our subsidiaries in Mainland China are unable to pay dividends or make other payments to us, we may be unable to pay dividends on our shares.

Our business may be materially and adversely affected if any of our Chinese subsidiaries declare bankruptcy or become subject to a dissolution or liquidation proceeding.

The Enterprise Bankruptcy Law of China provides that an enterprise may be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts. Our Chinese subsidiaries hold certain assets that are important to our business operations. If any of our Chinese subsidiaries undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.

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Our WOFE is required to allocate a portion of its after-tax profits to the statutory reserve fund, and as determined by its board of directors, to the staff welfare and bonus funds, which may not be distributed to equity owners.

Pursuant to Company Law of P.R. China (2018 Revision), Foreign Investment Law of the People’s Republic of China (2020) and Implementing Regulations of the Foreign Investment Law of the People’s Republic of China (2020), our WOFE entity is required to allocate a portion of its after-tax profits, to the statutory reserve fund, and in its discretion, to the staff welfare and bonus funds. No lower than 10% of an enterprise’s after tax-profits should be allocated to the statutory reserve fund. When the statutory reserve fund account balance is equal to or greater than 50% of the WOFE’s registered capital, no further allocation to the statutory reserve fund account is required. WOFE determines, in its own discretion, the amount contributed to the staff welfare and bonus funds. These reserves represent appropriations of retained earnings determined according to Chinese law.

Our failure to obtain prior approval of the China Securities Regulatory Commission (“CSRC”) for the listing and trading of our common shares on a foreign stock exchange could have a material adverse effect upon our business, operating results, reputation and trading price of our common shares.

On August 8, 2006, six Chinese regulatory agencies, including the Ministry of Commerce of the People’s Republic of China (“MOFCOM”), jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, which was amended on June 22, 2009 (the “M&A Rule”). The M&A Rule contains provisions that require that an offshore special purpose vehicle (“SPV”) formed for listing purposes and controlled directly or indirectly by Chinese companies or individuals shall obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published procedures specifying documents and materials required to be submitted to it by an SPV seeking CSRC approval of overseas listings. However, the application of the M&A Rule remains unclear with no consensus currently existing among leading Chinese law firms regarding the scope and applicability of the CSRC approval requirement. The CSRC has not issued any such definitive rule or interpretation, and we have not chosen to voluntarily request approval under the M&A Rule. We may face regulatory actions or other sanctions from the CSRC or other Chinese regulatory authorities. These authorities may impose fines and penalties upon our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the IPO proceeds into China, or take other actions that could have a material adverse effect upon our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our common shares.

On February 17, 2023, the CSRC published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”). Pursuant to the Trial Measures, a filing-based regulatory system is applied to both “direct overseas offering and listing” and “indirect overseas offering and listing” of PRC domestic companies. The “indirect overseas offering and listing” of PRC domestic companies refers to such securities offering and listing in an overseas market made in the name of an offshore entity, but based on the underlying equity, assets, earnings or other similar rights of a domestic company which operates its main business domestically. If the issuer meets the following conditions, the offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total assets, net assets, revenues or profits of the domestic operating entity or entities of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) most of the senior managers in charge of business operation and management of the issuer are Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China. Pursuant to the Trial Measures, we are required to file the relevant documents with the CSRC within three business days after submitting our listing application documents to the relevant regulator in the place of intended listing, and complete the filing procedures with the CSRC in connection with such subsequent securities offerings in the same overseas market where we have previously offered and listed securities within three business days after the offering is completed. Failure to complete the filing under the Trial Measures may subject a PRC domestic company to a warning and a fine of RMB1 million to RMB10 million. In the event of a serious violation of the Trial Measures, the CSRC may impose a ban on entering into the securities market upon the relevant responsible persons. Any such violation that constitutes a crime shall be investigated for criminal liability according to law.

Furthermore, on February 24, 2023, the CSRC published the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Management Provisions”). Pursuant to the Confidentiality and Archives Management Provisions, PRC domestic companies that seek to offer and list securities in overseas markets shall establish confidentiality and archives system. The PRC domestic companies shall obtain approval from the competent authority and file with the confidential administration department at the same level when providing or publicly disclosing documents and materials related to state secrets or secrets of the governmental authorities to the relevant individuals or entities including securities companies, securities service agencies or the offshore regulatory authorities or providing or publicly disclosing such documents and materials through its offshore listing entity, and shall complete corresponding procedures when providing or publicly disclosing documents and materials which may adversely influence national security and the public interest to the relevant individuals or entities including securities companies, securities service agencies or the offshore regulatory authorities or providing or publicly disclosing such documents and materials through its offshore listing entity. The PRC domestic companies shall provide written statements on the implementation on the aforementioned rules to the relevant securities companies and securities service agencies and the PRC domestic companies that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations.

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As the CSRC determine that we need to complete the required filing procedures for any such subsequent securities offerings in the same overseas market where we have previously offered and listed securities, or if such government authorities promulgate any interpretation or implement rules that would require us to obtain approvals from the CSRC or other regulatory authorities or complete required filing or other administrative procedures for any future offshore securities offering or other financing activities, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing or other administrative procedures, or obtain any waiver of aforesaid requirements if and when procedures are established to obtain such waiver. Any failure to obtain or delay in obtaining such approval or completing such filing or other administrative procedures for any future offshore securities offering, or a rescission of any such approval obtained by us, could subject us to sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory authorities may also impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from any future offshore securities offering into the PRC or take other actions that could adversely affect our business, operating results and financial condition, as well as our ability to complete any future offshore securities offering. The CSRC or any other PRC government authorities may also take actions requiring us, or making it advisable for us, to halt any future offshore securities offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur. Any uncertainties or negative publicity regarding such approval requirements could materially and adversely affect the trading price of our shares.

If the chops of our PRC companies and subsidiaries are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.

In China, a company chop or seal serves as the legal representation of the company towards third parties even when unaccompanied by a signature. Each legally registered company in China is required to maintain a company chop, which must be registered with the local Public Security Bureau. In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiaries are generally held securely by personnel designated or approved by us in accordance with our internal control procedures. To the extent those chops are not kept safely, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so. In addition, if the chops are misused by unauthorized persons, we could experience disruption to our normal business operations. We may have to take corporate or legal action, which could involve significant time and resources to resolve while distracting management from our operations.

If we fail to maintain continuing compliance with the PRC state regulatory rules, policies and procedures applicable to our industry, we may risk losing certain preferential tax and other treatments which may adversely affect the viability of our current corporate structure, corporate governance and business operations.

According to the Catalogue of Industries for Encouraging Foreign Investment (2020) issued by the National Development and Reform Commission and the Ministry of Commerce, IT services fall into the category of industries in which foreign investment is encouraged. The State Council has promulgated several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments and credit support. Under rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support, preferential tax rates, export incentives, discretion and flexibility in determining employees’ welfare benefits and remuneration. Software enterprise qualifications are subject to annual examination. Enterprises that fail to meet the annual examination standards will lose the favorable enterprise income tax treatment. Enterprises exporting software or producing software products that are registered with the relevant government authorities are also entitled to preferential treatment including governmental financial support, preferential import, export policies and preferential tax rates. If and to the extent we fail to maintain compliance with such applicable rules and regulations, our operations and financial results may be adversely affected.

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Risks Related to Doing Business in China

Adverse changes in political, economic and other policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could materially and adversely affect the growth of our business and our competitive position.

The majority of our business operations are conducted in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. Although the PRC economy has been transitioning from a planned economy to a more market-oriented economy since the late 1970s, the PRC government continues to exercise significant control over China’s economic growth through direct allocation of resources, monetary and tax policies, and a host of other government policies such as those that encourage or restrict investment in certain industries by foreign investors, control the exchange between the Renminbi and foreign currencies, and regulate the growth of the general or specific market. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. Furthermore, the current global economic crisis is adversely affecting economies throughout the world. As the PRC economy has become increasingly linked to the global economy, China is affected in various respects by downturns and recessions of major economies around the world. The various economic and policy measures enacted by the PRC government to forestall economic downturns or bolster China’s economic growth could materially affect our business. Any adverse change in the economic conditions in China, in policies of the PRC government or in laws and regulations in China could have a material adverse effect on the overall economic growth of China and market demand for our outsourcing services. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive position.

Substantial uncertainties exist with respect to the interpretation and implementation of Cyber Security Law as well as any impact it may have on our business operations.

On July 1, 2015, the Standing Committee of the National People’s Congress issued the National Security Law, which came into effect on the same day. The National Security Law provides that the state shall safeguard its sovereignty, security and cybersecurity development interests, and that the government shall establish a national security review and supervision system to review, among other things, foreign investment, key technologies, internet and information technology products and services, and other important activities that are likely to impact the national security of China.

On November 7, 2016, the Standing Committee of the National People’s Congress issued the Cyber Security Law, which came into effect on June 1, 2017. This is the first Chinese law that focuses exclusively on cyber security. The Cyber Security Law provides that network operators must set up internal security management systems that meets the requirements of a classified protection system for cybersecurity, including appointing dedicated cybersecurity personnel, taking technical measures to prevent computer viruses, network attacks and intrusions, taking technical measures to monitor and record network operation status and cybersecurity incidents, and taking data security measures such as data classification, backups and encryption. The Cyber Security Law also imposes a relatively vague but broad obligation to provide technical support and assistance to the public and state security authorities in connection with criminal investigations or for reasons of national security. The Cyber Security Law also requires network operators that provide network access or domain name registration services, landline or mobile phone network access, or that provide users with information publication or instant messaging services, to require users to provide a real identity when they sign up.

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The Cyber Security Law sets high requirements for the operational security of facilities deemed to be part of the PRC’s “critical information infrastructure.” These requirements include data localization, i.e., storing personal information and important business data in China, and national security review requirements for any network products or services that may have an impact on national security. Among other factors, “critical information infrastructure” is defined as critical information infrastructure, that will, in the event of destruction, loss of function or data leak, result in serious damage to national security, the national economy and people’s livelihood, or the public interest. Specific reference is made to key sectors such as public communication and information services, energy, transportation, water-resources, finance, public service and e-government.

On July 30, 2021, the State Council of the People’s Republic of China issued the Regulations on Security Protection of Critical Information Infrastructures, which came into effect on September 1, 2021. The Regulations on Security Protection of Critical Information Infrastructures provides that “critical information infrastructure” shall be identified by the “protection work departments” (the competent departments and supervision and administration departments of the important industries and fields, such as public communication and information service, energy, transportation, water resources, finance, public services, e-government affairs, science, technology and industry for national defense as well as other important network facilities and information system, etc. of which the destruction, loss of function and data divulgence may seriously endanger national security, people’s livelihood and public interests). A “protection work department” shall, in light of the actualities of the industry or field concerned, formulate the rules for identification of “critical information infrastructure” and submit the same to the public security department of the State Council for record-filing, and shall take the following factors into consideration in the rule formulating work: 1) Degree of importance of the network facilities and information system to the critical and core business of the industry or field concerned; 2) Extent of harm likely to be caused once the network facilities and information system, etc. are destroyed, lose functions or divulge data; and; 3) Correlation effect on other industries and fields. However, no official guidelines as to the scope of “critical information infrastructure” or identification rules of the “critical information infrastructure” of our industry or field have been formally issued.

We do not believe that we are an operator of “critical information infrastructure” as defined in the Cyber Security Law and the Regulations on Security Protection of Critical Information Infrastructures. However, there is no assurance that we may not be considered an operator of “critical information infrastructure” in the future as the definition is not precise, and there are substantial uncertainties as to the ultimate interpretation and implementation of the Cyber Security Law and the Regulations on Security Protection of Critical Information Infrastructures. If we are identified as an operator of “critical information infrastructure” accordingly, it could cause us to incur substantial costs or require us to change our business practices in a manner materially adverse to our business.

On November 14, 2021, CAC published Regulations for the Administration of Network Data Security (Draft for public comment, hereinafter the “Draft”). Article 2 of the Draft stipulates that “these Regulations apply to data processing activities carried out through networks as well as the supervision and regulation of network data security within the territory of the People’s Republic of China. We do not believe the current business of CLPS involves any “data processing activities”. In the foreseeable future, it is our understanding that CLPS will not engage in “data process activities”. Therefore, we believe that the Draft does not apply to CLPS. The Draft has no substantial impact on the business of CLPS.

In December 2021, the CAC promulgated the amended Measures of Cybersecurity Review which require cyberspace operators with personal information of more than one million users to file for cybersecurity review with the CRO, in the event such operators plan for an overseas listing. The amended Measures of Cybersecurity Review provide that, among others, an application for cybersecurity review must be made by an issuer that is a “network platform operator” as defined therein before such issuer’s securities become listed in a foreign country, if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities in the PRC may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services or data processing activities affect or may affect China’s national security. The amended Measures of Cybersecurity Review took effect on February 15, 2022.

On September 28, 2023, the CAC promulgated the Regulation to Standardize and Promote Cross-border Data Flow (Draft for public comment, hereinafter the “Draft”), the feedback period of which will end on October 15, 2023. The Draft mainly focus on specifying those scenarios which are not required to apply for security assessment for data to be provided abroad, to conclude a standard contract for personal information to be provided abroad or to pass the certification for personal information protection. It is remarkable that, according to Article 5 of the Draft, in the event that it is estimated to provide abroad personal information of less than 10,000 individuals within one year, it is not required to proceed the aforementioned processes. However, if such information is to be provided abroad based on the consent of such individuals, the consent from the personal information subjects shall be obtained. Also, Article 2 of the Draft stipulates that “For the data that have not been informed by relevant departments or regions or have not been publicly announced as critical data, the data processor is not required to apply for security assessment for the data to be provided abroad as critical data”, according to which, the standard for identifying important data is clarified. Therefore, we understand that, as CLPS has not received any such notification from relevant departments or regions, and the data that it processes has not been publicly announced as critical data, CLPS shall not be recognized as a “critical data processor”.

Currently, the cybersecurity laws and regulations have not directly affected our business and operations, As the amended Measures of Cybersecurity Review took effect in February 2022, we may be subject to review when conducting data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this Form 20-F, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we and our PRC legal counsel do not expect that, as of the date of this Form 20-F, the current applicable PRC laws on cybersecurity would have a material adverse impact on our business.

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Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC government has been building a comprehensive system of laws and regulations governing economic matters in general. The overall effect has been to significantly enhance the protections afforded to various forms of foreign investments in China. We conduct our business primarily through our subsidiaries established in China. These subsidiaries are generally subject to laws and regulations applicable to foreign investment in China. However, since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, some uncertainties may limit legal protections available to us. In addition, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since partial statutory and contractual terms may remain reasonable blank or uncertainty due to the rapid evolvement, it may be difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy. We cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any litigation in China may result in substantial costs and diversion of our resources and management attention.

The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.

We face various risks and uncertainties relating to doing business in Mainland China and Hong Kong SAR. Our business operations are primarily conducted in Mainland China and Hong Kong SAR, and we are subject to complex and evolving Chinese and Hong Kong SAR laws and regulations. For example, the Anti-Monopoly Law of the People’s Republic of China (Revised in 2022) (“Anti-monopoly Law”) came into effect on August 1, 2022. The “monopolistic practices” defined by the Anti-Monopoly Law include (a) the conclusion of a monopolistic agreement; (b) the abuse of dominant market positions; and (c) the concentration that eliminates or restricts competition or may eliminate or restrict competition. Based on Company’s China and global market share, the Company does not have a dominant market position that enables the Company to restrict or eliminate the competition. China promulgated several laws and regulations on data security and personal information protections in the last two years, mainly the Data Security Law of the People’s Republic of China (“Data Security Law”), which came into effect on September 1, 2021, and the Personal Information Protection Law of the People’s Republic of China (“PIP Law”), which came into effect on November 1, 2021. The Company may receive general personal information or even sensitive personal information from its clients in the Company’s day-to-day business operations, therefore, the Data Security Law and the PIP Law may accordingly apply to the Company’s business activities in China, as a consequence of which, the Company may have relevant obligations as required thereby. And we also face risks associated with regulatory approvals on offshore offerings, as well as the lack of inspection on our Auditor by the PCAOB, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our shares of Common Stock, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of our Common Stock to decline.

According to unofficial sources, the CSRC met with PRC lawyers on July 20, 2023 and asked them not to portray China’s policies or business and legal environment over-negatively in companies’ listing prospectuses. We have not found the official report on the aforesaid news on the official website of the CSRC and therefore cannot judge its authenticity. However, according to Articles 12 and 24 of the Trial Measures, securities companies, securities service agencies and personnel engaged in the overseas offering and listing business of domestic enterprises are not allowed to express their opinions in documents produced or issued in a manner that is distorted or derogatory to the national laws and policies, the business environment, the judicial situation, etc., or else measures such as ordering rectification, supervisory conversations, issuance of warning letters, etc., may be imposed. Taking into account the aforementioned unofficial information and regulations of the Trial Measures, we believe that our PRC counsel may express limited opinions on China’s legal policies, business environment and judicial situation as compared to the opinions provided by the same previously.

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In response to CSRC’s reported action on July 20, 2023 described in the preceding paragraph, on August 16, 2023 the U.S. SEC issued a public statement requiring “meaningful disclosure” by Chinese issuers. We may fail to meet the “meaningful disclosure” standard while complying with the CSRC’s reported guidance to PRC counsel.

Risk of Intervention or Control by the PRC Government

As a China-based company listed on NASDAQ in the United States, it is important to acknowledge the significant influence and regulatory oversight exercised by the PRC government over our operations. The PRC government’s involvement can have a material impact on our business and the value of our securities. We operate in accordance with the laws and regulations of China, which can change and be subject to interpretation by authorities. The PRC government may have authority over various aspects of our business, including regulatory approvals, licensing, and permits. Changes in government policies, geopolitical factors, or other external influences may result in regulatory decisions that could affect our ability to operate effectively or access capital markets. It is essential for investors to recognize the potential uncertainties associated with the PRC government’s involvement, which may lead to increased volatility in the trading of our securities and could impact their market value. We encourage investors to consider these unique challenges when evaluating our company as an investment opportunity.

U.S. regulators’ ability to conduct investigations or enforce rules in China is limited.

The majority of our operations are conducted outside of the U.S. As a result, it may not be possible for the U.S. regulators to conduct investigations or inspections, or to effect service of process within the U.S. or elsewhere outside China on us, our subsidiaries, officers, directors and shareholders, and others, including with respect to matters arising under U.S. federal or state securities laws. China does not have treaties providing for reciprocal recognition and enforcement of judgments of courts with the U.S. and many other countries. Furthermore, according to Article 177 of the PRC Securities Law, or Article 177, which became effective in March 2020, no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting your interests. As a result, recognition and enforcement in China of these judgments in relation to any matter, including U.S. securities laws and the laws of the Cayman Islands, may be difficult or impossible.

We face uncertainty regarding the PRC tax reporting obligations and consequences for certain indirect transfers of the stock of our operating company.

Pursuant to the Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, which became effective in February 2015, or Circular 7, Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, which became effective in December 2017, or Circular 37, Law of the People’s Republic of China on Enterprise Income Tax on December 29, 2018 and Regulations on the Implementation of Enterprise Income Tax Law on April 23, 2019, where a non-resident enterprise indirectly transfers properties such as equity in Chinese resident enterprises without any justifiable business purposes with the aim of avoiding to pay enterprise income tax, such indirect transfer shall be reclassified as a direct transfer of equity in Chinese resident enterprise in accordance with Article 47 of the Enterprise Income Tax Law. The PRC tax authority will examine the true nature of such transfer, and the gains derived from such transfer may be subject to PRC withholding tax at the rate of up to 10%. In addition, the PRC resident enterprise is supposed to provide necessary assistance to support the enforcement of the Laws and Circulars. The PRC tax authorities may make claims against our PRC subsidiary as being indirectly liable for unpaid taxes, if any, arising from Indirect Transfers by shareholders who did not obtain their shares in the public offering of our shares.

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PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise materially and adversely affect us.

The PRC State Administration of Foreign Exchange, or SAFE, issued a public notice in 2014 known as Circular 37 that requires PRC residents, including both legal persons and natural persons, to register with an appropriate local SAFE branch before establishing or controlling any company outside of China, referred to as an offshore special purpose company, for the purpose of acquiring any assets of or equity interest in PRC companies and raising funds from overseas. When a PRC resident contributes the assets or equity interests it holds in a PRC company into the offshore special purpose company, or engages in overseas financing after contributing such assets or equity interests into the offshore special purpose company, such PRC resident must modify its SAFE registration in light of its interest in the offshore special purpose company and any change thereof. Moreover, failure to comply with the above SAFE registration requirements could result in liabilities under PRC laws for evasion of foreign exchange restrictions.

We are committed to complying with the Circular 37 requirements and to ensuring that our shareholders who are PRC citizens or residents comply with them. We believe that all of our current PRC citizen or resident shareholders and beneficial owners have completed their required registrations with SAFE. However, we may not at all times be fully aware or informed of the identities of all our beneficial owners who are PRC citizens or residents, and we may not always be able to compel our beneficial owners to comply with the Circular 37 requirements. As a result, we cannot assure you that all of our shareholders or beneficial owners who are PRC citizens or residents will at all times comply with, or in the future make or obtain any applicable registrations or approvals required by, Circular 37 or other related regulations. Failure by any such shareholders or beneficial owners to comply with Circular 37 could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.

In addition, the PRC National Development and Reform Commission promulgated a rule in 2017 requiring its approval for overseas investment projects made by PRC entities. However, there exist extensive uncertainties as to the interpretation of this rule with respect to its application to a PRC individual’s overseas investment and, in practice, we are not aware of any precedents that a PRC individual’s overseas investment has been either approved by the National Development and Reform Commission or challenged by the National Development and Reform Commission based on the absence of its approval. Our current beneficial owners who are PRC individuals did not apply for the approval of the National Development and Reform Commission for their investment in us. We cannot predict how and to what extent this will affect our business operations or future strategy.

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PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

We may make loans to our PRC subsidiaries and controlled PRC affiliate, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries or controlled PRC affiliate are subject to PRC regulations and approvals. For example, loans by us to our PRC subsidiaries in China, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limits and must be registered with SAFE or its local counterpart.

We may also decide to finance our PRC subsidiaries through capital contributions. These capital contributions must be approved by the Ministry of Commerce in China or its local counterpart. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or controlled PRC affiliate or capital contributions by us to our subsidiaries or any of their respective subsidiaries. If we fail to receive such registrations or approvals, our ability to capitalize our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

In 2015, SAFE promulgated Circular 19, a notice regulating the conversion by a foreign-invested enterprise of foreign currency into Renminbi by restricting how the converted Renminbi may be used. Circular 19 requires that Renminbi converted from the foreign currency-denominated capital of a foreign-invested enterprise shall be truthfully used for the enterprise’s own operational purposes within the scope of business and only the foreign-invested enterprise whose main business is investment (including a foreign-invested investment company, foreign-invested venture capital enterprise or foreign-invested equity investment enterprise) is allowed to directly settle its foreign exchange capital or transfer the RMB funds under its Account for Foreign Exchange Settlement Pending Payment to the account of an invested enterprise according to the actual amount of investment, provided that the relevant domestic investment project is real and compliant.

We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries or controlled PRC affiliate or with respect to future capital contributions by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund our PRC operations may be negatively affected, which could adversely and materially affect our liquidity and our ability to fund and expand our business.

Governmental control of currency conversion may limit our ability to use our revenues effectively and the ability of our PRC subsidiaries to obtain financing.

The PRC government imposes control on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive a majority of our revenues in Renminbi, which currently is not a freely convertible currency. Restrictions on currency conversion imposed by the PRC government may limit our ability to use revenues generated in Renminbi to fund our expenditures denominated in foreign currencies or our business activities outside China. Under China’s existing foreign exchange regulations, Renminbi may be freely converted into foreign currency for payments relating to current account transactions, which include among other things dividend payments and payments for the import of goods and services, by complying with certain procedural requirements. Our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE, by complying with certain procedural requirements. Our PRC subsidiaries may also retain foreign currency in their respective current account bank accounts for use in payment of international current account transactions. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current account transactions. Conversion of Renminbi into foreign currencies, and of foreign currencies into Renminbi, for payments relating to capital account transactions, which principally includes investments and loans, generally requires the approval of SAFE and other relevant PRC governmental authorities. Restrictions on the convertibility of the Renminbi for capital account transactions could affect the ability of our PRC subsidiaries to make investments overseas or to obtain foreign currency through debt or equity financing, including by means of loans or capital contributions from us. We cannot assure you that the registration process will not delay or prevent our conversion of Renminbi for use outside of China.

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We may be classified as a “resident enterprise” for PRC enterprise income tax purposes; such classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

The Enterprise Income Tax Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered PRC tax resident enterprises and will generally be subject to the uniform 25% PRC enterprise income tax rate on their global income. In addition, a tax circular issued by the State Administration of Taxation on April 22, 2009 regarding the standards used to classify certain Chinese-invested enterprises established outside of China as resident enterprises clarified that dividends and other income paid by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when recognized by non-PRC enterprise shareholders. This recent circular also subjects such resident enterprises to various reporting requirements with the PRC tax authorities. Under the implementation rules to the Enterprise Income Tax Law, a de facto management body is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and other assets of an enterprise. In addition, the tax circular mentioned above details that certain Chinese-invested enterprises will be classified as resident enterprises if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of the senior management or directors having voting rights.

Currently, there are no detailed rules or precedents governing the procedures and specific criteria for determining de facto management bodies which are applicable to our company or our overseas subsidiary. If our company or any of our overseas subsidiaries is considered a PRC tax resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, our company or our overseas subsidiary will be subject to the uniform 25% enterprise income tax rate as to our global income as well as PRC enterprise income tax reporting obligations. Second, although under the Enterprise Income Tax Law and its implementing rules dividends paid to us from our PRC subsidiaries would qualify as tax-exempted income, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, dividends payable by us to our investors and gain on the sale of our shares may become subject to PRC withholding tax. It is possible that future guidance issued with respect to the new resident enterprise classification could result in a situation in which a withholding tax of 10% for our non-PRC enterprise investors or a potential withholding tax of 20% for individual investors is imposed on dividends we pay to them and with respect to gains derived by such investors from transferring our shares. In addition to the uncertainty in how the new resident enterprise classification could apply, it is also possible that the rules may change in the future, possibly with retroactive effect. If we are required under the Enterprise Income Tax law to withhold PRC income tax on our dividends payable to our foreign shareholders, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares or ADSs may be materially and adversely affected. It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the China Securities Regulatory Commission, or the CSRC, prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. In September 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by a special purpose vehicle seeking CSRC approval of its overseas listings. The application of the M&A Rules remains unclear. These M&A Rules and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOC or its local counterparts may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of Overseas Publicly-Listed Companies, replacing earlier rules promulgated in March 2007. Pursuant to these rules, PRC citizens and non-PRC citizens who reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who are granted options or other awards under the equity incentive plan will be subject to these regulations as an overseas listed company. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary and limit our PRC subsidiary’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.

Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.

The PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of certain taxable assets, including, in particular, equity interests in a PRC resident enterprise, by a non-resident enterprise by promulgating and implementing SAT Circular 59, Announcement of the State Administration of Taxation on Several Issues Concerning the Enterprise Income Tax on Indirect Property Transfer by Non-Resident Enterprises, which became effective in February 2015, or Circular 7 and Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise Income Tax at Source, which became effective in December 2017, or Circular 37.

Under the Enterprise Income Tax Law, Regulations on the Implementation of Enterprise Income Tax Law, Circular 7 and Circular 37, where a non-resident enterprise indirectly transfers properties such as equity in Chinese resident enterprises without any justifiable business purposes with the aim of avoiding to pay enterprise income tax, such indirect transfer shall be reclassified as a direct transfer of equity in Chinese resident enterprise in accordance with Article 47 of the Enterprise Income Tax Law. The non-resident enterprise, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC tax at a rate of up to 10%.

In February 2015, the SAT issued Circular 7 to replace the rules relating to indirect transfers in Circular 698. Circular 7 has introduced a new tax regime that is significantly different from that under Circular 698. Circular 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition, Circular 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market. Circular 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise.

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We face uncertainties on the reporting and consequences on future private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing or the transferees with respect to withholding obligation, and request our PRC subsidiaries to assist in the filing. As a result, we and non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed, under Circular 59 and Circular 7, and may be required to expend valuable resources to comply with Circular 59 and Circular 7 or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.

The PRC tax authorities have the discretion under SAT Circular 59, and Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the taxable assets transferred and the cost of investment. Although we currently have no plans to pursue any acquisitions in China or elsewhere in the world, we may pursue acquisitions in the future that may involve complex corporate structures. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law and if the PRC tax authorities make adjustments to the taxable income of the transactions under SAT Circular 59 or Circular 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.

We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.

As a holding company, we conduct substantially all of our business through our consolidated subsidiaries incorporated in Mainland China, Hong Kong SAR, and Singapore. We may rely on dividends paid by these PRC subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective registered capital. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.

Our current employment practices may be restricted under the PRC Labor Contract Law and our labor costs may increase as a result.

The PRC Labor Contract Law and its implementing rules impose requirements concerning contracts entered into between an employer and its employees and establishes time limits for probationary periods and for how long an employee can be placed in a fixed-term labor contract. Because the Labor Contract Law and its implementing rules have not been in effect very long and because there is lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how it will impact our current employment policies and practices. We cannot assure you that our employment policies and practices do not, or will not, violate the Labor Contract Law or its implementing rules and that we will not be subject to related penalties, fines or legal fees. If we are subject to large penalties or fees related to the Labor Contract Law or its implementing rules, our business, financial condition and results of operations may be materially and adversely affected. In addition, according to the Labor Contract Law and its implementing rules, if we intend to enforce the non-compete provision with an employee in a labor contract or non-competition agreement, we have to compensate the employee on a monthly basis during the term of the restriction period after the termination or ending of the labor contract, which may cause extra expenses to us. Furthermore, the Labor Contract Law and its implementation rules require certain terminations to be based upon seniority rather than merit, which significantly affects the cost of reducing workforce for employers. In the event we decide to significantly change or decrease our workforce in the PRC, the Labor Contract Law could adversely affect our ability to enact such changes in a manner that is most advantageous to our circumstances or in a timely and cost effective manner, thus our results of operations could be adversely affected.

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There are uncertainties with respect to regulatory cooperation between PCAOB and Chinese regulators under the Statement of Protocol signed by the PCAOB and the CSRC of the People’s Republic of China on August 26, 2022.

On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of the People’s Republic of China, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong. Having made the determinations in 2021 that the positions taken by PRC authorities prevented the PCAOB from inspecting and investigating in Mainland China and Hong Kong completely, the PCAOB is now required to reassess its determinations with regard to inspecting and investigating in Mainland China and Hong Kong by the end of 2022. We have noted the positive progress and will closely follow the development under the Statement of Protocol. However, there are uncertainties with respect to regulatory cooperation between the PCAOB and the Chinese regulators.

Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor is located in Mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the common shares were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed Mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in Mainland China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, the SEC may subsequently impose on a ban on trading of our Common Stock. A ban on trading of our Common Stock would substantially impair investors’ ability to sell or purchase our Common Stock, and the risk and uncertainty associated with the ban would have a negative impact on the price of shares of our Common Stock.

The Holding Foreign Companies Accountable Act could result in delisting of our common stock from Nasdaq Capital Market and lack of a readily available market for our common stock.

On December 18, 2020, the Holding Foreign Companies Accountable Act (“HFCAA”) became law. Among other things, the HFCAA requires the SEC to identify public companies that have retained a registered public accounting firm to issue an audit report where that firm has a branch or office that: (1) is located in a foreign jurisdiction, and (2) the Public Company Accounting Oversight Board (“PCAOB”) has determined that it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction. PCAOB has identified several public accounting firms in Mainland China and Hong Kong SAR that PCAOB cannot inspect or investigate completely because of a position taken by that foreign government. The PCAOB has oversight authority over public accounting firms that audit financial results of companies subject to the Securities Exchange Act of 1934 (the “Exchange Act”). On December 16, 2021, PCAOB issued the HFCAA Determination Report, which includes a list of those public accounting firms located outside the U.S. that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction (each a “Listed Auditor”). Our auditor, Ernst & Yong Hua Ming LLP (the “Auditor”), for our 2022 fiscal year audit and currently our public auditor is a Listed Auditor subject to the determinations announced by the PCAOB on December 16, 2021. Our Auditor is located in China.

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The HFCAA states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by PCAOB for three consecutive years beginning in 2021, being a Listed Auditor, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the counter trading market in the U.S. Accordingly, under the current law this could happen in 2024. On December 2, 2021, the SEC adopted final amendments to its rules implementing the HFCAA (the “Final Amendments”). The Final Amendments include requirements to disclose information, including the auditor name and location, the percentage of shares of the issuer owned by governmental entities, whether governmental entities in the applicable foreign jurisdiction with respect to the auditor has a controlling financial interest with respect to the issuer, the name of each official of the Chinese Communist Party who is a member of the board of the issuer, and whether the articles of incorporation of the issuer contains any charter of the Chinese Communist Party, including the text of any such charter.

The SEC publishes a list of Exchange Act reporting companies that retain a Listed Auditor that has issued an audit report for a fiscal year (each company listed is a “Commission Identified Issuer” for purposes of HFCAA). If a Commission Identified Issuer has a Listed Auditor issue audit reports for three consecutive fiscal years, being 2021, 2022 and 2023, then the SEC will impose an initial trading ban on the publicly traded securities of the Commission Identified Issuer in early 2024, which trading ban can be lifted if Commission Identified Issuer retains a public auditor that is not a Listed Auditor and that public auditor issues an audit report for a fiscal year for the Commission Identified Issuer. The SEC’s role at this stage of the process is solely to identify issuers that have used Listed Auditors to audit their financial statements.

Our Auditor is the independent registered public accounting firm that issues the audit report included elsewhere in our Form 20-F and conducts the audit of our annual financial results. As an auditor of a company that has its stock traded publicly in the United States, our Auditor is registered with and supervised by the PCAOB and is subject to laws in the United States. Under those laws, the PCAOB conducts regular inspections or audits to assess public accounting firms acting as auditors, including our Auditor, compliance with the applicable PCAOB rules and professional standards. Since our Auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct audits and inspections completely without the approval of the Chinese authorities, our Auditor is not currently audited or inspected completely by the PCAOB and is consequently a Listed Auditor.

On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong in 2022. The PCAOB vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of this annual report. However, it is uncertain whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong in the future, which ability depends on a number of factors beyond our, and our auditor’s, control, including the uncertainties surrounding the relationship between China and the United States. If in the future the PCAOB finds that it is unable to completely inspect and investigate registered public accounting firms headquartered in Mainland China or Hong Kong, the PCAOB may act immediately to consider the need to issue new determinations consistent with the HFCAA, and we may be identified as a Commission-Identified Issuer again. In accordance with the HFCAA as amended by the Consolidated Appropriations Act, 2023, if the PCAOB is unable to continue to inspect or investigate completely registered public accounting firms headquartered in Mainland China or Hong Kong, including our independent registered public accounting firm, for two consecutive years, our securities would be delisted from Nasdaq and will be prohibited from trading on other U.S. stock exchanges and “over-the-counter” in the U.S. This potential lack of full audit and inspection could deprive investors in our Common Stock of the benefits of PCAOB oversight and inspections. The potential inability of the PCAOB to conduct inspections of auditors in Mainland China and Hong Kong SAR could make it more difficult to evaluate the effectiveness of our Auditor’s audit procedures or quality control procedures as compared to auditors outside of Mainland China and Hong Kong SAR that are subject to complete audit and investigation by the PCAOB. This potential limitation on PCAOB audit and inspection could cause investors and potential investors in our Common Stock to lose confidence in our audit procedures and reported financial information and the quality of our financial statements. This potential lack or loss of confidence could also not only cause investors to avoid trading our Common Stock or sell positions in our Common Stock, but could also undermine efforts of the Company to secure equity or debt financing, hinder any efforts to up-list the Common Stock to a national securities exchange, adversely influence the decision of third parties to conduct business with our company, or have other adverse business or financial consequences. Trading in our securities may be prohibited under the HFCAA if PCAOB should determine that it cannot inspect or investigate completely our Auditor, and that as a result, Nasdaq may determine to delist our securities.

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Under the current version of HFCAA, an SEC ban on trading shares of Common Stock in the U.S. could take place if we have a Listed Auditor (a public auditor that cannot be completely audited and investigated by the PCAOB for three consecutive fiscal years). If this happens, there is no certainty that we will be able to list or otherwise trade our shares on a non-U.S. exchange or that a market for our shares of Common Stock will develop outside of the U.S. The ban on trading of our shares in, or the threat of their being banned from trading in, the U.S. may materially and adversely affect the value of our Shareholders’ investment.

If the Company is subject to a trading ban in the United States, it may be unable to list its Common Stock on a non-U.S. public stock market, or even if listed on a non-U.S. public stock market, that the Common Stock would enjoy any liquidity or investor support. As such, the Common Stock may be difficult to establish or be unable to be established on a foreign public stock market or quotation system. The absence of a public market for the Common Stock could render the shares of Common Stock an illiquid, potentially worthless investment.

The HFCAA or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, like our company, and the market price of the shares could be adversely affected. In addition, while the PCAOB announced in December 2022 that it secured complete access to inspect and investigate registered public accounting firms headquartered in China, we cannot assure you that the PCAOB will continue to have such access in the future. If the PCAOB is not able to inspect and investigate completely auditors in China for any reason, such as any change in the position of the governmental authorities in China in the future, the SEC may subsequently impose on a ban on trading of our Common Stock. A ban on trading of our Common Stock would substantially impair your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty associated with the ban would have a negative impact on the price of our shares of Common Stock. The ban on trading would also significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, and prospects. If our shares are prohibited from trading in the U.S., there is no certainty that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the U.S.

Efforts to increase U.S. Regulatory access to information about companies in Mainland China or Hong Kong SAR in order to enhance transparency for investors in U.S. corporations traded on U.S. stock markets but with substantial operations in Mainland China or Hong Kong SAR, like the Company, and Chinese opposition and reaction to those U.S. efforts could foster additional measures to restrict access to U.S. capital markets by such corporations or expedite delisting of securities of such corporations from U.S. stock markets and quotation systems. The enactment of the Accelerating Holding Foreign Companies Accountable Act has decreased the number of non-inspection years from three to two years under HFCAA, thus reducing the time period before our shares of Common Stock may be banned from being traded in the U.S.

The Accelerating Holding Foreign Companies Accountable Act was passed by the US House of Representatives as part of the Omnibus Spending Bill on December 23, 2022 and was signed into law by Pres. Biden soon thereafter, thus shortening the time for the US SEC to delist a non-compliant company from three years to two years if the PCAOB determines that it is unable to inspect or investigate a public company’s independent auditors in a foreign jurisdiction. If the PCAOB is not able to inspect and investigate completely our auditors in China for any reason, the SEC will subsequently prohibit our Common Stock to be listed on any of the U.S. securities exchanges or be traded over-the-counter two years after the PCAOB determination instead of three years under HFCAA.

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If the Company becomes directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese/Hong Kong SAR companies, we may have to expend significant resources to investigate and resolve the matters. Any unfavorable results from the investigations could harm our business operations and our reputation.

In 2021 and onwards, U.S. public companies with operations based in China have been subjects of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC and certain members of Congress. Much of the scrutiny, criticism and negative publicity has centered on alleged financial and accounting irregularities, lack of effective internal control over financial reporting, inadequate corporate governance and ineffective implementation thereof and, in many cases, allegations of fraud. As a result of enhanced scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S.-listed Chinese companies have decreased in value and, in some cases, have become virtually worthless or illiquid. Shareholder lawsuits and SEC investigations and enforcement actions can be fostered by intense, negative public focus on Chinese or Hong Kong SAR based companies. The Company does not believe that it is subject to any of these allegations, investigations or enforcement actions as of the date of this annual report. If the Company becomes a subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, the Company will have to expend significant resources to investigate such allegations and defend the Company. If such allegations were not proven to be baseless, the Company would be severely hampered and the price of the stock of the Company could decline substantially. If such allegations were proven to be groundless, the investigation might have significantly distracted the attention of the Company’s management. The mere commencement of an investigation by a regulator, like the SEC, even without evidence of any misconduct or violation of laws, can undermine investor confidence in the Company as an investment and do so even if the investigation finds no misconduct or violations of laws or regulations. Regulator investigations can take months or longer to resolve and can require considerable resources of a company to adequately respond to such. investigations.

The recent government regulation of business activities of U.S.-listed Chinese companies may negatively impact our operations.

Chinese regulatory authorities issued Opinions on Strictly Cracking Down on Illegal Securities Activities, which were available to the public on July 6, 2021, which further emphasized their goal to strengthen the cross-border regulatory collaboration, to improve relevant laws and regulations on data security, cross-border data transmission, and confidential information management, and provided that efforts will be made to revise the regulations on strengthening the confidentiality and file management relating to the offering and listing of securities overseas, to implement the responsibility on information security of overseas listed companies, and to strengthen the standardized management of cross-border information provision mechanisms and procedures. These opinions are issued in mid-2021, and there were no known further explanations or detailed rules or regulations with respect to such opinions, and there are still uncertainties regarding the interpretation and implementation of these opinions. China intends to improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading. China will also check sources of funding for securities investment and control leverage ratios. If the Chinese government’s regulatory involvement expands and we become subject to that expanded involvement, our operations may be negatively impacted, although, as of the date of this annual report, there is no known regulatory involvement of the nature described in this paragraph and there is no discernible immediate impact on our company under the recent regulatory developments described in this paragraph.

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We face various risks and uncertainties relating to doing business in Mainland China and Hong Kong SAR. Our business operations are primarily conducted in Mainland China and Hong Kong SAR, and we are subject to complex and evolving Chinese and Hong Kong SAR laws and regulations. For example, the Anti-Monopoly Law of the People’s Republic of China (Revised in 2022) (“Anti-monopoly Law”) came into effect on August 1, 2022. The “monopolistic practices” defined by the Anti-Monopoly Law include (a) the conclusion of a monopolistic agreement; (b) the abuse of dominant market positions; and (c) the concentration that eliminates or restricts competition or may eliminate or restrict competition. Based on Company’s China and global market share, the Company does not have a dominant market position that enables the Company to restrict or eliminate the competition. China promulgated several laws and regulations on data security and personal information protections in the last two years, mainly the Data Security Law of the People’s Republic of China (“Data Security Law”), which came into effect on September 1, 2021, and the Personal Information Protection Law of the People’s Republic of China (“PIP Law”), which came into effect on November 1, 2021. In the Company’s day-to-day business operations, sensitive customer data and personal information will not be received from the Company’s clients. The legal consequence of this fact is that neither the Data Security Law or the PIP Law applies to the Company’s business activities in China. And we also face risks associated with regulatory approvals on offshore offerings, as well as the lack of inspection on our Auditor by the PCAOB, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our shares of Common Stock, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of our Common Stock to decline.

Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China, could adversely affect us.

The PRC legal system is based on written statutes and court decisions that have limited precedential value. The PRC legal system is evolving rapidly, and therefore the interpretations and enforcement of many laws, regulations and rules may contain reasonable uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since partial statutory and contractual terms may remain reasonable blank or uncertainty due to the rapid evolvement, it may be difficult to predict the outcome of a judicial or administrative proceeding.

The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has also recently indicated an intent to exert more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such action, once taken by the PRC government, could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.

Permissions Required from the PRC Authorities for Our Operations

We conduct our business primarily through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries have obtained the requisite licenses and permits from the PRC government authorities that are material for the business operations of our subsidiaries in China, including, Business license, the Human Resource Services License. Given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals for the services in the future.

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Furthermore, in connection with our issuance of securities to foreign investors, under current PRC laws, regulations and regulatory rules, as of the date of this annual report, we, our PRC subsidiaries, (i) are not required to obtain permissions from the China Securities Regulatory Commission, or the CSRC, (ii) are not required to go through cybersecurity review by the Cyberspace Administration of China, or the CAC, and (iii) have not been asked to obtain such permissions by any PRC authority.

However, the PRC government has recently indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers.

If any of our Company, our subsidiaries do not receive or maintain the requisite permissions or approvals for our operations, or inadvertently conclude that such permissions or approvals are not required, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations or failures, including imposing fines, confiscating our incomes and products that are deemed to have been obtained through illegal operations, and discontinuing or restricting our operations. It could result in substantial additional costs, adversely affect our ability to conduct our business, compete with other companies, our financial performance and negatively affect investors’ confidence in our financial performance and business prospects. Even if such permissions or approvals are ultimately granted, we may not successfully maintain or renew them and they may be withdrawn. Since applicable laws, regulations, or interpretations for the permissions or approvals may change and we may be required to obtain additional permissions or approvals in the future, we cannot assure you that we may obtain such permissions or approvals in a timely manner, or at all. It could result in a material change in our operations and we may be required to recall some of our current or future products, or even to partially suspend or totally shut down our production. In addition, regulatory changes may relax certain requirements that could benefit our competitors or lower market entry barriers and increase competition. Furthermore, it could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or become worthless.

The filing, approval or other administrative requirements of the CSRC or other PRC government authorities may be required to maintain our listing status or conduct future offshore securities or debt offerings.

The PRC government authorities may strengthen oversight over offerings that are conducted overseas and/or foreign investment in overseas-listed China-based issuers like us from time to time. Such actions taken by the PRC government authorities may intervene our operations at any time, which are beyond our control. For instance, the relevant PRC governments promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, among which, it is mentioned that the administration and supervision of overseas-listed China-based companies will be strengthened, and the special provisions of the State Council on overseas issuance and listing of shares by such companies will be revised, clarifying the responsibilities of domestic industry competent authorities and regulatory authorities. However, due to lack of further interpretations or applications from the competent authorities on such opinions, there are still uncertainties regarding the interpretation and implementation of these opinions, and any new rules or regulations promulgated in the future may impose additional requirements on us.

On February 17, 2023, the CSRC published the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”). Pursuant to the Trial Measures, a filing-based regulatory system is applied to both “direct overseas offering and listing” and “indirect overseas offering and listing” of PRC domestic companies. The “indirect overseas offering and listing” of PRC domestic companies refers to such securities offering and listing in an overseas market made in the name of an offshore entity, but based on the underlying equity, assets, earnings or other similar rights of a domestic company which operates its main business domestically. If the issuer meets the following conditions, the offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total assets, net assets, revenues or profits of the domestic operating entity or entities of the issuer in the most recent accounting year account for more than 50% of the corresponding figure in the issuer’s audited consolidated financial statements for the same period; (ii) most of the senior managers in charge of business operation and management of the issuer are Chinese citizens or have domicile in China, and its main places of business are located in China or main business activities are conducted in China. Pursuant to the Trial Measures, we are required to file the relevant documents with the CSRC within three business days after submitting our listing application documents to the relevant regulator in the place of intended listing, and complete the filing procedures with the CSRC in connection with such subsequent securities offerings in the same overseas market where we have previously offered and listed securities within three business days after the offering is completed. Failure to complete the filing under the Trial Measures may subject a PRC domestic company to a warning and a fine of RMB1 million to RMB10 million. In the event of a serious violation of the Trial Measures, the CSRC may impose a ban on entering into the securities market upon the relevant responsible persons. Any such violation that constitutes a crime shall be investigated for criminal liability according to law.

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Furthermore, on February 24, 2023, the CSRC published the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Management Provisions”). Pursuant to the Confidentiality and Archives Management Provisions, PRC domestic companies that seek to offer and list securities in overseas markets shall establish confidentiality and archives system. The PRC domestic companies shall obtain approval from the competent authority and file with the confidential administration department at the same level when providing or publicly disclosing documents and materials related to state secrets or secrets of the governmental authorities to the relevant individuals or entities including securities companies, securities service agencies or the offshore regulatory authorities or providing or publicly disclosing such documents and materials through its offshore listing entity, and shall complete corresponding procedures when providing or publicly disclosing documents and materials which may adversely influence national security and the public interest to the relevant individuals or entities including securities companies, securities service agencies or the offshore regulatory authorities or providing or publicly disclosing such documents and materials through its offshore listing entity. The PRC domestic companies shall provide written statements on the implementation on the aforementioned rules to the relevant securities companies and securities service agencies and the PRC domestic companies that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable national regulations.

As the CSRC determine that we need to complete the required filing procedures for any such subsequent securities offerings in the same overseas market where we have previously offered and listed securities, or if such government authorities promulgate any interpretation or implement rules that would require us to obtain approvals from the CSRC or other regulatory authorities or complete required filing or other administrative procedures for any future offshore securities offering or other financing activities, it is uncertain whether we can or how long it will take us to obtain such approval or complete such filing or other administrative procedures, or obtain any waiver of aforesaid requirements if and when procedures are established to obtain such waiver. Any failure to obtain or delay in obtaining such approval or completing such filing or other administrative procedures for any future offshore securities offering, or a rescission of any such approval obtained by us, could subject us to sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory authorities may also impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from any future offshore securities offering into the PRC or take other actions that could adversely affect our business, operating results and financial condition, as well as our ability to complete any future offshore securities offering. The CSRC or any other PRC government authorities may also take actions requiring us, or making it advisable for us, to halt any future offshore securities offering. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur. Any uncertainties or negative publicity regarding such approval requirements could materially and adversely affect the trading price of our shares.

Our subsidiaries in Mainland China are subject to restrictions on paying dividends and making other payments to our holding company.

CLPS Incorporation is our holding company incorporated in the Cayman Islands and has no operation of its own. As a result of the holding company structure, it currently relies on dividend payments from our subsidiaries in Mainland China. However, PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our subsidiaries in Mainland China are also required to set aside a portion of their after-tax profits according to PRC accounting standards and regulations to fund certain reserve funds. The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of foreign currencies out of Mainland China. We may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency. The Company does not believe that any recent new regulations on foreign exchange controls will cause CLPS entities within Mainland China to encounter restrictions or obstacles in distributing profits to foreign shareholders. Furthermore, if our subsidiaries in Mainland China incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If our subsidiaries in Mainland China are unable to pay dividends or make other payments to us, we may be unable to pay dividends on our shares.

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The Company provides cash support to its subsidiaries according its business development plan. For fiscal year 2021, 2022, and 2023, the Company provided cash support to its subsidiaries in Mainland China, Singapore and Hong Kong SAR. The amounts were offset when the Company’s consolidated financial statements were prepared. The balances due from subsidiaries to the Company were US$7.6 million, US$22.8 million, and US$24.7 million as of June 30 for fiscal 2021, 2022, and 2023, respectively. The subsidiaries provide cash support to the Company according its business development plan. The balances due to subsidiaries from the Company were Nil, US$7.1 million, and US$7.6 million as of June 30 for fiscal 2021, 2022, and 2023, respectively. The balances were reflected in the section “PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION” in our financial statements for fiscal 2021, 2022, and 2023, respectively.

Recent regulatory developments in China may subject us to additional regulatory review and disclosure requirements, expose us to government interference, or otherwise restrict or completely hinder our ability to offer securities and raise capitals outside China, all of which could materially and adversely affect our business, and cause the value of our securities to significantly decline or become worthless.

In December 2021, the CAC promulgated the amended Measures of Cybersecurity Review which require cyberspace operators with personal information of more than one million users to file for cybersecurity review with the CRO, in the event such operators plan for an overseas listing. The amended Measures of Cybersecurity Review provide that, among others, an application for cybersecurity review must be made by an issuer that is a “network platform operator” as defined therein before such issuer’s securities become listed in a foreign country, if the issuer possesses personal information of more than one million users, and that the relevant governmental authorities in the PRC may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services or data processing activities affect or may affect China’s national security. The amended Measures of Cybersecurity Review took effect on February 15, 2022.

Under the current PRC cybersecurity laws in China, critical information infrastructure operators that intend to purchase internet products and services that may affect national security must be subject to the cybersecurity review. On July 30, 2021, the State Council of the PRC promulgated the Regulations on the Protection of the Security of Critical Information Infrastructure, which took effect on September 1, 2021. The regulations require, among others, that certain competent authorities shall identify critical information infrastructures. If any critical information infrastructure is identified, they shall promptly notify the relevant operators and the Ministry of Public Security.

Currently, the cybersecurity laws and regulations have not directly affected our business and operations, As the amended Measures of Cybersecurity Review took effect in February 2022, we may be subject to review when conducting data processing activities, and may face challenges in addressing its requirements and make necessary changes to our internal policies and practices in data processing. As of the date of this annual report, we have not been involved in any investigations on cybersecurity review made by the CAC on such basis, and we have not received any inquiry, notice, warning, or sanctions in such respect. Based on the foregoing, we and our PRC legal counsel do not expect that, as of the date of this annual report, the current applicable PRC laws on cybersecurity would have a material adverse impact on our business.

We may not meet regulatory requirements to prepare sufficiently for cybersecurity incident.

On July 26, 2023, the SEC promulgated final rules requiring public companies to have sufficient measures against cybersecurity incidents, including certain corporate governance and reporting requirements. If we are not able to implement relevant measures to comply with the SEC rules by December 31, 2023, we may be assessed a regulatory penalty due to non-compliance of the SEC rules.

We may not meet continued listing standards on the NASDAQ Global Market.

If our shares are delisted from the NASDAQ Global Market at some later date, our shareholders could find it difficult to sell our shares. In addition, if our common shares are delisted from the NASDAQ Global Market at some later date, we may apply to have our common shares quoted in the OTC Markets, otherwise they would automatically begin Quotation or in the “pink sheets” maintained by the National Quotation Bureau, Inc. The OTC Markets and the “pink sheets” are less efficient markets than the NASDAQ Global Market. In addition, if our common shares are delisted at some later date, our common shares may be subject to the “penny stock” regulations. These rules impose additional sales practice requirements on broker-dealers that sell low-priced securities to persons other than established customers and institutional accredited investors and require the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. As a result, the ability or willingness of broker-dealers to sell or make a market in our common shares might decline. If our common shares are delisted from the NASDAQ Global Market at some later date or become subject to the penny stock regulations, it is likely that the price of our shares would decline and that our shareholders would find it difficult to sell their shares.

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The market price for our shares may be volatile.

The trading prices of our common shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of internet or other companies based in China that have listed their securities in the United States in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial decline in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States, which consequently may impact the trading performance of our common shares, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material adverse effect on the market price of our shares. In addition to the above factors, the price and trading volume of our common shares may be highly volatile due to multiple factors, including the following:

| ● | regulatory developments affecting us, our users, or our industry;

| ● | regulatory uncertainties with regard to our variable interest entity arrangements;

| ● | announcements of studies and reports relating to our service offerings or those of our competitors;

| ● | actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

| ● | changes in financial estimates by securities research analysts;

| ● | announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;

| ● | additions to or departures of our senior management;

| ● | detrimental negative publicity about us, our management or our industry;

| ● | fluctuations of exchange rates between the RMB and the U.S. dollar;

| ● | release or expiry of lock-up or other transfer restrictions on our outstanding common shares; and

| ● | sales or perceived potential sales of additional common shares.

We are a “foreign private issuer,” and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime. As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

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We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our Memorandum and Articles of Association, the Cayman Islands Companies Law (Revised) (the “Companies Law”) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a U.S. public company.

Judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and all of our assets are located outside of the United States. Our current operations are based in China. In addition, our current directors and executive officers are nationals and residents of countries other than the United States. Substantially all of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.

We are a foreign private issuer and, as a result, will not be subject to U.S. proxy rules and will be subject to more lenient and less frequent Exchange Act reporting obligations than a U.S. issuer.

We report under the Securities Exchange Act as a foreign private issuer. Because we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including:

| ● | the sections of the Exchange Act that regulate the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;

| ● | the sections of the Exchange Act that require insiders to file public reports of their stock ownership and trading activities and impose liability on insiders who profit from trades made in a short period of time; and

| ● | the rules under the Exchange Act that require the filing of quarterly reports on Form 10-Q containing unaudited financial and other specified information and current reports on Form 8-K upon the occurrence of specified significant events.

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In addition, foreign private issuers are not required to file their annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are not large accelerated filers or accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation FD, aimed at preventing issuers from making selective disclosures of material information. There is no formal requirement under the Company’s memorandum and articles of association mandating that we hold an annual meeting of our shareholders. However, notwithstanding the foregoing, we intend to hold such meetings on our annual meeting to, among other things, elect our directors. As a result, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

The determination of our status as a foreign private issuer is made annually on the last business day of our most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on or after December 31, 2023. We would lose our foreign private issuer status if (1) a majority of our outstanding voting securities are directly or indirectly held of record by U.S. residents, and (2) a majority of our shareholders or a majority of our directors or management are U.S. citizens or residents, a majority of our assets are located in the United States, or our business is administered principally in the United States. If we were to lose our foreign private issuer status, the regulatory and compliance costs to us under U.S. securities laws as a U.S. domestic issuer may be significantly higher. We may also be required to modify certain of our policies to comply with corporate governance practices associated with U.S. domestic issuers, which would involve additional costs.

We may be exposed to risks relating to evaluations of controls required by Sarbanes-Oxley Act of 2002.

Pursuant to Sarbanes-Oxley Act of 2002, our management is required to report on, and our independent registered public accounting firm may in the future be required to attest to, the effectiveness of our internal control over financial reporting. Our internal accounting controls may not meet all standards applicable to companies with publicly traded securities. If we fail to implement any required improvements to our disclosure controls and procedures, we may be obligated to report control deficiencies and, if required, our independent registered public accounting firm may not be able to certify the effectiveness of our internal controls over financial reporting. In either case, we could become subject to regulatory sanction or investigation. Further, these outcomes could damage investor confidence in the accuracy and reliability of our financial statements.

We continue to reply on exemption from auditor attestation requirements as a non-accelerated filer.

Although we cease to be an “emerging growth company” on June 30, 2023 as such term is defined in the JOBS Act, we are a non-accelerated filer and are exempt from Section 404 requirement to have auditor attestation on our internal control over financial reporting, therefore affording investors less statutory protection. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and the trading price of our common shares may be more volatile. In addition, our costs of operating as a public company may increase when we cease to be an emerging growth company.

We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our common shares.

Based on the historical market price of our common shares since the IPO, and the composition of our income, assets and operations, we do not expect to be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes for the current taxable year or in the foreseeable future. However, the application of the PFIC rules is subject to uncertainty in several respects, and we cannot assure you the U.S. Internal Revenue Service will not take a contrary position. Furthermore, this is a factual determination that must be made annually after the close of each taxable year. If we are a PFIC for any taxable year during which a U.S. holder holds our common shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder.

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If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our common shares and trading volume could decline.

The trading market for our common shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the market price for our common shares would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our common shares to decline.

Our corporate structure, together with applicable law, may impede shareholders from asserting claims against us and our principals.

All of our operations and records, and all of our senior management are located in the PRC. Shareholders of companies such as ours have limited ability to assert and collect on claims in litigation against such companies and their principals. In addition, China has very restrictive secrecy laws that prohibit the delivery of many of the financial records maintained by a business located in China to third parties absent Chinese government approval. Since discovery is an important part of proving a claim in litigation, and since most if not all of our records are in China, Chinese secrecy laws could frustrate efforts to prove a claim against us or our management. In addition, in order to commence litigation in the United States against an individual such as an officer or director, that individual must be served. Generally, service requires the cooperation of the country in which a defendant resides. China has a history of failing to cooperate in efforts to affect such service upon Chinese citizens in China.

If we become directly subject to the recent scrutiny involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and or defend the matter, which could harm our business operations, stock price and reputation and could result in a complete loss of your investment in us.

Recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny by investors, financial commentators and regulatory agencies. Much of the scrutiny has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial reporting and, in many cases, allegations of fraud. As a result of the scrutiny, the publicly traded stock of many U.S. listed China-based companies that have been the subject of such scrutiny has sharply decreased in value. Many of these companies are now subject to shareholder lawsuits and or SEC enforcement actions that are conducting internal and or external investigations into the allegations. If we become the subject of any such scrutiny, whether any allegations are true or not, we may have to expend significant resources to investigate such allegations and or defend our company. Such investigations or allegations will be costly and time-consuming and distract our management from our business plan and could result in our reputation being harmed and our stock price could decline as a result of such allegations, regardless of the truthfulness of the allegations.

Changes in general economic conditions, geopolitical conditions, U.S.-China trade relations and other factors beyond the Company’s control may adversely impact our business and operating results.

The Company’s operations and performance depend significantly on global and regional economic and geopolitical conditions. Changes in U.S.-China trade policies, and a number of other economic and geopolitical factors both in China and abroad could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows. Such factors may include, without limitation:

| ● | instability in political or economic conditions, including but not limited to inflation, recession, foreign currency exchange restrictions and devaluations, restrictive governmental controls on the movement and repatriation of earnings and capital, and actual or anticipated military or political conflicts, particularly in emerging markets;

| ● | intergovernmental conflicts or actions, including but not limited to armed conflict, trade wars, retaliatory tariffs, and acts of terrorism or war; and

| ● | interruptions to the Company’s business with its largest customers, distributors and suppliers resulting from but not limited to, strikes, financial instabilities, computer malfunctions or cybersecurity incidents, inventory excesses, natural disasters or other disasters such as fires, floods, earthquakes, hurricanes or explosions.

Any of the foregoing or similar factors could result in reduced demand for our services which, in turn, could have material adverse effects on our business and results of operations.

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ITEM 4. INFORMATION ON THE COMPANY

| A. | History and Development of the Company

We are a global information technology (“IT”), consulting and solutions service provider focused on delivering services primarily to global institutions, including banking, wealth management, ecommerce, and automotive areas both in China and globally. For more than 15 years, we have served as an IT service provider to a growing network of clients in the global financial industry, including large financial institutions in the U.S., Europe, Australia, Asia, and their PRC-based IT centers. We have created and developed a particular market niche by providing turn-key financial solutions.

Since our inception, we have aimed to build one of the largest sales and service delivery platforms for IT services and solutions in China. The nature of our services is such that we provide a majority of services to our banking and credit card clients in order to build new or modify existing clients’ own proprietary systems. We are fully committed of delivering digital transformation services with a focus on the fintech within the areas of banking, wealth management, e-commerce, and automotive, among others, through the utilization of innovative technology to achieve our client’s goals. We maintain 20 delivery and/or R&D centers, of which 10 are strategically located in Mainland China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and 10 are located globally (Hong Kong SAR, the United States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, Vietnam, and Canada). Our extensive network enables us to serve different clients across various geographic locations. By combining onsite or onshore support and consulting with scalable and high-efficiency offsite or offshore services and processing, we are able to meet client demands in a cost-effective manner while retaining significant operational flexibility. By serving both Chinese and global clients on a common platform, we are able to leverage the shared resources, management proficiency, industry expertise and technological know-how to attract new business and remain cost competitive. We believe that maintaining our Company as a proven and reliable partner to our clients both in China and globally positions us well to capture greater opportunities in the rapidly evolving global market for IT consulting and solutions.

Corporate History and Background

CLPS Incorporation was incorporated under the laws of the Cayman Islands on May 11, 2017. Our share capital is US$10,000, which is divided into 100,000,000 common shares authorized, or US$0.0001 par value per share. On December 7, 2017, the Board of Directors approved a nominal issuance of the following shares to the existing shareholders: 5,000,000 shares to Qinrui Ltd., 5,000,000 shares to Qinhui Ltd., 430,823 shares to Qinlian Ltd., 430,804 shares to Qinmeng Ltd. and 428,373 shares to Qinyao Ltd. All of the five shareholders are incorporated in the British Virgin Islands.

The Company owns all of the outstanding capital stock of both Qinheng (incorporated on June 9, 2017) and Qiner (incorporated on April 21, 2017). Qinheng owns all of the outstanding capital stock of CLPS QC (WOFE) (incorporated on August 4, 2017). CLPS QC (WOFE) and Qiner respectively own 55.30% and 44.70% of the outstanding capital stock of CLPS Shanghai, the Company’s operating subsidiary based in Pudong New District, Shanghai, China, originally incorporated on August 30, 2005.

On August 30, 2005, CLPS Shanghai was established by Jingsu Pan and Xiaochun Deng as a PRC limited liability company. Jingsu Pan and Xiaochun Deng each actually paid RMB250,000 (approximately US$30,881) in cash for 50% of equity interest in CLPS Shanghai, and the total registered capital of CLPS Shanghai was RMB500,000 (approximately US$61,763).

On December 23, 2005, CLPS Shanghai increased its registered capital to RMB1,000,000 (approximately US$123,671). Jingsu Pan and Xiaochun Deng respectively made full payment for their subscribed capital to RMB500,000 (approximately US$61,835) on December 21, 2005.

On March 29, 2010, Yan Pan entered into a Share Purchase Agreement with Jingsu Pan to purchase all of Jingsu Pan’s shares in CLPS Shanghai. Pursuant to the Share Purchase Agreement, Yan Pan paid RMB500,000 (approximately US$61,835) for 50% shares of CLPS Shanghai. After this share transfer, Yan Pan and Xiaochun Deng respectively held 50% shares of CLPS Shanghai.

On October 19, 2010, Raymond Ming Hui Lin entered into a Share Purchase Agreement with Xiaochun Deng to purchase all of Xiaochun Deng’s shares in CLPS Shanghai. Pursuant to the Share Purchase Agreement, Raymond Ming Hui Lin paid RMB500,000 (approximately US$61,835) for 50% shares of CLPS Shanghai. After this share transfer, Yan Pan and Raymond Ming Hui Lin respectively held 50% shares of CLPS Shanghai. Since Raymond Ming Hui Lin is a Hong Kong resident, CLPS Shanghai changed its form in a Sino-foreign equity joint venture.

On October 31, 2012, CLPS Shanghai increased its registered capital to RMB5,000,000 (approximately US$799,987). Yan Pan and Raymond Ming Hui Lin each increased their subscribed capital to RMB2,500,000 (approximately US$399,993). Yan Pan actually paid RMB1,000,000 (approximately US$159,997) and Raymond Ming Hui Lin actually paid RMB1,008,120 (approximately US$161,296) for the capital contributions on October 18, 2012.

On October 30, 2013, Xiao Feng Yang entered into a Share Purchase Agreement with Yan Pan to purchase all of Yan Pan’s shares in CLPS Shanghai. Pursuant to the Share Purchase Agreement, Xiao Feng Yang paid RMB2,500,000 (approximately US$399,993) for 50% shares of CLPS Shanghai. After this share transfer, Xiao Feng Yang and Raymond Ming Hui Lin respectively held 50% shares of CLPS Shanghai.

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On June 24, 2014, CLPS Shanghai increased its registered capital to RMB30,000,000 (approximately US$4,759,004). Xiao Feng Yang and Raymond Ming Hui Lin respectively increased their subscribed capital to RMB15,000,000 (approximately US$2,379,502).

On April 23, 2015, Raymond Ming Hui Lin paid RMB6,163,560 (approximately US$994,523) for the capital contribution that he has made.

On May 27, 2015, Raymond Ming Hui Lin paid RMB3,391,883 (approximately US$546,980) for the capital contribution that he has made.

On May 29, 2015, Xiao Feng Yang paid RMB4,400,000 (approximately US$709,906), plus with his cash dividends for the capital contribution that he has made.

On August 5, 2015, Raymond Ming Hui Lin paid RMB3,894,060 (approximately US$627,103) for the capital contribution that he has made.

On August 27, 2015, Raymond Ming Hui Lin paid RMB42,377 (approximately US$6,615) for the capital contribution that he has made.

On July 21, 2015, Xiao Feng Yang paid RMB1,100,000 (approximately US$177,147) for the capital contribution that he has made.

On August 14, 2015, Xiao Feng Yang paid RMB8,000,000 (approximately US$1,251,799), plus with his cash dividends for the capital contribution that he has made.

On December 15, 2015, CLPS Shanghai changed its form into a PRC joint stock limited company. The share capital of CLPS Shanghai was RMB30,000,000, which was divided into 30,000,000 shares of RMB1.00 per share.

On May 26, 2016, three limited partnerships subscribed new shares issued by CLPS Shanghai and became shareholders of CLPS Shanghai. These three limited partnerships were: Shanghai Qinyao Investment Partnership (LLP), Shanghai Qinzhi Investment Partnership (LLP) and Shanghai Qinshang Software Technology Counsel Partnership (LLP). After the above-mentioned subscription, the shareholding structure of CLPS Shanghai was as follows:

INVESTORS |  | PLACE OF REGISTRATION |  | SHARES |
Xiao Feng Yang |  | PRC |  |  | 15,000,000 |
Raymond Ming Hui Lin |  | Hong Kong |  |  | 15,000,000 |
Shanghai Qinyao Investment Partnership (LLP) |  | PRC |  |  | 1,700,000 |
Shanghai Qinzhi Investment Partnership (LLP) |  | PRC |  |  | 1,270,000 |
Shanghai Qinshang Software Technology Counsel Partnership (LLP) |  | PRC |  |  | 900,000 |
Total: |  |  |  |  | 33,870,000 |

On June 5, 2017, Qinheng was established by CLPS Incorporation in Hong Kong. The total amount of share capital of Qinheng to be subscribed by CLPS Incorporation was HKD 10,000.00 and CLPS Incorporation held 100% of equity interest in Qinheng.

In July 2017, three of the abovementioned limited partnerships transferred all of their equity interest in CLPS Shanghai to their individual partners according to the proportion of each partner’s capital contribution. A total of 47 individuals became shareholders of CLPS Shanghai.

In August 2017, Qiner entered into three Share Purchase Agreements with three non-Chinese individual shareholders of CLPS Shanghai. The three non-Chinese individual shareholders are Raymond Ming Hui Lin (Hong Kong), Limpiada Zosimo (Philippines) and Lin James De-Mou (Taiwan). Including, Raymond Ming Hui Lin sold 15,000,000 shares, Limpiada Zosimo sold 71,229 shares and Lin James De-Mou sold 67,510 shares. The aforementioned share transfer was part of reorganization of the group.

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On August 4, 2017, CLPS QC (WOFE) received a business license from China (Shanghai) Pilot Free Trade Zone Administration for Industry and Commerce and was established by Qinheng as a PRC limited liability company. Qinheng subscribed USD 200,000 and held 100% of equity interest in CLPS QC (WOFE).

On October 31, 2017, CLPS Incorporation entered into a SOLD NOTE with Raymond Lin Ming Hui to purchase all of Raymond Lin Ming Hui’s shares in Qiner. After this transfer, CLPS Incorporation held 100% shares of Qiner. Qiner has become CLPS Incorporation’s wholly-owned subsidiary.

In October 2017, all Chinese individual shareholders of CLPS Shanghai completed the procedures for foreign exchange registration of overseas investments in accordance with the Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles (SAFE 2014 No. 37). After these registrations, CLPS QC (WOFE) entered into 46 Share Purchase Agreements with all 46 Chinese individual shareholders of which the 46 Chinese individual shareholders in total held 18,731,261 shares of CLPS Shanghai. The aforementioned share transfer was part of a reorganization of the group.

On November 2, 2017, the transfer between the 46 Chinese individual shareholders and CLPS QC (WOFE) has completed the record-filing of changes of Foreign-invested Company and got the record receipt.

On September 15, 2020, Shanghai Qincheng Information Technology Co., Ltd. and Qiner Co., Limited subscribed new shares issued by CLPS Shanghai. After the above-mentioned subscription, the shareholding structure of CLPS Shanghai was as follows:

INVESTORS |  | PLACE OF REGISTRATION |  | SHARES |
Shanghai Qincheng Information Technology Co., Ltd. |  | PRC |  |  | 27,651,699 |
Qiner Co., Limited |  | Hong Kong |  |  | 22,348,301 |
Total: |  |  |  |  | 50,000,000 |

As of the date of this Annual Report, CLPS Shanghai has four wholly-owned subsidiaries: CLPS Chengdu, CLPS Shenzhen, CLPS Xi’an, and CLPS Hangzhou. Besides the four wholly-owned subsidiaries, CLPS Shanghai participated in the following investments:

| ● | CLPS Beijing — CLPS Shanghai holds 49% of equity interest in CLPS Beijing, a PRC limited liability company

| ● | CLPS Guangzhou — CLPS Shanghai holds 51% of equity interest in CLPS Guangzhou, a PRC limited liability company.

| ● | CLPS Dalian — CLPS Shanghai holds 49% of equity interest in CLPS Dalian, a PRC limited liability company.

| ● | SSIT — CLPS Shanghai holds 35% of equity interest in SSIT, a PRC limited liability company.

| ● | UniDev — CLPS Shanghai holds 15% of equity interest in UniDev, a PRC limited liability company.

IT consulting services primarily includes application development services for banks and institutions in the financial industry and which are billed for on a time-and-expense basis. Customized IT solutions services primarily includes customized solution development and maintenance service for general enterprises and which are billed for on a fixed-price basis. The following entities provide either consulting or solution services or both, depending on where our clients are based. The entities are currently servicing one of the services might expand to both services if our clients’ needs arise:

| ● | CLPS Dalian provides both consulting and solution services. CLPS Dalian services clients in China’s north east region, including Dalian.

| ● | CLPS Beijing provides both consulting and solution services. CLPS Beijing services clients in China’s central east region, including Beijing and Tianjin.

| ● | Ridik AU currently only provides consulting services. Ridik AU services clients in Australia.

| ● | CLPS SG currently only provides consulting services. CLPS SG services clients in South East Asia region, including Singapore.

| ● | JAJI China is a joint venture with The Judge Group in the US. JAJI China continues to service The Judge Group’s clients in China. JAJI China focuses on expanding its client bases with collaboration efforts with The Judge Group. On April 2, 2021, as part of business strategy, the Company changed the English entity name of its majority-owned subsidiary, Judge (Shanghai) Co., Ltd. and its wholly-owned subsidiary Judge (Shanghai) Human Resource Co., Ltd., to JAJI (Shanghai) Co., Ltd. (“JAJI China”) and JAJI (Shanghai) Human Resource Co., Ltd. (“JAJI HR”), respectively.

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| ● | CLPS Hong Kong provides both consulting and solution services. CLPS Hong Kong services clients in East Asia region, including Hong Kong.
| ● | CLPS Shenzhen currently only provides consulting services. CLPS Shenzhen services clients in Shenzhen.
| ● | CLPS Guangzhou currently only provides consulting services. CLPS Guangzhou services clients in Guangzhou.

| ● | Ridik Pte. provides both consulting and solution services. Ridik Pte. services clients in South East Asia region, including Singapore.
| ● | Ridik Software Pte. currently only provides consulting services. Ridik Software Pte. services in South East Asia region, including Singapore.
| ● | Ridik Sdn. currently only provides consulting services. Ridik Sdn. services in South East Asia region, including Malaysia.

| ● | CLPS California provides both consulting and solution service. CLPS California services clients in North America, including the United States of America.
| ● | CLPS Shanghai, CLPS Dalian, CLPS Guangzhou, CLPS Beijing, JAJI China, Ridik Pte., CLPS Hong Kong and CLPS California all contribute material amounts of the Company’s total revenues.

Corporate Information

Our principal executive office is located at Unit 1000, 10th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR. Our telephone number is (852)3707-3600. Our website is as follows www.clpsglobal.com. The information on our website is not part of this Annual Report.

The following diagram illustrates our corporate structure:

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The Initial Public Offering

On May 24, 2018, the Company completed its initial public offering of 2,000,000 common shares, $0.0001 par value per share. The common shares were sold at an offering price of $5.25 per share, generating gross proceeds of approximately $10.5 million, and net proceeds of approximately $9.5 million. The registration statement relating to this IPO also covered the underwriters’ common stock purchase warrants and the common shares issuable upon the exercise thereof in the total amount of 83,162 common shares. Each five-year warrant entitles the warrant holder to purchase the Company’s shares at the exercise price of $6.30 per share and is not be transferable for a period of 180 days from May 23, 2018. On June 8, 2018, the Company closed on the exercise in full of the over-allotment option to purchase an additional 300,000 common shares of the Company by The Benchmark Company, LLC, the representative of the underwriters in connection with and the book running manager of the Company’s IPO, at the IPO price of $5.25 per share. As a result, the Company raised gross proceeds of approximately $1.58 million, in addition to the IPO gross proceeds of approximately $10.5 million, or combined gross IPO proceeds of approximately $12.08 million, before underwriting discounts and commissions and offering expenses. Our common shares began trading on the NASDAQ Capital Market on May 24, 2018 under the ticker symbol “CLPS”.

We have earmarked and have been using the proceeds of the initial public offering as follows: approximately $4.41 million for global expansion, i.e., to expand our existing locations to develop new clients by hiring more qualified personnel, system integration and marketing effort; approximately $3.31 million for working capital and general corporate purposes; approximately $2.21 million for R&D; and approximately $1.09 million for talent development.

| B. | Business Overview

Overview

We are a global information technology (“IT”), consulting and solutions service provider focused on delivering services primarily to global institutions, including banking, wealth management, ecommerce, and automotive areas both in China and globally. For more than 15 years, we have served as an IT service provider to a growing network of clients in the global financial industry, including large financial institutions in the U.S., Europe, Australia, Asia, and their PRC-based IT centers. We have created and developed a particular market niche by providing turn-key financial solutions.

Since our inception, we have aimed to build one of the largest sales and service delivery platforms for IT services and solutions in China. The nature of our services is such that we provide a majority of services to our banking and credit card clients in order to build new or modify existing clients’ own proprietary systems. We are fully committed of delivering digital transformation services with a focus on the fintech within the areas of banking, wealth management, e-commerce, and automotive, among others, through the utilization of innovative technology to achieve our client’s goals. We maintain 20 delivery and/or R&D centers, of which 10 are strategically located in Mainland China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and 10 are located globally (Hong Kong SAR, the United States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, Vietnam, and Canada). Our extensive network enables us to serve different clients across various geographic locations. By combining onsite or onshore support and consulting with scalable and high-efficiency offsite or offshore services and processing, we are able to meet client demands in a cost-effective manner while retaining significant operational flexibility. By serving both Chinese and global clients on a common platform, we are able to leverage the shared resources, management proficiency, industry expertise and technological know-how to attract new business and remain cost competitive. We believe that maintaining our Company as a proven and reliable partner to our clients both in China and globally positions us well to capture greater opportunities in the rapidly evolving global market for IT consulting and solutions.

Industry and Market Background

China’s Banking Industry

According to the 2022 annual report of China Banking and Insurance Regulatory Commission (CBIRC), China’s banking financial institutions had total assets of RMB 379.4 trillion (USD 55.0 trillion) at the end of 2022, a year-on-year increase of RMB 41.7 trillion (USD 6.0 trillion), or 10.0%. Total liabilities equalled to RMB 348.0 trillion (USD 50.5 trillion), a year-on-year increase of RMB 39.6 trillion (USD 5.7 trillion), or 10.4%. The total assets of banking financial institutions were RMB 94.3 trillion (USD 13.7 trillion) in 2010. Over the past 10 years, total assets of China’s banking financial institutions grew at a compound annual growth rate of more than 10%. However, the banking industry is facing many challenges, such as the competition with private capital, the participation of technological enterprises, changes in the financial market, the tightening of regulatory policies, and more diversified deposit substitute products, among others. Following the 2006 repeal of geographical and customer restrictions on foreign banks, the CBIRC continued the policies to open China’s banking industry for entry by foreign competitors to promote healthy competition in the industry. Since 2018, the CBIRC has announced three rounds of 34 new measures to further open up China to the outside world, such as abolishing or relaxing restrictions on foreign ownership, relaxing access conditions for foreign institutions and businesses, expanding the business scope of foreign institutions, optimizing regulatory rules for foreign institutions and simplifying administrative licensing procedures. By the end of 2022, foreign banks had set up 41 foreign legal entities, 116 branches of foreign banks and 135 representative offices in China, with a total of 911 business institutions.

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Software and Information Technology Service Industry in China

According to the 2022 Economic Performance of the Software Industry report of Ministry of Industry and Information Technology (MIIT), China’s software and information technology service industry ran steadily, with software business revenue has jumping to RMB 10 trillion (USD 1.4 trillion), profitability remaining stable, and software business exports maintaining growth.

China’s software and information technology services industry has developed and grown rapidly in recent years. The MIIT data showed that the industry’s revenue reached RMB 10.8 trillion (USD 1.6 trillion) in 2022, an increase of 11.2% compared to 2021, with the growth rate being 6.5 percentage points lower than that of the same period last year. Profitability remained stable. In 2022, the industry achieved a total profit of RMB 1.26 trillion (USD 182.7 billion), an increase of 5.7% over the previous year. Software exports continued to grow. In 2022, the software business exported USD 52.4 billion, an increase of 3.0% over the previous year. Among them, the export of software outsourcing services increased by 9.2% over the previous year.

Data Source: The Ministry of Industry and Information Technology, National Bureau of Statistics of China.

The development of China’s software and IT service industry is generally characterized by:

| ● | Software products —In 2022, the industry’s revenue from software products reached RMB 2.66 trillion (USD 385.7 billion), an increase of 9.9% over the previous year, accounting for 24.6% of the industry’s revenue. Among them, the revenues from industrial software products are RMB 240.7 billion (USD 34.9 billion), an increase of 14.3%, 3.1 percentage points higher than the level of the whole industry.

| ● | Information technology services —In 2022, the industry’s revenue from information technology services reached RMB 7.0 trillion (USD 1.0 trillion), an increase of 11.7% over the previous year, 0.5 percentage points higher than the level of the whole industry, accounting for 64.9% of the industry’s revenue. Among them, the aggregate revenues from cloud services and big data services were RMB 1.0 trillion (USD 145.0 billion), up by 8.7% year-on-year, accounting for 14.9% of the information technology services revenue. Integrated circuit design services revenues reached RMB 279.7 billion (USD 40.6 billion), an increase of 12.0% over the previous year. E-commerce platform technical services revenues reached RMB 1.1 trillion (USD 159.5 billion), an increase of 18.5% over the previous year.

| ● | Information security products and services – In 2022, the revenue of information security products and services reached RMB 203.8 billion (USD 29.6 billion), an increase of 10.4% over the previous year.

| ● | Embedded system software – In 2022, the revenue of embedded system software reached RMB 937.6 billion (USD 135.9 billion), an increase of 11.3% over the previous year.

| ● | Development on regional level — The eastern region maintained rapid growth, and the central and western regions showed remarkable growth. In 2022, revenue from software business completed in eastern, central, western and northeastern regions were RMB 8.9 trillion (USD 1.3 trillion), RMB 539.0 billion (USD 78.1 billion), RMB 1.2 trillion (USD 174.0 billion) and RMB 249.9 billion (USD 36.2 billion), respectively, with growth rates of 10.6%, 16.9%, 14.3% and 8.7% year-on-year, respectively, accounting for 82.0%,5.0%, 10.7% and 2.3% of the national software industry, respectively. Among them, the central and western regions are 5.7 and 3.1 percentage points higher than the national average growth rate.

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Financial institutions/banking IT solutions refer to the software or IT related services provided by professional IT service providers who use their own experience and technology to meet each bank’s needs in business development, strategic development, and management efficiency. The market share of China’s Banking IT Solution Industry from 2010 are shown as below:

Data Source: IDC data

According to IDC’s 2022 China Banking IT Solution Market Share report, China’s banking industry further accelerated the pace of digital transformation, intensifying its demand for IT solutions. However, macro environment factors such as the impact of the pandemic, geopolitical tensions, and economic challenges have led to sustained growth in the market demand for IT solutions in China’s banking industry, albeit at a slower rate.

In 2022, the overall market size of China’s banking IT solution market reached RMB 64.88 billion (USD 9.41 billion), an increase of 10.1% over 2021. IDC predicts that by 2027, the IT solution market for China’s banking industry will reach RMB 142.91 billion (USD 20.72 billion).

IDC research found that the overall banking IT solution market presents the following characteristics:

| ● | The digital transformation deepened across multiple dimensions, significantly improving digital operations. In 2022, the digital transformation in the banking industry extended to business, management and strategic aspects. On the business front, banks met growing digital customer demands by introducing new products, services, and enhancing and reconstructing existing digital offerings. In management, banks used digital technology to automatically upgrade and optimize various processes, boosting efficiency and reducing manual errors. Strategically, banks continued to define digital goals and pathways through the development of plans aligned with digital transformation.

| ● | Banks focused on utilizing fintech to reduce operational costs and enhance competitiveness. In 2022, Financial institutions and fintech service providers prioritized technologies such as big data, cloud-native, and AI, among other technologies, as well as cloud-native architectures characterized by high performance and distribution. They also embraced low-code agile development and industry-technical collaboration. Banks increasingly adopted cloud-native, microservices, distributed architecture and other technologies to meet the needs of rapid response and agile flexibility of financial business, especially upgrading the core business systems and digital credit systems. Meanwhile, advancement in AIGC and privacy computing technology drove data sharing and circulation demands, leading to increased emphasis on data asset management, data application and data security by banks. Low-code development platforms were also adopted by solution service providers for mobile application products, credit products, management software, and more.

| ● | Banks intensified their focus on financial security, leading to increased emphasis on systematic development of risk management and regulatory compliance. In 2022, many banks are accelerated the construction of digital and systematic risk control systems to enhance business security, data security, and information security. There was a rising demand for a comprehensive risk management system encompassing risk assessment, monitoring, identification, and risk control, among others. Additionally, the need for digital risk tools and platforms grew. In terms of regulatory compliance, banks faced strict supervision and reporting requirements like EAST and new interest rate reporting. This prompted a substantial demand for the construction and upgrading of regulatory compliance platforms, including unified regulatory reporting, EAST reporting, and corporate credit reporting systems, among others, aimed at mitigating risks caused by high leverage, maturity mismatch, and asset pricing fluctuations.

| ● | Data emerged as a crucial component of the digital economy and has become an important strategic resource for the country. In 2022, the market demand for data management and applications, including data governance, data assets, data development and application, data circulation, data element circulation, market construction, data security, and data intelligence solutions, was strong.

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Our primary focus is in the following key operational areas:

Banking

Providing professional IT consulting and solutions for the banking industry is one of the traditional competitive advantages of CLPS. With more than 15 years of experience in helping leading global banks to implement banking systems, CLPS is committed to innovating and optimizing traditional banking system by utilizing cutting-edge fintech technology to enable institutions embrace banking.

CLPS has formed strategic partnerships with several global financial MNCs to provide banking IT services, help leading global banks to implement banking system and to enable them to test and enhance multiple functions such as loans, saving, deposit, general ledger, account management, anti-money-laundering, risk control and credit card system. Whether traditional or online banking, CLPS has a wide array of business modules at its disposal.

CLPS has a deep understanding of the market supply and demand buoyed by its more than a decade experience in traditional banking business. CLPS provides IT services in the banking industry, including but not limited to bank channel services such as mobile banking and online banking; business services such as marketing and risk control, among others; management services such as customer relationship management, business intelligence, and information security management, to name a few.

By integrating its internal resources, CLPS has been able to continue to invest and develop series of R&D products, including credit card system, integrated transaction acquiring platform, reward points terminal, and virtual bank training platform, among others. These products have achieved positive feedback from the market.

Revenues from our banking area were approximately $61.5 million, $67.7 million, and $60.0 million for the years ended June 30, 2023, 2022, and 2021, respectively. Revenues from our banking area accounted for 40.9%, 44.5%, and 47.6%of our total revenues in fiscal years 2023, 2022, and 2021, respectively.

Significant portion of our services caters the banking clients.

Credit Card Area

Most of the global credit card issuers maintain branches and supporting technical infrastructure in China. The development, testing, support and maintenance of these platforms require in-depth understanding and knowledge of business processes supported by IT. There is a significant demand for such IT consulting services among large-scale credit card platforms because many of such institutions experience shortage of qualified personnel and resources. We offer more than ten years of experience in IT consulting services across key credit card business areas, including credit card applications, account setup, authorization and activation, settlement, collection, promotion, point system, anti-fraud, statement, reporting and risk management. In the past years, we have successfully helped our China and global clients manage their credit card IT systems such as VisionPLUS. We offer expertise in customizing these credit card tools and platforms to suit a variety of business models. Our highly experienced team possesses the requisite expertise in providing service in the credit card area. The IT consulting professional teams provides service in the credit card area from Shanghai, Dalian and Hong Kong. We offer this experience and expertise in various currencies, across different geographical regions, including, but not limited to China, Singapore, UK, the Philippines, Indonesia, and Latin America. In addition, we have developed a series of credit card solutions in order to meet the needs of our clients better.

Revenues from our credit card area were approximately $4.3 million, $6.6 million, and $11.2 million for the years ended June 30, 2023, 2022, and 2021, respectively. Revenues from our credit card area accounted for 7.0%, 9.7%, and 18.7%of our banking revenues in fiscal years 2023, 2022, and 2021, respectively.

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Core Banking Area

We are one of China’s largest core banking system services providers for global banks. Most global banks establish their IT development centers and gradually expand their business in China. Those banks require significant core banking IT services. We offer more than ten years of experience in providing leading global banks with the support and expertise needed to implement their core banking system, including business analysis, system design, development, testing services, system maintenance, and global operation support. We provide services across multiple functions including loans, deposit, general ledger, wealth management, debit card, anti-money-laundering, statement and reporting, and risk management. We also provide architecture consulting services for core banking systems and online and mobile banking. We successfully transformed the centralized core banking system for one of our US-based clients to a service-oriented architecture and integrated it into a global unified version, which successfully satisfied its business needs in various markets. In addition, we engage the cloud-native solution of core banking system with micro services architecture, which can serve both Chinese and global banks to meet the ever-changing demands of the market with high flexibility, high scalability, high reliability and multichannel connectivity.

Revenues from our core banking area were approximately $57.2 million, $61.1 million, and $48.8 million, for the years ended June 30, 2023, 2022, and 2021, respectively.

Wealth Management

In this annual report, “wealth management” refers to the segments of financial industry except banking, including but not limited to investment banking, funds, insurance, securities, futures, clearing, consumer financing, online financing, and supply chain financing. CLPS has in-depth industry knowledge and solutions in the field of wealth management, and constantly develops and innovates according to the needs of clients.

In the past years, we have successfully developed and managed a variety of IT systems for Chinese and global clients, including the development of asset management system, core insurance system, pension system for well-known international investment bank, large international insurance group, and leading asset management corporation. We also provided development, operation, and maintenance for data analysis and business management systems of China’s national financial information platform, China’s national clearing house, stock exchange, and several large security institutions in China. In addition, we have developed mobile terminal for multiple comprehensive financial service providers and consumer finance platforms both in China and globally.

Revenues from our wealth management area were approximately $37.4 million, $32.1 million, and $25.2 million for the years ended June 30, 2023, 2022, and 2021, respectively. Revenues from our wealth management area accounted for 24.9%, 21.1%, and 20.0% of our total revenues in fiscal years 2023, 2022, and 2021, respectively.

E-Commerce

By constantly improving our capabilities, we have gradually extended our main service offerings from banking and financial institutions to e-Commerce industry. We have rapidly developed and accumulated certain skills in online platforms, cross-border e-commerce, logistics, and back-end technology such as big data analysis, and intelligent decision-making among others. In the past years, we have successfully provided IT system development delivery for domestic and international clients, including a global online trading project for a top US e-Commerce company. We have also developed the global terminal, payment, and risk control system for a well-known online ticketing website. In addition, CLPS has developed the website and product market data analysis for a leading and international travel e-commerce platform, and the e-Commerce platform for a large investment holding group in China.

Revenues from our e-Commerce area were approximately $25.5 million, $29.4 million, and $19.2 million for the years ended June 30, 2023, 2022, and 2021, respectively. Revenues from our e-Commerce area accounted for 17.0%, 19.4%, and 15.2% of our total revenues in fiscal years 2023, 2022, and 2021, respectively.

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Automotive

With the extensive experience of CLPS in the IT services application in the financial and e-commerce industries, and its innovative implementation of cutting-edge technology such as big data, artificial intelligence and robotic process automation (RPA), it has also extended its business to automotive industry.

There is a high demand of intelligent technology application in automobile industry in the recent years. Aside from providing internal management system development for several international automobile enterprises, we also get deeply involved in the development of autonomous driving, automatic control, and other AI-driven technology projects with several major clients. This includes the development of a new-energy vehicle intelligent platform for a large automotive group company in China and a car’s multimedia software for a Chinese automotive information system company. Moreover, we also provide development of internet auto finance platform for several Chinese enterprises.

Revenues from our automotive area were approximately $14.2 million, $10.4 million, $8.5 million, and $3.6 million for the years ended June 30, 2023, 2022, and 2021, respectively. Revenues from our automotive area accounted for 9.4%, 6.8%, and 6.7%of our total revenues in fiscal 2023, 2022, and 2021, respectively.

Our business scope in terms of services:

Consulting Services

Revenues from consulting services are recognized from time-and-expense basis contracts as the related services are rendered assuming all other basic revenue recognition criteria are met. Under time-and-expense basis contracts, the Company is reimbursed for actual hours incurred at pre-agreed negotiated hourly billing rates. Clients may terminate the contracts at any time before the work is completed but are obligated to pay the actual service hours incurred through the termination date at the contract billing rate.

We provide consulting services to our clients in the banking, wealth management, e-commerce, and automotive industries, among others.

Revenues from our IT consulting services were approximately $144.3 million, $144.1 million, and $122.3 million, respectively. Revenues from our IT consulting services accounted for 96.0%, 94.8%, and 97.0% of our total revenues in fiscal years 2023, 2022, and 2021 respectively.

Solution Services

Revenues from fixed-price customized solution contracts require the Company to perform services for systems design, planning and integrating based on customers’ specific needs which requires significant production and customization. The required customization work period is generally less than one year. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Company is generally required to provide post-contract customer support (“PCS’) for a period from three months to one year (“PCS period”) after the customized application is delivered. The type of service for PCS clause is generally not specified in the contract or stand-ready service on when-and-if-available basis.

CLPS provides customized solution services to our clients in the banking, wealth management, e-commerce, and automotive industries, among others.

We are also an IT solution services provider in China and globally. We offer our clients over a decade of experience providing Chinese and global financial institutions with business and technological know-how including cloud computing and big data. We have accumulated an in-depth knowledge base that enables us to provide end-to-end customized solutions for our clients. The performance from our R&D center supports our ability to offer our clients creative solution design, especially in the areas of new information technology such as blockchain.

We offer software project development, maintenance and testing solution services, including COBOL, Java, .NET, Mobile and other technology applications. Specifically, we assist our clients in three aspects: (i) adopting and applying the most suitable technologies to ensure that software solutions are designed with information security and intellectual property rights protection in mind, (ii) building and managing a dedicated or leveraged software development, maintenance and testing quality, and efficiency testing, and (iii) providing onshore and offshore IT solution services to ensure turn-key delivery.

We launched our scenario-based digital currency application solution, which aims to enable financial institutions to drive growth in the digital economy. Gaining traction in the recent years, global financial institutions have accelerated the creation of financial ecosystems that can support digital currency, which led for CLPS to launch such solution. This solution leverages CLPS’s global services delivery capability and its expertise in banking, e-commerce, payment, risk control, digital marketing, and mobile development, among other areas. In addition, by integrating bank-enterprise interaction, smart contract, aggregate payment, retail settlement, supply chain management, marketing and promotion as an end-to-end service platform, a trading platform based on digital currency payment scenarios can be developed, helping financial institutions accelerate adoption and widespread use of digital currency.

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A key strategic target of the People’s Bank of China, digital RMB has achieved significant progress in terms of application scenarios, transaction volume, number of accounts opened, and an expanded pilot scheme to more areas. Launching the pilot version of digital RMB application in major app stores, its introduction at the Beijing 2022 Winter Olympics, and its intended use in the 19th Asian Games all indicate that digital RMB are becoming more mature. Through this solution, CLPS will be able to facilitate Chinese financial institutions create a better digital RMB application ecosystem, penetrate the market opportunity quickly, and expand customer acquisition channels. In addition, the solution can be customized based on corporate client’s demands, enabling a wide range of application scenarios.

We will continue to develop our new IT solutions to meet the evolving needs of our Chinese and global financial institutional clientele drawing upon the forward-looking research of our R&D center.

Revenues from our customized IT solution services were approximately $4.6 million, $6.7 million, and $3.1 million, respectively. Revenues from our customized IT solution services accounted for 3.0%, 4.4%, and 2.5% of our total revenues in fiscal years 2023, 2022, and 2021, respectively.

Other Services

CLPS Virtual Banking Platform (CLB)

CLB is a unique and successful training platform for IT talents owned by CLPS. For more than ten years, we have been focusing on recruiting, training, developing and retaining human capital and talents. We have been developing and continuously upgrading our CLB to train specialized financial IT personnel in order to differentiate ourselves from general IT developers. CLB is one of the crucial components of our TCP. It contains a full set of banking application modules covering areas such as core banking, credit cards, and wealth management, incorporated with cutting-edge technologies, such as JAVA, Android & iOS, HTML, blockchain, cloud computing and big data.

Recruitment and Headhunting

As per client’s request, we are capable of providing the most suitable person for a position. The Company maintains more than 100 talent acquisition staff with rich industry background and knowledge. Our recruitment centers are well equipped of advanced technology, such as cloud platforms, big data, and robotic process automation (RPA), to accelerate the talent acquisition process. As a result, CLPS obtains qualified talent, reduce talent acquisition costs, meet the growing demands of talent from its existing and potential clients, and achieve meaningful growth.

Fee-For-Service Training

Under the fee-for-service training, we incur charges for clients based on their training needs. Generally, it includes domain knowledge, technology skills, data security and management compliance training, soft skills for personnel; and English language skills including verbal and business correspondence for all level, especially for those who need to communicate with global customers directly on a daily basis. However, the training content and approach can be customized based on the client’s training needs.

Our Strategies

We have developed and intend to implement the following strategies to expand and grow the revenue, the number of employees, and the number of service locations of our Company:

| ● | Grow revenue with existing and new clients — We intend to pursue additional revenue opportunities from existing Chinese and global clients, which include many of the leading companies in our financial industry. We will focus on continuing to deliver high quality services and solutions and identifying additional opportunities with existing clients as they will continue to constitute a significant portion of our revenues and medium-term growth. We will also continue to target certain new Chinese and global clients, using our comprehensive service and solution offerings, combined with increasingly deep domain expertise in finance industry. Furthermore, we will continue to invest in a delivery platform that benefits both Chinese and global clients, capturing synergies between the China and global markets to benefit both groups of clients. For the fiscal year 2023, revenues from existing and new clients accounted for 97.3% and 2.7% of the total revenue, respectively.

| ● | Continue to invest in research and development, deepen domain expertise and develop specific solutions for target industry verticals — We will continue to enhance our domain knowledge in the financial industry and relevant business-specific processes. As we grow our industry and service area expertise, we intend to leverage the domain knowledge accumulated in our work with our Chinese and global clients to more effectively address their business-specific needs. In addition, we plan to continue investing in R&D, focusing on developing solutions that leverage our industry experience and R&D capabilities, to combine proprietary applications with our services to best address client needs. We launched our scenario-based digital currency application solution, which aims to enable financial institutions to drive growth in the digital economy. Through this solution, CLPS will be able to facilitate Chinese financial institutions create a better digital RMB application ecosystem, penetrate the market opportunity quickly, and expand customer acquisition channels. In addition, the solution can be customized based on corporate client’s demands, enabling a wide range of application scenarios.

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|  | We launched CAKU 2.0, the upgraded new generation of credit card system product of CLPS. Built on an open source architecture, CAKU offers fast implementation and flexibility for replacing existing credit card system, giving global banking institutions a competitive edge in digital transformation. CAKU is a proprietary product that CLPS independently developed based on its extensive experience in the financial industry as well as its deep understanding in the current banking business demands and industry development trends.
|  | We developed a new generation of loan management system, a product intended for small and medium-sized banking institutions. CLPS has been optimizing its loan management system by integrating its mature products with innovative technology such as blockchain, robotic process automation (RPA), optical character recognition (OCR), and facial recognition. The goal of the optimization is to achieve a more comprehensive and streamlined loan process flow, including in mortgage application, credit checking, and drawdown, among others, ensuring the privacy and security of information transmission while effectively shortening the processing time. As a result, customers can apply for a loan conveniently anytime, anywhere, reducing banking institutions’ operating costs and gaining a wider range of new business opportunities.
|  | CLPS’s Innovation Lab has unveiled initial findings showcasing the synergy of Robotic Process Automation (RPA) and Artificial Intelligence (AI) for intelligent automation in talent acquisition. This research demonstrates that integrating AI into RPA workflows can streamline talent acquisition, leading to a 43% reduction in labor costs and a 700% improvement in efficiency, while also serving as a foundation for future AI-powered automation solutions in various business areas.
| ● | Continue to invest in training and development of our world-class human capital base — We place a high priority on attracting, training, developing and retaining our human capital base to be increasingly competitive. Spearheaded by the CLPS Academy, we will continue to build our professional talent pool through our TCP and TDP to ensure the sustainable supply of financial IT talent resources. These programs are the result of our collaboration with Shanda University and utilization of a technical curriculum and professional certifications developed and maintained by our Company. We will continue to develop our scalable human capital platform by implementing resource planning and staffing systems and by attracting, training and developing high-quality professionals to form CLPS’s large talent pool in order to meet ever-changing clients’ needs. We will build on and leverage existing training programs and leverage the CLPS Academy, which we intend to expand to other key cities and other industries, such as the insurance sector, to tap deeper into CLPS’s talent pool. In addition to our dedicated training centers, we expect to open additional training centers overseas as we anticipate increasing demand for our services and solutions. We will continue to strengthen our collaboration with leading domestic universities to improve our on-campus recruiting results and help to better prepare graduates for work in our industry. Spearheaded by the CLPS Academy, the strength of our TCP/TDP program adds to our recognition in the industry by competitors and customers alike. For the fiscal year 2023, we trained more than 180 interns. In addition, through our wholly-owned subsidiary, CLPS Technology (Singapore) Pte. Ltd., we signed a Collaboration Agreement (the “Agreement”) with Educare Global Academy Pte. Ltd. (“Educare Global Academy”), a well-known private educational institution in Singapore. Under the Agreement, CLPS and Educare Global Academy will collaborate and integrate their respective industry expertise and resources to provide an education program focused on banking and fintech, the Post Graduate Diploma in New Banking Technologies: Application, Implementation & Legacy Systems Integration. This strategic partnership aligns the unique competitive advantages of both parties to produce highly skilled IT talents that can meet industry demands in Singapore and the neighboring countries in Southeast Asia. The Lujiazui FinTech Talents Training Center, a collaboration between Lujiazui Financial City and CLPS Incorporation, was officially announced to address the growing demand for multifaceted fintech professionals. This center aims to create skilled individuals proficient in both finance and IT by leveraging CLPS’ expertise in fintech services and Lujiazui Financial City’s resources, offering a comprehensive curriculum, training environment, and evaluation methodology. The center will also provide over 250 training courses, industry partnerships, and a Certified FinTech Analyst (CFTA) certification program to align with the fast-paced advancements in technologies like big data, cloud computing, AI, and blockchain.

| ● | Drive efficiencies through ongoing improvements in operational excellence — We strive to gain significant operating efficiencies by leveraging historical and ongoing investments in infrastructure, research and development and human capital. We operate our business on a single, integrated platform, with centralized functions which provide significant economies of scale across our business both domestically and globally, as well as cross service offerings. We also expect to continue investing in our own IT infrastructure and more advanced technologies, such as cloud computing, to allow us to enhance our scalability and continue to grow in a more cost-effective fashion. As part of expanding our scale, we intend to continue building up training centers tailored to our human capital needs to deploy human capital more efficiently, thereby improving overall resource utilization and productivity.
| ● | Capture new growth opportunities through strategic alliances and acquisitions — We will continue to pursue selective alliances and acquisitions in order to enhance our industry-specific technology and service delivery capabilities by building on our track record of successfully acquiring and integrating targeted companies. We will continue to identify and assess opportunities to enhance our abilities to serve our clients. We will focus on enhancing our technology capabilities, deepening our penetration into key clients, expanding our portfolio of service offerings and expanding our operations geographically.
|  | CLPS has partnered with Fuson Group Ltd., a Hong Kong-based company, to establish a smart tourism platform and comprehensive IT solution for digital transformation. Fuson, currently engaged in traditional tourism services, will benefit from CLPS’ expertise to create an end-to-end digital framework using hybrid cloud and AI technology, enhancing collaboration, operation, and decision-making. This collaboration aims to drive Fuson’s business growth and global competitiveness through seamless digital transformation, supported by CLPS’ cross-industry IT capabilities and market experience.

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|  | CLPS has entered into a Memorandum of Understanding (MOU) with Shanghai DaoCloud Network Technology to collaboratively create cloud-native fintech solutions, enhancing digital transformation in the financial sector. The partnership seeks to leverage cloud computing and distributed technologies to upgrade legacy systems, initially focusing on enhancing CLPS’s loan system through DaoCloud’s application cloud container platform, aiming to provide comprehensive and secure fintech solutions that drive efficiency and customer acquisition in global financial institutions.

| ● | Continue to implement our global expansion strategy — We remain focused on investing in our long-term sustainable growth and delivering on our dual-engine strategy of horizontal and vertical expansion. We will continue to pursue growth in our global footprint and market share as well as in technological and talent development. By delivering on our strategy, we expect to drive shareholder value. CLPS has appointed Mr. Srustijeet Mishra as CEO of its subsidiary, CLPS Technology (California) Inc. In addition to overseeing the development and management of business activities in the U.S. market, Mr. Mishra will continue to serve as CEO for CLPS’s business entities in the Southeast Asia region. With his extensive industry experience and management skills, he is expected to lead the expansion of CLPS’s overseas operations, extending its delivery network and models to the North American market while leveraging strategic locations and a variety of delivery approaches to cater to specific client needs.

Our Competitive Strengths

We believe that the principal competitive factors in our markets are industry expertise, breadth and depth of service offerings, quality of the services offered, strategic engagement with blue-chip clients, reputation and track record, marketing and selling skills, scalability of infrastructure and price.

We believe that there are several key strengths that differentiate us from our competitors and will continue to contribute to our growth and success.

1. Breadth and depth of digital transformation service offerings

CLPS provides staffing-based consulting services, turn-key financial solutions, and implementation of advanced technologies, enabling clients to build new or enhance their existing systems. We are fully committed of providing digital transformation services with focused on financial and technology in the banking, wealth management, e-commerce, and automotive industries, among others, through the utilization of innovative technology to achieve our client’s goals.

We are dedicated to providing a full range of services and solutions across technology needs in finance. We are able to provide both development and implementation of core banking, credit card, online and e-commerce systems, as well as expertise across technology stacks. More recently, we have tested and piloted leading edge technologies including cloud transitions, robotic process automation, big data and blockchain. We are also exploring applications in artificial intelligence.

2. Talent Creation Program and Talent Development Program

Spearheaded by the CLPS Academy, we have established employee loyalty through the core engine of TCP and TDP programs both are integral parts of our supply chain which supports our service lines. Since 2008, our talent training services have offered training courses in five areas, including domain knowledge, technology skills, data security and management compliance training, soft skills for personnel; and English language skills including verbal and business correspondence for all level, especially for those who need to communicate with global customers directly on a daily basis. We believe that the depth and comprehensive nature of our talent training services are key features that distinguish us from our competitions. For more than 15 years, the Company has been recruiting, training, developing and retaining human capital and talents. We have been developing and upgrading our CLPS Virtual Banking Platform (CLB) to train specialized financial IT professionals. CLB is one of the crucial components which enables our Talent Creation Program. It contains a full set of banking application modules covering areas such as core banking, credit cards and wealth management incorporated with cutting-edge technologies, such as JAVA, Android & iOS, HTML and big data. We select qualified students each year to participate in our training program. During their junior and senior years, the students learn to implement the concepts covered by our TCP platform along with their other computer science theory and coursework. Thereafter, the students join us as interns to continue improving their software development skills and will eventually become part of our development teams. As a result, graduates have an equivalent of nine months’ worth of “on the job” training and experience. For the fiscal year 2023, we trained 180 interns. In addition, through our wholly-owned subsidiary, CLPS Technology (Singapore) Pte. Ltd., we signed a Collaboration Agreement (the “Agreement”) with Educare Global Academy Pte. Ltd. (“Educare Global Academy”), a well-known private educational institution in Singapore. Under the Agreement, CLPS and Educare Global Academy will collaborate and integrate their respective industry expertise and resources to provide an education program focused on banking and fintech, the Post Graduate Diploma in New Banking Technologies: Application, Implementation & Legacy Systems Integration. This strategic partnership aligns the unique competitive advantages of both parties to produce highly skilled IT talents that can meet industry demands in Singapore and the neighboring countries in Southeast Asia.

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Our TDP program is a continuous internal training program for our skilled-professionals in order to serve our clients better. The TDP program increases our professionals’ skillsets and business knowledge in their respective domain and technical fields. Since 2005, through our TCP and TDP programs, we have trained and retained a large pool of specialized personnel skilled in serving financial-related industry clients.

As a result of our employee loyalty programs, we have established an ecosystem of loyal client relationships. Employee satisfaction and enhanced career development have resulted in better service to our clients. Client satisfaction in return motivates our employees to continue to provide excellent service to our clients. In addition to the above-mentioned benefits, our Company’s strengths include the following:

| ● | core competency particularly in banking and insurance industry;

| ● | deep domain knowledge and solutions in financial industry verticals;

| ● | strategic engagements with financial blue-chip clients most of whom have been with us since our inception;

| ● | comprehensive service offerings including financial IT solutions & consulting as well as other services;

| ● | experienced senior management team with proven track record of success.

3. Leading provider of human capital in the financial and technology industry

CLPS is a leading provider of IT professionals in the financial and technology industry, such in banking, wealth management, e-commerce, automotive, and others. We create, develop, and maintain a large pool of qualified and rich experienced talents, with bilingual or multilingual capability so support the client’s communication need, which is vital for a business’ success.

As of fiscal year 2023, CLPS maintained more than 3,509 employees, of which, more than 3,099 IT talents serve our customers. Among them, more than 98% work full-time for customers and the rest of the 2% work on project-based such as IT engineers, project managers, business analysts, among others, or are involved in research of innovative projects.

Our greatest edge in terms of human capital is our employees’ English communication skills capability and are familiar with international financial business environment. In terms of our overall IT skills, we maintain even distribution and relatively adequate resources of talent pool with capabilities in Java, Cobol, quality control, and other cutting-edge technology such as data analysis.

Customers

Our clients include large corporations headquartered in China and globally which include, among others:

| ● | Banking or their China-based IT centers — Citibank, HSBC, Standard Chartered Bank (China) Ltd., The Bank of East Asia, Limited, Bank of China (Hong Kong) Limited, ANZ Bank, and Bank of Communications.

| ● | Wealth Management — AIA, CUP Data, First Data, and Orient Securities.

| ● | E-Commerce — eBay, PayPal, Greendot Shanghai, Stubhub, and Gumtree.

| ● | Automotive and Technology — SAIC Motors, Rising Auto, Sony, Cisco, AGFA Healthcare, Neusoft, and Kodak.

By serving both Chinese and global clients on a common platform, we are able to leverage the shared resources, management, industry expertise and technology know-how to attract new business and remain cost competitive.

Sales and Marketing

We have invested in building a broad sales force and marketing team. As of June 30, 2023, our business development teams consisted of 52 full-time sales and marketing personnel, including 49 sales managers, each of whom is responsible for a designated sales region or client account. We plan to enhance our sales efforts by recruiting more sales personnel both domestically and overseas.

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Competition

The market for IT services is highly competitive and we expect competition to intensify. We believe that the principal competitive factors in our markets are industry expertise, breadth and depth of service offerings, quality of the services offered, reputation and track record, marketing skills and price. Domestically, we face competition from the following major competitors: Shenzhen Forms Syntron Information Co., Ltd., Sunline Tech, Amarsoft and CSII. These competitors are all domestic listed companies and possess a considerable market share in IT services industry. Shenzhen Forms Syntron Information Co., Ltd. is committed to provide professional IT service outsourcing and consulting for large domestic commercial banks. Sunline Tech, Amarsoft and CSII have the similar business model who are engaged in providing IT solutions and services mainly for domestic banks and other financial institutions. While compared with above competitors, as an IT solution and consulting services provider, we’ve been specializing in industry demands analysis and focusing on delivering services to global institutions in banking, insurance and financial sectors, both in China and globally. As one of the earliest companies engaging in Banking IT services in China, we have accumulated rich industrial experience and successful cases during more than 10 years of business development and our market share is gradually increased. With the interest marketization and rise of Internet Finance, banking industry market grows more competitive. Since Core Banking Business is occupying a key position in the overall banking IT services market, we will enhance our core market competence by taking advantage of our current technology; internationally, our competitors include Wipro, TCS Consultancy, and Infosys Limited. To date, we do not typically compete directly with the larger global consulting and outsourcing firms, such as Accenture, Capgemini, Hewlett-Packard and IBM, who are typically engaged in conjunction with large global projects. However, we may compete with these firms if they seek smaller engagements, particularly in conjunction with a strategy to enter the domestic Chinese market. In addition, the trend towards offshore outsourcing, international expansion by foreign and domestic competitors and continuing technological innovation will result in new and different competitors entering our markets. We believe that our delivery capabilities are competitive with companies such as these, and that our domestic China market experience and know-how provides us with a competitive advantage in serving our clients.

Research and Development

Officially named the CLPS Innovation Lab (“CLPS i-Lab)”, our R&D is an integral part of our continued growth. In order to serve our Chinese and global clients’ needs better, we are fully committed on researching and developing cutting-edge technology including distributed application systems, cloud computing, micro services, open API, robotic process automation (RPA), blockchain, artificial intelligence, and big data, among other technologies, with a focus on continuous scientific and technological innovation to provide clients with more comprehensive and efficient IT services.

For instance, we applied the DevOps methodology and tools in our project delivery process and platform. This methodology has greatly enhanced the development, operational efficiency and project quality. We focus on blockchain, big data and cloud native applications. We have developed a loyalty reward solution based on a blockchain platform and implemented this solution with several China-based banks. With micro services architecture, we engage the cloud-native solution of core banking system, and have developed the first pilot business module to be tested on the client side. By utilizing big data technology, we research, develop and apply new features to existing credit scoring and anti-fraud solutions. We have invested a significant amount of capital in technology research and solution development. As a result, we have expanded our technological capabilities, improved efficiency of project delivery, and enhanced our solution offerings by improving existing solutions and inventing new solutions, which drive new revenue opportunities and improve our core competencies.

Following the upgrade of our credit card system product, a joint effort of CLPS Innovation Lab and Credit Card Service teams, CLPS launched CAKU 2.0, the upgraded new generation of credit card system product of CLPS. Built on an open source architecture, CAKU offers fast implementation and flexibility for replacing existing credit card system, giving global banking institutions a competitive edge in digital transformation. CAKU is a proprietary product that CLPS independently developed based on its extensive experience in the financial industry as well as its deep understanding in the current banking business demands and industry development trends. CAKU has been comprehensively optimized and upgraded based on CLPS’s initial credit card product from 2015. A product developed to enable digital transformation, CAKU has made breakthroughs in the following areas:

| ● | Architectural design- CAKU has adopted an independent, secure and reliable distributed architecture, using a flexible unitized system to divide into microservices that creates an open source platform solution, is independent from mainframe platform, and is able to iterate faster;

| ● | Business application- CAKU offers a new ’scenario-driven’ business model, featuring over a thousand standardized business components, more than 1,000 API interfaces, and more than 8,000 business parameters, to ensure that the credit card system is configurable and provides refined management and fast parameterization;

| ● | Technological innovation- CAKU features a high performance, high availability and high expansibility system based on an advanced real-time entry design scheme, graphics engine design concept and powerful front-end transaction, which can meet the process requirement of over 200,000 transactions per second (TPS). When a failure occurs, the recovery time objective (RTO) is less than 30 seconds, and the recovery point objective (RPO) is zero. Additionally, it supports 24/7 uninterrupted operation and unlimited card issuance.

The above-mentioned advantages of CAKU will overcome the limitations of the previous credit card core system, such as fixed business, outdated technology, high cost, and poor user interface. It will also provide strong support in the demand for digital upgrade on domestic and foreign banks’ credit card core system.

CLPS has been committed to promoting digital transformation integrated with secure, smooth, and efficient IT systems. The growing demand for customized and innovative marketing model has pushed CLPS to further enhance its digital marketing solution to achieve client’s business goals prompted by improved marketing performance metrics.

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We developed a new generation of loan management system, a product intended for small and medium-sized banking institutions. CLPS has been optimizing its loan management system by integrating its mature products with innovative technology such as blockchain, robotic process automation (RPA), optical character recognition (OCR), and facial recognition. The goal of the optimization is to achieve a more comprehensive and streamlined loan process flow, including in mortgage application, credit checking, and drawdown, among others, ensuring the privacy and security of information transmission while effectively shortening the processing time. As a result, customers can apply for a loan conveniently anytime, anywhere, reducing banking institutions’ operating costs and gaining a wider range of new business opportunities.

CLPS’s Innovation Lab has unveiled initial findings showcasing the synergy of Robotic Process Automation (RPA) and Artificial Intelligence (AI) for intelligent automation in talent acquisition. This research demonstrates that integrating AI into RPA workflows can streamline talent acquisition, leading to a 43% reduction in labor costs and a 700% improvement in efficiency, while also serving as a foundation for future AI-powered automation solutions in various business areas.

CLPS i-Lab adheres to our strategy of promoting our products and solutions based on new technology and new research, application innovations, and our leading talent pool, while improving our technological innovation capability and market competitiveness. As the center of our research and development efforts, it will continue to be one of the most important drivers of CLPS’s growth.

Employees

We believe resource management and planning is critically important to supporting our growth, and we are committed to effectively recruiting, training, developing and retaining our human capital. Our total number of employees was 3,509 employees as of June 30, 2023 from 3,824 employees in June 30, 2022. Approximately 62% of our personnel are dedicated to serving our foreign financial institution clients. Such personnel maintain up to date financial domain knowledge, technical development and testing skills in Java, .Net, C, C++, testing tools, android or iOS app, blockchain, big data, cloud computing, and mainframe COBOL. None of our employees are represented by a labor union or collective bargaining agreements. We consider our employee relations to be good. We believe that attracting and retaining highly experienced associates and sales and marketing personnel is a key to our success. In addition, we believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.

Intellectual Property Rights

The PRC has domestic laws for the protection of rights in copyrights, trademarks and trade secrets. The PRC is also a signatory to all of the world’s major intellectual property conventions, including:

| ● | Convention establishing the World Intellectual Property Organization (June 3, 1980);

| ● | Paris Convention for the Protection of Industrial Property (March 19, 1985);

| ● | Patent Cooperation Treaty (January 1, 1994); and

| ● | Agreement on Trade-Related Aspects of Intellectual Property Rights (November 11, 2001).

The PRC Trademark Law, adopted in 1982 and revised in 2019, protects registered trademark. The Trademark Office of the State Administration of Industry and Commerce of the PRC, handles trademark registrations and grants trademark registrations for a term of ten years.

Our intellectual property rights are important to our business. We rely on a combination of trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property. We also rely on and protect unpatented proprietary expertise, recipes and formulations, continuing innovation and other trade secrets to develop and maintain our competitive position. We enter into confidentiality agreements with most of our employees and consultants, and control access to and distribution of our documentation and other licensed information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our technology without authorization, or to develop similar technology independently. Since the Chinese legal system in general, and the intellectual property regime in particular, is relatively weak, it is often difficult to enforce intellectual property rights in China. Policing unauthorized use of our technology is difficult and the steps we take may not prevent misappropriation or infringement of our proprietary technology. In addition, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of our resources and could have a material adverse effect on our business, results of operations and financial condition. We require our employees to enter into non-disclosure agreements to limit access to and distribution of our proprietary and confidential information. These agreements generally provide that any confidential or proprietary information developed by us or on our behalf must be kept confidential. These agreements also provide that any confidential or proprietary information disclosed to third parties in the course of our business must be kept confidential by such third parties. In the event of trademark infringement, the State Administration for Industry and Commerce has the authority to fine the infringer and to confiscate or destroy the infringing products.

Our primary trademark portfolio consists of five trademarks. Our trademarks are valuable assets that reinforce the brand and our consumers’ favorable perception of our products. The current registrations of these trademarks are effective for varying periods of time and may be renewed periodically, provided that we, as the registered owner, comply with all applicable renewal requirements including, where necessary, the continued use of the trademarks in connection with similar goods. In addition to trademark protection, we own 3 URL designations and domain names, including clps.com.cn, clpsglobal.com, and clpsgroup.com.cn.

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We have registered for the following trademarks:

Mark |  | Country of Registration |  | Application Number |  | Class/Description |  | Current Owner |  | Status
|  | China |  | 19288958 |  | Class 9: Recorded computer programs (programs); Recorded computer operating programs Computer peripherals; Computer software (recorded); Connector (data processing equipment); Monitor program (computer program); Electronic publications (downloadable); Computer program (downloadable software); Downloadable computer application software; Computer hardware |  | CLPS Shanghai Co., Ltd. |  | Registered
|  | China |  | 19289112 |  | Class 38: Information transmission; Computer terminal communication; Computer-aided information and image transmission; Information transmission equipment rental; Provide telecommunications link services to connect with the global computer network; Telecommunications routing and junction services; Provide access service for global computer network users; Provide database access service; Digital file transfer Teleconference call service |  | CLPS Shanghai Co., Ltd. |  | Registered
|  | China |  | 19289503 |  | Class 9: Recorded computer programs (programs); Recorded computer operating programs; Computer peripherals; Computer software (recorded); Connector (data processing equipment); Monitor program (computer program); Electronic publications (downloadable); Computer program (downloadable software); Downloadable computer application software; Computer hardware |  | CLPS Shanghai Co., Ltd. |  | Registered
|  | China |  | 19289341 |  | Class 42: Technical research; Research or develop new products for others; Computer programming; Computer software design; Computer hardware design and development consulting; Computer software rental; Computer software maintenance; Computer system analysis; Computer software installation; Computer software consulting |  | CLPS Shanghai Co., Ltd. |  | Registered
|  | China |  | 19289214 |  | Class 41: Teaching; Education; Training; Practical training (demonstration); Employment guidance (education or training consultants); Arrange and organize academic seminars; Arrange and organize meetings; Arrange and organize general meeting; Arrange and organize symposium; Arrange and organize training classes |  | CLPS Shanghai Co., Ltd. |  | Registered

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Mark |  | Country of Registration |  | Application Number |  | Class/Description |  | Current Owner |  | Status
|  | Hong Kong, China |  | 47628610 |  | Class 36: Financial management; Financial consulting; Credit card payment processing; Debit card payment processing; Credit card issuing; Online banking service; Credit card related investigations; Electronic credit card transaction processing; Credit card issuance; Credit card verification; Credit card transaction processing service; Banking services |  | CLPS Technology (HONG KONG) Co., Ltd. |  | Registered
|  | Hong Kong, China |  | 47629542 |  | Class 41: Teaching; Education; Training; Arrange and organize academic seminars; Arrange and organize meetings; Arrange and organize training courses; Arrange and organize on-site education forums; Written publication (excluding advertising text); Book publication; Online publication of e-books and magazines; Provide non-downloadable online electronic publications |  | CLPS Technology (HONG KONG) Co., Ltd. |  | Registered
|  | China |  | 54531262 |  | Class 42: Technical research; Research and develop new products for other parties; Information technology consulting services; Industrial product design; Computer software update; Computer software design and development ; Computer software maintenance; Computer hardware design and development consulting; Cloud computing; computer programming |  | JAJI (Shanghai) Co., Ltd. |  | Registered

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The following is a list of the Company’s copyrights:

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS HR Management Platform Software V1.0 |  | China |  | 2009SR015975 |  | CLPS Shanghai Co., Ltd. |  | 29th April 2009 |  | Registered
CLPS Food and Beverage Report Analysis and Management Platform Software V1.0 |  | China |  | 2009SR060110 |  | CLPS Shanghai Co., Ltd. |  | 28th December 2009 |  | Registered
CLPS Apparel Industry POS Management Platform Software V1.0 |  | China |  | 2009SR060102 |  | CLPS Shanghai Co., Ltd. |  | 28th December 2009 |  | Registered
CLPS Express Information Interactive Platform Software V1.0 |  | China |  | 2009SR060112 |  | CLPS Shanghai Co., Ltd. |  | 28th December 2009 |  | Registered
CLPS Chain Store Information Interactive Platform Software V1.0 |  | China |  | 2009SR060108 |  | CLPS Shanghai Co., Ltd. |  | 28th December 2009 |  | Registered
CLPS Project Analysis and Management Platform Software V1.0 |  | China |  | 2009SR060169 |  | CLPS Shanghai Co., Ltd. |  | 28th December 2009 |  | Registered
CLPS Payroll Accounting System Platform Software V1.0 |  | China |  | 2010SR043564 |  | CLPS Shanghai Co., Ltd. |  | 25th August 2010 |  | Registered
CLPS Fast Moving Consumer Goods Frontline Staff Management Platform Software V1.0 |  | China |  | 2010SR043561 |  | CLPS Shanghai Co., Ltd. |  | 25th August 2010 |  | Registered
CLPS Staff Management Platform Software V1.0 |  | China |  | 2010SR043562 |  | CLPS Shanghai Co., Ltd. |  | 25th August 2010 |  | Registered
CLPS Coal Mining Enterprise Information System Management Platform Software V1.0 |  | China |  | 2010SR045449 |  | CLPS Shanghai Co., Ltd. |  | 1st September 2010 |  | Registered
CLPS Campus Expense Card Web Service System Platform Software V1.0 |  | China |  | 2010SR045441 |  | CLPS Shanghai Co., Ltd. |  | 1st September 2010 |  | Registered
CLPS Campus Expense Card Bathroom Management Service Software V1.0 |  | China |  | 2010SR045444 |  | CLPS Shanghai Co., Ltd. |  | 1st September 2010 |  | Registered
CLPS Machinery Industry ERP Management Platform Software V1.0 |  | China |  | 2010SR045802 |  | CLPS Shanghai Co., Ltd. |  | 2nd September 2010 |  | Registered
CLPS Assignment and Task Management Platform Software (short name: Assignment and Task Management System) V1.0 |  | China |  | 2011SR076863 |  | CLPS Shanghai Co., Ltd. |  | 25th October 2011 |  | Registered
CLPS Marketing Assistant System Platform Software V1.0 |  | China |  | 2012SR096727 |  | CLPS Shanghai Co., Ltd. |  | 15th October 2012 |  | Registered
CLPS Outsourcing Service Staff Management System Platform Software V1.0 |  | China |  | 2012SR096666 |  | CLPS Shanghai Co., Ltd. |  | 15th October 2012 |  | Registered

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Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS Outsourcing Service Staff System Background Management Software V1.0 |  | China |  | 2012SR096731 |  | CLPS Shanghai Co., Ltd. |  | 15th October 2012 |  | Registered
CLPS Logistics Terminal Distribution Platform Software V1.0 |  | China |  | 2012SR096668 |  | CLPS Shanghai Co., Ltd. |  | 19th October 2012 |  | Registered
CLPS HR Background Support Management System V1.0 |  | China |  | 2012SR098440 |  | CLPS Shanghai Co., Ltd. |  | 19th October 2012 |  | Registered
CLPS HR Management System Platform Software (short name: HR Management System) V1.0 |  | China |  | 2012SR098429 |  | CLPS Shanghai Co., Ltd. |  | 19th October 2012 |  | Registered
CLPS Outsourcing Service Staff Resume Entry System Platform Software V1.0 |  | China |  | 2012SR098687 |  | CLPS Shanghai Co., Ltd. |  | 19th October 2012 |  | Registered
CLPS Bank Document Business Management Software (short name: Document Management) V1.0 |  | China |  | 2013SR054800 |  | CLPS Shanghai Co., Ltd. |  | 5th June 2013 |  | Registered
CLPS Bank Monetary Transaction Management Software (short name: Monetary Transaction Management) V1.0 |  | China |  | 2013SR054796 |  | CLPS Shanghai Co., Ltd. |  | 5th June 2013 |  | Registered
CLPS Bank Expense Management Software V1.0 |  | China |  | 2014SR168125 |  | CLPS Shanghai Co., Ltd. |  | 4th November 2014 |  | Registered
CLPS Bank Repayment Process Software V1.0 |  | China |  | 2014SR168130 |  | CLPS Shanghai Co., Ltd. |  | 4th November 2014 |  | Registered
CLPS Bank Point Accumulative Management Software V1.0 |  | China |  | 2014SR168132 |  | CLPS Shanghai Co., Ltd. |  | 4th November 2014 |  | Registered
CLPS Bank Interest Process Software V1.0 |  | China |  | 2014SR168136 |  | CLPS Shanghai Co., Ltd. |  | 4th November 2014 |  | Registered
CLPS Bank Credit Application Software V1.0 |  | China |  | 2014SR168138 |  | CLPS Shanghai Co., Ltd. |  | 4th November 2014 |  | Registered
CLPS Mortgage Loan Plan Spreadsheet Tool Software (short name: Loan Spreadsheet) V1.0 |  | China |  | 2015SR198772 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered

62

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS Bank Product Management Software V1.0 |  | China |  | 2015SR198610 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Deposit and Withdrawal Services Management Software V1.0 |  | China |  | 2015SR198176 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Loan Application Management Software V1.0 |  | China |  | 2015SR198654 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Repayment Management Software V1.0 |  | China |  | 2015SR198649 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Exchange Rate Management Software V1.0 |  | China |  | 2015SR198774 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Interest Settlement Software V1.0 |  | China |  | 2015SR198246 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Foreign Exchange Transaction Software V1.0 |  | China |  | 2015SR198240 |  | CLPS Shanghai Co., Ltd. |  | 16th October 2015 |  | Registered
CLPS Bank Investment Management Securities Business Software V1.0 |  | China |  | 2016SR376924 |  | CLPS Shanghai Co., Ltd. |  | 16th December 2016 |  | Registered
CLPS Bank Big Data Decision-making Platform Customer Portrayal Software V1.0 |  | China |  | 2016SR382920 |  | CLPS Shanghai Co., Ltd. |  | 20th December 2016 |  | Registered
CLPS Internet Financial Cloud Mobile Banking Software V2.0 |  | China |  | 2016SR398821 |  | CLPS Shanghai Co., Ltd. |  | 27th December 2016 |  | Registered
CLPS Wantong Calculus Mall Software V2.0 |  | China |  | 2017SR118507 |  | CLPS Beijing Hengtong Co., Ltd. |  | 17th April 2017 |  | Registered
CLPS RC Rules Engine Software |  | China |  | 2017SR169307 |  | CLPS Ruicheng Co., Ltd. |  | 9th May 2017 |  | Registered
CLPS Internet Financing Collection Management Software V2.0 |  | China |  | 2017SR119266 |  | CLPS Ruicheng Co., Ltd. |  | 17th April 2017 |  | Registered
CLPS Points Management Platform Software |  | China |  | 2017SR119078 |  | CLPS Ruicheng Co., Ltd. |  | 17th April 2017 |  | Registered
CLPS Full-web Order Receiving Unified Platform Management Software V2.0 |  | China |  | 2017SR202535 |  | CLPS Ruicheng Co., Ltd. |  | 24th May 2017 |  | Registered
CLPS Quanxi Intelligent Marketing Platform Clients Growth Center Software V2.0 |  | China |  | 2017SR565576 |  | CLPS Shanghai Co., Ltd. |  | 13th October 2017 |  | Registered
CLPS Enterprise Recruitment Intelligent Cooperation Platform Software V2.0 |  | China |  | 2017SR646712 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered
CLPS Intelligent Online Training Test Instructional Management Software V1.0 |  | China |  | 2017SR646507 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered

63

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS Enterprise Internet Qinqin Loan Background Management Software V1.0 |  | China |  | 2017SR647634 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered
CLPS Blockchain Based Virtual Credits Background Management Software V2.0 |  | China |  | 2017SR645676 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered
CLPS Enterprise Talent Information Intelligent Management Software V2.0 |  | China |  | 2017SR645650 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered
CLPS Enterprise Recruitment Intelligent Cooperation Platform Software V2.0 |  | China |  | 2017SR647190 |  | CLPS Shanghai Co., Ltd. |  | 24th November 2017 |  | Registered
CLPS General Points Platform and Business Center Software V1.0 |  | China |  | 2019SR0004653 |  | CLPS Shanghai Co., Ltd. |  | 2nd January 2019 |  | Registered
CLPS Online Financial Microloan Software V1.0 |  | China |  | 2019SR0004669 |  | CLPS Shanghai Co., Ltd. |  | 2nd January 2019 |  | Registered
CLPS Bank Customer Management Software V1.0 |  | China |  | 2019SR0004663 |  | CLPS Shanghai Co., Ltd. |  | 2nd January 2019 |  | Registered
CLPS Online Financial Management Software V1.0 |  | China |  | 2019SR0140935 |  | CLPS Shanghai Co., Ltd. |  | 14th February 2019 |  | Registered
CLPS Talent Training One-Stop Platform Software V1.0 |  | China |  | 2020SR0094641 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered
CLPS Project Management Software [PMS]V2.0 |  | China |  | 2020SR0095716 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered
CLPS Online Financial Management Software V2.0 |  | China |  | 2020SR0095716 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered
CLPS Online Financial Microloan Software V3.0 |  | China |  | 2020SR0094745 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered
CLPS Bank Customer Management Software V3.0 |  | China |  | 2020SR0095318 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered
CLPS Online Financial Accounting Management Software V1.0 |  | China |  | 2020SR0095725 |  | CLPS Shanghai Co., Ltd. |  | 19th January 2020 |  | Registered

64

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS Blockchain Based Virtual Credits Background Management Software V3.0 |  | China |  | 2020SR0224622 |  | CLPS Guangzhou Co., Ltd. |  | 9th March 2020 |  | Registered
CLPS Enterprise Recruitment Intelligent Cooperation Platform Software V3.0 |  | China |  | 2020SR0224616 |  | CLPS Guangzhou Co., Ltd. |  | 9th March 2020 |  | Registered
CLPS Enterprise Talent Information Intelligent Management Software (“ERP System”) V3.0 |  | China |  | 2020SR0224243 |  | CLPS Guangzhou Co., Ltd. |  | 9th March 2020 |  | Registered
CLPS Ruicheng ERP-TRMS Software (“ERP-TRMS”) V1.0 |  | China |  | 2020SR1691822 |  | CLPS Ruicheng Co., Ltd. |  | 30th November 2020 |  | Registered
CLPS Ruicheng BPM Organizational Structure and Process Approval Software (“BPM”) V1.0 |  | China |  | 2020SR1691823 |  | CLPS Ruicheng Co., Ltd. |  | 30th November 2020 |  | Registered
CLPS Ruicheng Timesheet CLPS Management Software(“Timesheet”) V2.0 |  | China |  | 2020SR1691884 |  | CLPS Ruicheng Co., Ltd. |  | 30th November 2020 |  | Registered
CLPS Ruicheng WeChat Based Timesheet Management Software (“Timesheet”) V1.0 |  | China |  | 2020SR1691802 |  | CLPS Ruicheng Co., Ltd. |  | 30th November 2020 |  | Registered
JAJI China EKYC Based Mobile Banking Software(“Mobile Banking”) V1.0 |  | China |  | 2020SR1692693 |  | JAJI (Shanghai) Co., Ltd. |  | 30th November 2020 |  | Registered
CLPS Project Management Software(“PMS”) V3.0 |  | China |  | 2021SR0113240 |  | CLPS Shanghai Co., Ltd. |  | 21st January 2021 |  | Registered
CLPS Credit Card Comprehensive Information Platform Software(“ChinaLinkV”) V2.1.1 |  | China |  | 2021SR0113286 |  | CLPS Shanghai Co., Ltd. |  | 21st January 2021 |  | Registered
CLPS Meeting Room Reservation Management Software(“Meeting”) V1,0 |  | China |  | 2021SR0113234 |  | CLPS Shanghai Co., Ltd. |  | 21st January 2021 |  | Registered
CLPS BPM Organizational Structure and Process Approval Software(“BPM”) V2.0 |  | China |  | 2021SR0216840 |  | CLPS Shanghai Co., Ltd. |  | 7th February 2021 |  | Registered
CLPS EKYC Based Mobile Banking Software (“Mobile Banking”) V2.0 |  | China |  | 2021SR0216890 |  | CLPS Shanghai Co., Ltd. |  | 7th February 2021 |  | Registered
Hainan Qincheng BPM Organization Structure and Process Approval Software(“BPM”) V2.0 |  | China |  | 2021SR783928 |  | Hainan Qincheng Software Technology Co., Ltd. |  | 27th May 2021 |  | Registered
Hainan Qincheng ERP-TRMS Software(“ERP-TRMS”) V2.0 |  | China |  | 2021SR0783904 |  | Hainan Qincheng Software Technology Co., Ltd. |  | 27th May 2021 |  | Registered
Hainan Qincheng Timesheet Management Software(“Timesheet”) V3.0 |  | China |  | 2021SR0783929 |  | Hainan Qincheng Software Technology Co., Ltd. |  | 27th May 2021 |  | Registered

65

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
Hainan Qincheng WeChat Based Timesheet Management Software (“Timesheet”) V2.0 |  | China |  | 2021SR0783905 |  | Hainan Qincheng Software Technology Co., Ltd. |  | 27th May 2021 |  | Registered
JAJI Project Management Software V4.0 |  | China |  | 2021SR1775321 |  | JAJI (Shanghai) Co., Ltd. |  | 30th June 2021 |  | Registered
CLPS Meeting Room Reservation Management Software V2.0 |  | China |  | 2021SR1628925 |  | CLPS Shanghai Co., Ltd. |  | 31st July 2021 |  | Registered
JAJI One-Stop Platform for Talent Cultivation Based on Internationalization V2.0 |  | China |  | 2021SR1775007 |  | JAJI (Shanghai) Co., Ltd. |  | 28th September 2021 |  | Registered
JAJI Project Lifeline Tracking Management System V1.0 |  | China |  | 2021SR1952575 |  | JAJI (Shanghai) Co., Ltd. |  | 30th September 2021 |  | Registered
JAJI Salary Query Software V1.2 |  | China |  | 2021SR1952576 |  | JAJI (Shanghai) Co., Ltd. |  | 13th October 2021 |  | Registered
JAJI Internet Financial Accounting Management Software V2.0 |  | China |  | 2021SR2008521 |  | JAJI (Shanghai) Co., Ltd. |  | 14th October 2021 |  | Registered
JAJI Bank Clients Management Software Based on Distributed Architecture V1.0 |  | China |  | 2021SR1969086 |  | JAJI (Shanghai) Co., Ltd. |  | 14th October 2021 |  | Registered
JAJI Talent Recommendation and Recruitment Mobile Platform Software V1.0 |  | China |  | 2021SR2085396 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI BPM BPM Organizational Structure and Process Approval Software V4.0 |  | China |  | 2021SR1880802 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI Online Finance Management Software Based on Distributed Architecture V1.0 |  | China |  | 2021SR2008522 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI Enterprise Talent Information Analysis and Management Software Based on Distributed Architecture V2.0 |  | China |  | 2021SR1901457 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI Mobile Banking System Based on Intelligent Face Recognition V1.0 |  | China |  | 2021SR1969085 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI Talent Resume Management DB Database Software V1.5 |  | China |  | 2021SR1952673 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
JAJI Business Points Mall WeChat Platform Software V1.0 |  | China |  | 2021SR1952574 |  | JAJI (Shanghai) Co., Ltd. |  | 17th October 2021 |  | Registered
CLPS EKYC Based Mobile Banking Software (“Mobile Banking”) V3.0 |  | China |  | 2021SR1617316 |  | CLPS Shanghai Co., Ltd. |  | 2nd November 2021 |  | Registered

66

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS Credit Card Comprehensive Information Platform Software(“ChinaLinkV”) V3.0 |  | China |  | 2021SR1617317 |  | CLPS Shanghai Co., Ltd. |  | 2nd November 2021 |  | Registered
CLPS Credit Card Big Data Integrated Management Background Software V2.0 |  | China |  | 2021SR1619652 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Clearing Management Software V1.0 |  | China |  | 2021SR1619639 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Risk Management Software V1.0 |  | China |  | 2021SR1619640 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Account Establishment and Card Making Software V1.0 |  | China |  | 2021SR1619641 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Authorization Management Software V1.0 |  | China |  | 2021SR1619642 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Customer Service Management Software V1.0 |  | China |  | 2021SR1619643 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Credit Card Merchant Consumption Integrated Comprehensive Management Software V1.0 |  | China |  | 2021SR1619651 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2021 |  | Registered
CLPS Internet Financing Collection Software V1.5 |  | China |  | 2021SR1666790 |  | CLPS Shanghai Co., Ltd. |  | 8th November 2021 |  | Registered
CLPS Online Learning Platform Software V1.5 |  | China |  | 2021SR1666804 |  | CLPS Shanghai Co., Ltd. |  | 8th November 2021 |  | Registered

67

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
JAJI Dual Recording Platform Software V1.0 |  | China |  | 2021SR2116913 |  | JAJI (Shanghai) Co., Ltd. |  | 17th November 2021 |  | Registered
Chenqin FATA Authorized Testing Automation Tool Software |  | China |  | 2022SR1457563 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin MC Transaction Simulation Tool Software |  | China |  | 2022SR1457579 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin OpenAPI Interface Resource Management Platform Software |  | China |  | 2022SR1457562 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin VISA Transaction Simulation Tool Software |  | China |  | 2022SR1462651 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin Scene Engine Software |  | China |  | 2022SR1462652 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin Batch Scheduling Management Platform Software |  | China |  | 2022SR1462653 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin Authorization Authentication Management Software |  | China |  | 2022SR1457578 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 3rd November 2022 |  | Registered
Chenqin CUP Trading Simulation Tool Software |  | China |  | 2022SR1474275 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 4th November 2022 |  | Registered
Chenqin JCB Transaction Simulation Tool Software |  | China |  | 2022SR1480972 |  | Shanghai Chenqin Information Technology Services Co., Ltd. |  | 8th November 2022 |  | Registered

68

Software Name |  | Country of Registration |  | Registration Number |  | Current Owner |  | Approval Date |  | Status
CLPS CRM Customer Management Software V1.0 |  | China |  | 2022SR1561547 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
CLPS Talent Order Matching Software V1.0 |  | China |  | 2022SR1561546 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
CLPS Talent Delivery Management Software V1.0 |  | China |  | 2022SR1561545 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
CLPS Rules and Regulations Document Management Software V1.0 |  | China |  | 2022SR1561390 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
CLPS Data Sharing SD Software V2.0 |  | China |  | 2022SR1561392 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
CLPS PL Report System Software V2.0 |  | China |  | 2022SR1561391 |  | CLPS Shanghai Co., Ltd. |  | 23rd November 2022 |  | Registered
JAJI CRM Customer Management Software User Manual V2.0 |  | China |  | 2023SR0235089 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
JAJI Talent Order Matching Software User Manual V2.0 |  | China |  | 2023SR0235088 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
JAJI Talent Delivery Management System User Manual V2.0 |  | China |  | 2023SR0235112 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
JAJI Rules and Regulations Document Management System User Manual V2.0 |  | China |  | 2023SR0235113 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
JAJI Data Sharing SD Software V3.0 |  | China |  | 2023SR0235114 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
JAJI PL Report System Software V3.0 |  | China |  | 2023SR0235115 |  | JAJI (Shanghai) Co., Ltd. |  | 14th February 2023 |  | Registered
Digital Currency Happy Shopping Platform Software V2.0 |  | China |  | 2023SR0911860 |  | CLPS Shenzhen Co., Ltd. |  | 9th August 2023 |  | Registered

69

Properties

On July 2023, we relocated our principal executive office to Unit 1000, 10th Floor Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR. On September 24, 2021, CLPS, through its wholly-owned subsidiary, Arabian Jasmine, entered into a purchase agreement to acquire the commercial real estate located at 10th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR for a consideration of US$11,286,971, which has been and will continue to be used as the Company’s principal executive office. The consideration was fully paid on December 8, 2021.

Our previous principal executive office was located at Unit 1102, 11th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR. We leased the premise, and the lease term has expired on May 5, 2021. On June 7, 2021, CLPS, through its wholly-owned subsidiary, entered into a purchase agreement to acquire the commercial real estate for a consideration of US$3,860,000. The consideration was fully paid on July 21, 2021.

On July 30, 2021, CLPS, through its wholly-owned subsidiary, Noni Singapore, entered into a purchase agreement to acquire commercial real estate located at 60 Paya Lebar Road #05-29 and #05-30, Singapore for a consideration of US$4,614,743. The consideration was fully paid on October 25, 2021.

In addition, the Company manages and operates several other facilities. We rent office space in Shanghai, Hangzhou, Tianjin, Shenzhen, Guangzhou, Dalian, Xi’an, Chengdu, Beijing, Hainan, Japan, India, the U.S., Vietnam and the Philippines. Rent expenses amounted to $1,086,622, $1,085,888, and $942,606 for the years ended June 30, 2023, 2022, and 2021, respectively. We believe our facilities are adequate for our current needs.

Facility |  | Address |  | Space (m2) |
Shanghai Office |  | 2nd Floor, Building 18, Shanghai Pudong Software Park, 498 Guoshoujing Road, Pudong District, Shanghai, PRC |  |  | 1,259.94 |
Shanghai Office |  | 1st Floor, Building 18, Shanghai Pudong Software Park, 498 Guoshoujing Road, Pudong District, Shanghai, PRC |  |  | 914.62 |
Dalian Office |  | Room 501-503/504-506/507, 5/F, No. 30, Cuitao Street, High Tech Park, Ganjingzi District, Dalian, Liaoning Province, PRC |  |  | 1,388.45 |
Tianjin Office |  | Room 4403, F4, Building No.4, Xinhuan West Road, TEDA, Tianjin, PRC |  |  | 76.55 |
Shenzhen Office |  | Room 2804, Ludan Building, Guiyuan Street, Luohu District, Shenzhen, PRC |  |  | 299.00 |
Guangzhou Office |  | Room 409-411, Tower B, China Shine Plaza, No. 9 Linhe Xi Road, Tianhe District, Guangzhou, Guangdong, PRC |  |  | 331.16 |
Xi’an Office |  | Room 1901,Tower C2 of Yunhuigu Software Park, Yunshui 1st Road, Xi ‘an High-Tech Zone, Xian, PRC |  |  | 1,232.92 |
Chengdu Office |  | Unit 04,05, 12/Floor, Tower 2, 88 Jitai 5th Road, Gaoxin District, Chengdu, Sichuan District, PRC |  |  | 120.00 |
Beijing Office |  | Room 1329-1332, 13th Floor, Building 2, Yard 26, Chengtong Road, Shijingshan District, Beijing, PRC |  |  | 222.88 |
Hong Kong Office |  | Unit 1102, Level 11, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |  |  | 210.15 |
Japan Office |  | 4F 1-36-3 Nihonbashi-Kakigara-cho,Chuo-ku,Tokyo, Japan, 103-0014 |  |  | 40.17 |
India Office |  | Unit No. 222, DLF Cybercity, Idco Info Park, Technology Corridor, Chandaka Industrial Estate, Bhubaneswar, Odisha, India, 751024 |  |  | 113.85 |
US Office |  | Two Embarcadero Center, 8th Floor, San Francisco, CA 94111 |  |  | 6 |
Hainan Office |  | Room B1013, Binhai Avenue, 109-9 Haihang Plaza, Hainan, PRC |  |  | 63.62 |
Hangzhou Office |  | Room701-3,Building7, 970-1 Gaojiao Road, Yuhang District, Hangzhou , Zhejiang, PRC |  |  | 106.8 |
Hong Kong Office |  | 10/F, Level 10 Millennium City 3, 378 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong |  |  | 756.23 |
Philippines Office |  | 20th Floor, Picadilly Star Building, 4th Avenue Corner 27th Street, Bonifacio Global City, Fort Bonifacio, Taguig City, Metro Manila, Philippines |  |  | 10 |
Vietnam Office |  | 12th Floor, Viettel Complex Building, No. 285 Cach Mang Thang Tam Street, Ward 12, District 10, Ho Chi Minh City, Vietnam |  |  | 10 |
Singapore Office |  | 60 Paya Lebar Road #05-29&#05-30, Paya Lebar Square, Singapore, 409051 |  |  | 270 |
Guangzhou Office |  | Units 01-11, 21st Floor, No. 67 Tianhe East Road, Tianhe District, Guangzhou |  |  | 2,354.13 |
Guangzhou Office |  | Units 01-11, 20th Floor, No. 67 Tianhe East Road, Tianhe District, Guangzhou |  |  | 2,354.13 |

70

Legal Proceedings

We are currently not involved in any legal proceedings; nor are we aware of any claims that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Government Regulation

Holding Foreign Companies Accountable Act (HFCAA)

We became a Commission-identified issuer (“CII”) under the Holding Foreign Companies Accountable Act (“HFCAA”) on November 18, 2022. There is no material impact on our Company by the intervention or control of the PRC government, as disclosed in the heading “Risk of Intervention or Control by the PRC Government” under Risk Factors. No member of the board of directors of our Company is a current member of the Chinese Communist Party (“CCP). Our Company’s Memorandum and Articles of Associations and bylaws do not contain any chapter of the CCP.

Uyghur Forced Labor Prevention Act (UFLPA)

We do not conduct any operation in or reply on any counterparty conducting operation in Xinjiang Uyghur Autonomous Region and are in full compliance with Uyghur Forced Labor Prevention Act.

Regulations Relating to PRC Information Technology Service Industry

According to the Catalogue of Industries for Encouraging Foreign Investment (2020) issued by the National Development and Reform Commission and the Ministry of Commerce, IT services fall into the category of industries in which foreign investment is encouraged. The State Council has promulgated several notices since 2000 to launch favorable policies for IT services, such as preferential tax treatments and credit support.

Under rules and regulations promulgated by various Chinese government agencies, enterprises that have met specified criteria and are recognized as software enterprises by the relevant government authorities in China are entitled to preferential treatment, including financing support, preferential tax rates, export incentives, discretion and flexibility in determining employees’ welfare benefits and remuneration. Software enterprise qualifications are subject to annual examination. Enterprises that fail to meet the annual examination standards will lose the favorable enterprise income tax treatment. Enterprises exporting software or producing software products that are registered with the relevant government authorities are also entitled to preferential treatment including governmental financial support, preferential import, export policies and preferential tax rates.

In 2009, the Ministry of Commerce and the Ministry of Industry and Information Technology jointly promulgated a rule aiming to protect a fair competition environment in the PRC service outsourcing industry. This rule requires that each of the domestic enterprises which provides IT and technological BPO services and each of its shareholders, directors, supervisors, managers and employees should not violate the service outsourcing contract to disclose, use or allow others to use the confidential information of its client. Such enterprises are also required to establish an information protection system and take various measures to protect clients’ confidential information, including causing their employees and third parties who have access to clients’ confidential information to sign confidentiality agreements and or non-competition agreements.

Regulations on Intellectual Property Rights

The PRC Copyright Law, as amended, together with various regulations and rules promulgated by the State Council and the National Copyright Administration, protect software copyright in China. These laws and regulations establish a voluntary registration system for software copyrights administered by the Copyright Protection Center of China. Unlike patent and trademark registration, copyrighted software does not require registration for protection. Although such registration is not mandatory under PRC law, software copyright owners are encouraged to go through the registration process and registered software may receive better protection. The PRC Trademark Law, as amended, together with its implementation rules, protect registered trademarks. The Trademark Office of the State Administration for Industry and Commerce handles trademark registrations and grants a renewable protection term of 10 years to registered trademarks.

71

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations (1996), as amended on August 5, 2008, the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996) and the Interim Measures on Administration on Foreign Debts (2003). Under these regulations, Renminbi are freely convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions, but not for most capital account items, such as direct investment, loans, repatriation of investment and investment in securities outside China, unless the prior approval of SAFE or its local counterparts is obtained. In addition, any loans to an operating subsidiary in China that is a foreign invested enterprise, cannot, in the aggregate, exceed the difference between its respective approved total investment amount and its respective approved registered capital amount. Furthermore, any foreign loan must be registered with SAFE or its local counterparts for the loan to be effective. Any increase in the amount of the total investment and registered capital must be approved by the PRC Ministry of Commerce or its local counterpart. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, which could result in a delay in the process of making these loans.

The dividends paid by the subsidiary to its shareholder are deemed shareholder income and are taxable in China. Pursuant to the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), foreign-invested enterprises in China may purchase or remit foreign exchange, subject to a cap approved by SAFE, for settlement of current account transactions without the approval of SAFE. Foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities.

Dividend Distribution. The principal regulations governing the distribution of dividends by foreign holding companies include the Company Law of the PRC (1993), as amended in 2018, the Foreign Investment Law of the People’s Republic of China (2020), and the Implementing Regulations of the Foreign Investment Law of the People’s Republic of China (2020).

Under these regulations, wholly foreign-owned investment enterprises in China may pay dividends only out of their retained profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned investment enterprises in China are required to allocate at least 10% of their respective retained profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises. These reserves are not distributable as cash dividends, and a wholly foreign-owned enterprise is not permitted to distribute any profits until losses from prior fiscal years have been offset.

Circular 37. On July 4, 2014, SAFE issued Circular 37, which became effective as of July 4, 2014. According to Circular 37, PRC residents shall apply to SAFE and its branches for going through the procedures for foreign exchange registration of overseas investments before contributing the domestic assets or interests to a SPV. An amendment to registration or filing with the local SAFE branch by such PRC resident is also required if the registered overseas SPV’s basic information such as domestic individual resident shareholder, name, operating period, or major events such as domestic individual resident capital increase, capital reduction, share transfer or exchange, merger or division has changed. Although the change of overseas funds raised by overseas SPV, overseas investment exercised by overseas SPV and non-cross-border capital flow are not included in Circular 37, we may be required to make foreign exchange registration if required by SAFE and its branches. Moreover, Circular 37 applies retroactively. As a result, PRC residents who have contributed domestic assets or interests to a SPV, but failed to complete foreign exchange registration of overseas investments as required prior to implementation of Circular 37, are required to send a letter to SAFE and its branches for explanation. Under the relevant rules, failure to comply with the registration procedures set forth in Circular 37 may result in receiving a warning from SAFE and its branches, and may result in a fine of up to RMB 300,000 for an organization or up to RMB 50,000 for an individual. In the event of failing to register, if capital outflow occurred, a fine up to 30% of the illegal amount may be assessed. PRC residents who control our company are required to register with SAFE in connection with their investments in us. If we use our equity interest to purchase the assets or equity interest of a PRC company owned by PRC residents in the future, such PRC residents will be subject to the registration procedures described in Circular 37.

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New M&A Regulations and Overseas Listings

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly issued the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006 and was amended on June 22, 2009. This New M&A Rule, among other things, includes provisions that purport to require that an offshore special purpose vehicle formed for purposes of overseas listing of equity interests in PRC companies and controlled directly or indirectly by PRC companies or individuals obtain the approval of CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.

On September 21, 2006, CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of a number of documents with the CSRC and it would take several months to complete the approval process. The application of this new PRC regulation remains unclear with no consensus currently existing among leading PRC law firms regarding the scope of the applicability of the CSRC approval requirement.

Our PRC counsel has advised us that, based on their understanding of the current PRC laws and regulations, that the corporate structure of the Group Companies shall not be deemed as “a foreign investor’s merger and acquisition of a domestic enterprise” as specified in the Article 2 of the New M&A Rule, so the Company is not required to obtain approval from the CSRC for listing and trading of its shares. However, uncertainties still exist as to how the New M&A Rule will be interpreted and implemented and our opinion stated above is subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the New M&A Rule.

Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries

An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Foreign Investment Law of the People’s Republic of China (2020) all as amended from time to time, and their respective implementing rules; the Administrative Provisions on Foreign Exchange in Domestic Direct Investment by Foreign Investors; and the Notice of the State Administration on Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment. Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAIC and SAFE. Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purpose, which is subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange. Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be borrowed by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to the governmental approval.

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ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

We are a global information technology (“IT”), consulting and solutions service provider focused on delivering services primarily to global institutions, including banking, wealth management, ecommerce, and automotive both in China and globally. For more than 15 years, we have served as an IT service provider to a growing network of clients in the global financial industry, including large financial institutions in the U.S., Europe, Australia, Asia, and their PRC-based IT centers. We have created and developed a particular market niche by providing turn-key financial solutions.

Since our inception, we have aimed to build one of the largest sales and service delivery platforms for IT services and solutions in China. The nature of our services is such that we provide a majority of services to our banking and credit card clients in order to build new or modify existing clients’ own proprietary systems. We are fully committed of delivering digital transformation services with a focus on the fintech within the areas of banking, wealth management, e-commerce, and automotive, among others, through the utilization of innovative technology to achieve our client’s goals. We maintain 20 delivery and/or R&D centers, of which 10 are strategically located in Mainland China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and 10 are located globally (Hong Kong SAR, the United States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, Vietnam, and Canada). Our extensive network enables us to serve different clients across various geographic locations. By combining onsite or onshore support and consulting with scalable and high-efficiency offsite or offshore services and processing, we are able to meet client demands in a cost-effective manner while retaining significant operational flexibility. By serving both Chinese and global clients on a common platform, we are able to leverage the shared resources, management proficiency, industry expertise and technological know-how to attract new business and remain cost competitive. We believe that maintaining our Company as a proven and reliable partner to our clients both in China and globally positions us well to capture greater opportunities in the rapidly evolving global market for IT consulting and solutions.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and pursuant to the rules and requirements of the Securities Exchange Commission (“SEC”). The accompanying consolidated financial statements include the financial statements of CLPS and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Results of subsidiaries and businesses acquired from third parties are consolidated from the date on which control is transferred to us.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report.

Overview of Company

CLPS Incorporation (“CLPS” or the “Company”), is a company that was established under the laws of the Cayman Islands on May 11, 2017 as a holding company. The Company, through its subsidiaries, designs, builds, and delivers IT services, solutions and other services to clients in the financial services industry. The Company customizes its services to specific industries with customer service teams typically based on-site at the customer locations. The Company’s solutions enable its clients to meet the changing demands of an increasingly global, internet-driven, and competitive marketplace. Mr. Xiao Feng Yang, the Company’s Chairman of the Board, together with Mr. Raymond Ming Hui Lin, the Company’s Chief Executive Officer and Director are the controlling shareholders of the Company (the “Controlling Shareholders”).

On August 15, 2018, the shareholders of CLPS SG and Ridik AU were changed to Qiner from CLPS Shanghai pursuant to the share purchase agreements. Qiner purchased the 100% equity interest of CLPS SG and Ridik AU from CLPS Shanghai for consideration of $0.6 million (or approximately 850,000 Singapore dollars) and $0.1 million (or approximately 200,000 Australian dollars), respectively. These transactions did not change the holding company’s ownership of these entities.

On August 20, 2018, CLPS SG acquired an 80% interest in Infogain Solutions Pte. Ltd. (“Infogain”) located in Singapore from Sharma Devendra Prasad and Deepak Malhotra with the final purchase price of $0.4 million (or approximately 576,000 Singapore dollars).

On April 3, 2019, Qiner purchased a 30% equity interest in Economic Modeling Information Technology Co., Ltd. (“EMIT”). The consideration is zero amount. Qiner subsequently made a capital contribution of $0.44 million (RMB 3 million) to EMIT directly. There is remaining capital contribution of $0.23 million not paid as of June 30, 2021.

On July 31, 2019, the Company incorporated CLPS Hangzhou Co., Ltd. (“CLPS Hangzhou”), to develop the business in related areas.

On September 13, 2019, the Company incorporated CLPS Technology Japan (“CLPS Japan”) to develop business in related areas.

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On September 26, 2019, Qiner acquired an 80% interest in Ridik Pte. Ltd. (“Ridik Pte.”) located in Singapore from Srustijeet Mishra and Routray Sibashis with the final purchase price of $2,462,580 (3,402,304 Singapore dollars), in the form of cash of $2,026,043 (2,799,180 Singapore dollars) and the Company’s common shares valued at $436,537 (603,123 Singapore dollars), respectively. Ridik Sdn. Bhd. (“Ridik Sdn.”), Ridik Software Solutions Pte. Ltd. (“Ridik Software Pte.”), Ridik Software Solutions Ltd. (“Ridik Software”), and Suzhou Ridik Information Technology Co., Ltd. (“Suzhou Ridik”) are all subsidiaries of Ridik Pte. Suzhou Ridik was liquidated on April 16,2021. Ridik Software was dissolved on May 11,2021.

Prior to December 2019, CLPS Shanghai held a 70% equity interest in CLPS Shenzhen and an 80% equity interest in CLPS Hong Kong, which held the remaining 30% equity interest in CLPS Shenzhen. And the remaining 20% equity interest in CLPS Hong Kong and remaining 6% equity interest in CLPS Shenzhen were recorded as a noncontrolling interests on the Company’s consolidated balance sheet. On December 9, 2019, Qiner acquired the remaining 20% equity interest in CLPS Hong Kong from noncontrolling shareholder with the consideration of the Company’s 100,000 common shares, and became the sole shareholder of CLPS Hong Kong and CLPS Shenzhen.

On December 31, 2019, the Company incorporated Qinson Credit Card Services Limited (“Qinson”) to develop business in related areas.

On January 6, 2020, Ridik Pte. acquired 100% equity interest in Ridik Consulting Private Limited (“Ridik Consulting”) from third-party selling shareholders with the final purchase price of $5,520 (396,700 Indian Rupees).

On July 23, 2020, Qiner purchased the 80% equity interest in CLPS Hong Kong from CLPS Shanghai for consideration of $0.64 million (HKD 5,000,000). After the equity transfer, Qiner holds 100% of equity interest of CLPS Hong Kong. This transaction did not change the holding company’s ownership of the entity.

On July 27, 2020, the Company and a third-party company incorporated CLPS Guangdong Zhichuang Software Technology Co., Ltd. (“CLPS Guangdong Zhichuang”) in Shenzhen. The Company holds 10% of equity interest in CLPS Guangdong Zhichuang valued at $0.14 million (RMB 1,000,000). On August 13, 2020, January 5, 2021, and February 2, 2021, the Company injected $28,571 (RMB 200,000), $46,476 (RMB 300,000) and $15,487 (RMB 100,000) to CLPS Guangdong Zhichuang, respectively.

On August 28, 2020, the Company, the Chairman of the Company and a third-party company incorporated CLPS Shenzhen Robotics Co. Ltd. (“CLPS Shenzhen Robotics”) in Shenzhen. The Company holds 10% of equity interest in CLPS Shenzhen Robotics valued at $0.14 million (RMB 1,000,000). On September 15, 2020, the Company injected $147,451 (RMB1,000,000) to CLPS Shenzhen Robotics.

On January 20, 2021, the Company incorporated Hainan Qincheng Software Technology Co., Ltd. (“CLPS Hainan”) in Hainan to develop business in related areas.

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Prior to January 2021, Qiner held 80% equity interest in Ridik Pte. The remaining 20% equity interest was recorded as a noncontrolling interest on the Company’s consolidated balance sheet. On January 29, 2021, CLPS SG acquired the remaining 20% equity interest from Srustijeet Mishra and Routray Sibashis with final purchase price of $0.62 million (or approximately SGD 828,135), in the form of cash of $0.44 million (or approximately SGD 579,695) and the Company’s common shares valued at $0.18 million (or approximately SGD 248,441). Ridik Pte. and its subsidiaries are now wholly-owned subsidiaries of the Company.

On February 3, 2021, CLPS Shanghai reached a capital increase agreement with the three shareholders of Shanghai Shier Information Technology Co., Ltd. (“SSIT”). After the capital increase, the Company holds 35% of equity interest in SSIT valued at $0.08 million (RMB 538,500). The Company injected the capital of $0.08 million (RMB 538,500) on March 2, 2021.

Prior to January 2021, JAJI China held a 70% equity interest in JAJI HR. The remaining 30% equity interest in JAJI HR was recorded as a noncontrolling interest on the Company’s consolidated balance sheet. On January 28, 2021, JAJI China acquired the remaining 30% equity interest from CareerWin Executive Search Co., Ltd. (“CareerWin”).

On March 3, 2021, JAJI HR acquired 100% equity interest in CareerWin located in Shanghai from third-party selling shareholders with the purchase price in the form of cash of $0.29 million (RMB 1,877,044).

On March 11, 2021, the equity interest in Ridik Pte. was transferred to CLPS SG from Qiner pursuant to the share purchase agreements. CLPS SG purchased the 80% equity interest in Ridik Pte. from Qiner for consideration of $2.16 million (or approximately SGD 2,906,435). After the equity transfer, CLPS SG now holds 100% equity interest in Ridik Pte. This transaction did not change the holding company’s ownership of the entity.

On April 2, 2021, as part of business strategy, the Company changed the English entity name of its majority-owned subsidiary, Judge (Shanghai) Co., Ltd. and its wholly-owned subsidiary Judge (Shanghai) Human Resource Co., Ltd., to JAJI (Shanghai) Co., Ltd. (“JAJI China”) and JAJI (Shanghai) Human Resource Co., Ltd. (“JAJI HR”), respectively.

On April 14, 2021, the Company incorporated Growth Ring Ltd. (“Growth Ring”) in British Virgin Islands to develop business in related areas.

On April 15, 2021, the Company incorporated CLPS Xi’an Co., Ltd. (“CLPS Xi’an”) in Shaanxi to develop business in related areas.

On May 11, 2021, JAJI China acquired 60% of equity interest in Beijing Bozhuo Education Technology Co., Ltd. (“Beijing Bozhuo”) located in Beijing from a third-party selling shareholder with the purchase price in the form of cash of $0.02 million (RMB 120,000).

On May 25, 2021, the Company incorporated Arabian Jasmine Ltd. (“Arabian Jasmine”) in British Virgin Islands to develop business in related areas.

On May 31, 2021, CLPS SG sold its 80% equity interest in Infogain to the noncontrolling interest shareholder Sharma Devendra Prasad for the sale price of $0.08 million (SGD 100,000). After the interest transfer, Infogain is no longer a subsidiary of the Company.

On May 31, 2021, the Company incorporated Shanghai Chenqin Information Technology Services Co., Ltd. (“Shanghai Chenqin”) in Shanghai to develop business in related areas.

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On June 22, 2021, the Company incorporated Noni (Singapore) Pte. Ltd. (“Noni Singapore”) in Singapore to develop business in related areas.

On June 22, 2021, the Company and a noncontrolling interest shareholder incorporated CLPS-Beefinance Holding Limited (“CLPS-Beefinance”) in British Virgin Islands to develop and upgrade blockchain-based digital asset solutions for financial institutions.

In September, 2022, the Company sold its 60% equity interest in Beijing Bozhuo to the noncontrolling interest shareholder for the sale price of $0.01 million (RMB 96,000). After the interest transfer, Beijing Bozhuo is no longer a subsidiary of the Company.

On October 19, 2022, the Company incorporated CLPS Chengdu Co., Ltd. (CLPS Chengdu) in Chengdu to develop business in related areas.

On December 20, 2022, the Company incorporated CLPS Investment Management Ltd. (CLPS Investment) in British Virgin Islands to develop business in related areas.

On March 15, 2023, CLPS Ruicheng Co., Ltd. (CLPS RC) was liquidated.

On April 19, 2023, the Company incorporated JAJI Global Incorporation (JAJI Global) in Cayman Islands to develop business in related areas.

On June 27, 2023, the Company incorporated JAJI Singapore Pte. Ltd. in Singapore to develop business in related areas.

The Company is dedicated to providing a full range of services and solutions across technology needs in finance. In recent years, we have both one of the largest IBM mainframe teams, and the largest VisionPLUS team in China, providing both development and implementation of core banking, credit card, online and e-commerce systems, as well as expertise across technology stacks including J2EE, .Net, C, C++ and mobile. We are ISO 9001, ISO 14001, ISO 27001, CMMI 5, and TMMi 3 certified, and have been granted certificates of recognition by the Shanghai government, including Enterprise Software Certification, High-tech Enterprise, Little Giant Company for Science and Technology and Professional Talent Development Training Camp.

Our operations are primarily based in Mainland China, where we derive a substantial portion of our revenues. For the years ended June 30, 2023, 2022, and 2021, our revenues were $150.4 million, $152.0 million, and $126.1 million, respectively. Revenues generated outside of Mainland China were approximately $16.2 million, $14.1 million, and $13.6 million for fiscal 2023, 2022, and 2021, respectively. We had a net income of $0.2 million in fiscal 2023, a net income of $4.6 million in fiscal 2022, and a net income of $7.0 million in fiscal 2021. We had a non-GAAP net income of $5.0 million in fiscal 2023. Our total assets as of June 30, 2023 were $95.3 million of which cash and cash equivalent amounted to $22.2 million and restricted cash amounted to $0.09 million. Our total liabilities as of June 30, 2023 were $29.8 million.

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Factors Affecting Our Results of Operations

We believe the most significant factors that affect our business and results of operations include the following:

| ● | Our ability to obtain new clients and repeat business from existing clients. Revenues from individual clients typically grow over time as we seek to increase the number and scope of services provided to each client, and as clients increase the complexity and scope of the work outsourced to us. Therefore, our ability to obtain new clients, as well as our ability to maintain and increase business from our existing clients, has a significant effect on our results of operations and financial condition. During fiscal 2023, our revenue derived from our IT consulting services increased by 0.1% or $0.2 million from fiscal 2022, mainly attributable to revenue from our new clients. IT consulting services revenue from new clients amounted to approximately $2.7 million in fiscal 2023. During fiscal 2022, our revenue derived from our IT consulting services increased by 17.8% or $21.8 million from fiscal 2021, mainly attributable to revenue growth from our existing clients. IT consulting services revenue from new clients amounted to approximately $3.5 million in fiscal 2022.

| ● | Our ability to expand our portfolio of service offerings. We intend to increase our revenues by continuing to expand our service offerings, providing quality service to our existing customers and attracting new customers. Through research and development, targeted hiring and strategic acquisitions, we have proactively invested in broadening our existing service lines, including those for serving our specific industry verticals.

| ● | Our ability to attract, retain and motivate qualified employees. Our ability to attract, train and retain a large and cost-effective pool of qualified professionals, including our ability to leverage and expand our proprietary database of qualified IT professionals, to develop additional joint training programs with universities, and our employees’ job satisfaction, will affect our financial performance.

We use the following key operating metrics to oversee and manage the Company’s business: (i) developing new business, (ii) spearheaded by the CLPS Academy, focusing on the TCP/TDP training programs to provide highly trained and qualified employees to the clients; and (iii) retaining employees to continue to meet client ever-changing needs.

Our objective is to create value for both our customers and shareholders by enhancing our position as a leading IT services provider in the banking industry in China. We believe our strategic initiatives will continue to generate our sales growth, allow us to focus on managing capital, leveraging costs and driving margins to produce profitability and return on investment for our stockholders.

Acquisitions and Investments

Acquisition of JAJI China

On November 9, 2016, CLPS Shanghai acquired 60% of JAJI China and its 70% owned subsidiary JAJI HR from Judge Company Asia Limited (“Judge Asia”) with the final purchase price of $480,061 (RMB 3.25 million). The Company funded the acquisition with cash consideration of $454,388 (RMB 3.05 million) and a payable to Judge Asia of $128,928 (RMB 0.9 million), of which $103,255 (RMB 0.7 million) was subsequently offset with the Company’s receivables from Judge Asia.

The transaction was accounted for as a business combination using the purchase method of accounting. The purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 268,014 |
Accounts receivable, net |  |  | 325,888 |
Prepayments, deposits and other assets, net |  |  | 67,570 |
Property and equipment, net |  |  | 1,875 |
Intangible assets, net |  |  | 339,883 |
Salaries and benefits payable |  |  | (86,483 | )
Tax payables |  |  | (16,147 | )
Accounts payable and other current liabilities |  |  | (259,361 | )
Deferred tax liabilities |  |  | (65,264 | )
Noncontrolling interests |  |  | (290,994 | )
Goodwill |  |  | 195,080 |
Total consideration |  | $ | 480,061 |

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The intangible assets include customer contracts of $339,883, which were acquired by JAJI China in 2013 with an estimated useful life of 10 years. The goodwill is mainly attributable to the excess of the consideration paid over the fair value of the net assets acquired that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprises (a) the assembled work force and (b) the expected but unidentifiable business growth as a result of the synergy resulting from the acquisition.

On January 28, 2021, JAJI China acquired the remaining 30% equity interest of JAJI HR from CareerWin Executive Search Co., Ltd. (“CareerWin”) with the purchase price of $0.02 million (RMB 122,956).

On April 2, 2021, as part of business strategy, the Company changed the English entity name of its majority-owned subsidiary, Judge (Shanghai) Co., Ltd. and its wholly-owned subsidiary Judge (Shanghai) Human Resource Co., Ltd., to JAJI (Shanghai) Co., Ltd. (“JAJI China”) and JAJI (Shanghai) Human Resource Co., Ltd. (“JAJI HR”), respectively.

Investment in and dissolution of Huanyu

On September 27, 2017, the Company made an investment of $0.15 million (RMB 1,000,000) for a 30% of equity interest in Huanyu which was accounted for as an equity method investment. On May 24, 2019, the Company purchased the remaining 70% equity interest of Huanyu for $0.07 million (RMB 462,000) and became the sole shareholder of Huanyu.

The transaction was accounted for as a business combination using the purchase method of accounting. As the business combination was achieved in stages, the Company remeasured its previously held 30% of equity interest in Huanyu at its acquisition date fair value of $152,312. A loss of $19,682 was recognized in subsidies and other income net in relation to the remeasurement. The valuation considered a discount for lack of control premium and lack of marketability applied to the fair value of the acquired business of Huanyu, which was determined using the income approach.

The purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 79,156 |
Accounts receivable, net |  |  | 87,674 |
Prepayments, deposits and other assets, net |  |  | 7,707 |
Accounts payable and other current liabilities |  |  | (5,310 | )
Goodwill |  |  | 50,045 |
Previous held equity interests |  |  | 152,312 |
Cash consideration |  |  | 66,960 |
Total consideration |  | $ | 219,272 |

The goodwill is mainly attributable to the excess of the consideration paid over the fair value of the net assets acquired that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprise the expected but unidentifiable business growth as a result of the synergy resulting from the acquisition. The goodwill is not tax deductible. No intangible assets were identified from the acquisition.

For the period from July 1, 2018 to the acquisition date of May 24, 2019 and for the year ended June 30, 2018, 30% of Huanyu’s results of operations was income of $35,049 (RMB 239,073) and loss of $8,684 (RMB56,461), respectively.

On January 31, 2023, Huanyu was liquidated.

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Acquisition in and disposal of Infogain

On August 20, 2018, CLPS SG acquired an 80% equity in Infogain located in Singapore from Sharma Devendra Prasad and Deepak Malhotra with the final purchase price of $0.4 million (or approximately 576,000 Singapore dollars).

The transaction was accounted for as a business combination using the purchase method of accounting. The purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. The most significant variables in the valuation are discount rate, terminal value, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 6,843 |
Accounts receivable |  |  | 458,943 |
Prepayment and other receivable |  |  | 14,454 |
Property and equipment, net |  |  | 1,190 |
Intangible assets, net |  |  | 337,685 |
Other payable and other current liabilities |  |  | (504,235 | )
Deferred tax liabilities |  |  | (57,406 | )
Noncontrolling interests |  |  | (64,879 | )
Goodwill |  |  | 227,506 |
Total consideration |  | $ | 420,101 |

Identifiable intangible assets acquired include customer contracts, which were valued using an income approach and determined to carry estimated remaining useful lives of approximately three years. The goodwill recognized represents the expected synergies and is not tax deductible.

On May 31, 2021, CLPS SG entered into an agreement with Sharma Devendra Prasad to sell its 80% interests in Infogain at a cash consideration of $75,672 (SGD100,000). Sharma Devendra Prasad is the shareholder of the 20% noncontrolling interests in Infogain and was the original shareholder of the 80% interest in Infogain acquired by CLPS SG in 2019. After the disposal, the Company was no longer a shareholder of Infogain and deconsolidated Infogain’s financial results from the Company’s financial statements from June 1, 2021. The Company recognized a total gain of $9,022 (SGD 11,921) from the transaction in “Other income, net” in the consolidated statements of comprehensive income or the year ended June 30, 2021. The deconsolidation of Infogain did not meet the definition of a discontinued operation in accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations (“ASC 205-20”), as the disposal of Infogain did not represent a shift in the Company’s strategy that has (or will have) a major effect on an entity’s operations and financial results.

Investment in and disposal of CLPS Lihong

On March 1, 2019, the Company purchased a 36.84% equity interest in CLPS Lihong at a cash consideration of $0.15 (RMB 1) on the condition that the Company could inject capital of $1.01 million (RMB 7 million) into CLPS Lihong. In May 2019, the Company made capital contribution to CLPS Lihong of $1.01 million (RMB 7 million). The Company accounts for the investment in CLPS Lihong as an equity method investment due to its significant influence over the entity. For the year ended June 30, 2019, the Company’s share of CLPS Lihong’s results of operations was loss of $176,148 (RMB 1,201,523).

In April 2020, the Company sold an 18.42% equity interest in CLPS Lihong to the third party for the consideration of $995,605 (RMB 7 million) which was received as of June 30, 2020. Concurrently CLPS Lihong raised additional capital from other third party investors, and the Company’s remaining equity interest in CLPS Lihong was diluted to 7% as of June 30, 2020. The Company recognized the remaining equity interest in CLPS Lihong as equity investment without readily determined fair value since May 2020. For the period from July 1, 2019 to April 30, 2020, the Company’s share of CLPS Lihong’s results of operations was income of $250,290 (RMB 1,759,764).

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In July 2021, the Company sold its remaining 7% equity interest of CLPS Lihong to the third party for the consideration of $645,122 (RMB 4.2 million) which was received on July 27,2021. After the equity transfer, the Company no longer holds any equity interest in CLPS Lihong.

Investment in CLPS Beijing

Prior to June 2018, the Company held a 70% equity interest of CLPS Beijing which primarily engages in software development. On June 27, 2018, Qiner entered into a new share purchase agreement and purchased the remaining 30% equity interest of CLPS Beijing for consideration of $0.6 million and became the sole shareholder of CLPS Beijing. The consideration was paid on July 5, 2018. Prior to June 2018, the remaining 30% equity interest of CLPS Beijing was recorded as a noncontrolling interests on the balance sheet. The Company engaged an independent valuation firm to assist management in assessing the enterprise value of CLPS Beijing. The enterprise value of CLPS Beijing as of June 27, 2018 was $1.94 million based on the third-party valuation report.

Investment in EMIT

On April 3, 2019, Qiner purchased a 30% equity interest of EMIT at nil consideration. with a committed to invest $445,454.14 (RMB 3,000,000.00) in total within 20 years. During the years ended June 30, 2020 and 2019, the Company made capital contribution to EMIT of $143,299 (RMB 1,000,000.00) and $73,593 (RMB500,000.00), respectively. The Company accounts for the investment in EMIT as an equity method investment due to its significant influence over the entity. For the years ended June 30, 2020 and 2019, the Company’s share of EMIT’s results of operations was a loss of $42,927 (RMB 301,878) and $4,230 (RMB 28,853), respectively. As the end of June 30, 2020 and 2019, the committed but not yet made investment in EMIT was $228,561 (RMB 1,500,000.00) and $371,860 (RMB 2,500,000.00), respectively.

Acquisition of Ridik Pte. and Ridik Consulting

On September 26, 2019, Qiner acquired an 80% equity interest in Ridik Pte. Ltd. (“Ridik Pte.”) located in Singapore from third-party selling shareholders with the final purchase price of $2,462,580 (3,402,304 Singapore dollars), in the form of cash of $2,026,043 (2,799,180 Singapore dollars) and the Company’s common shares valued at $436,537 (603,123 Singapore dollars), respectively. Ridik Sdn. Bhd. (“Ridik Sdn.”), Ridik Software Solutions Pte. Ltd. (“Ridik Software Pte.”) and Ridik Software Solutions Ltd. (“Ridik Software”) are all subsidiaries of Ridik Pte.

The transactions were accounted for as business combinations using the purchase method of accounting. The purchase price allocations of the transactions were determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition dates. The most significant variables in the valuation are discount rates, terminal value, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 474,323 |
Accounts receivable, net |  |  | 618,144 |
Prepayments, deposits and other assets, net |  |  | 103,697 |
Property and equipment, net |  |  | 1,493 |
Customer relationship |  |  | 904,748 |
Short-term bank loans and long-term bank loans, current portion |  |  | (48,103 | )
Accounts payable and other current liabilities |  |  | (128,688 | )
Tax payables |  |  | (102,978 | )
Salaries and benefits payable |  |  | (431,548 | )
Long-term bank loans |  |  | (44,201 | )
Deferred tax liabilities |  |  | (162,855 | )
Noncontrolling interests |  |  | (411,351 | )
Goodwill |  |  | 1,689,899 |
Total consideration |  | $ | 2,462,580 |

Identifiable intangible assets acquired included customer relationship, which was valued using an income approach and determined to carry estimated remaining useful life of approximately ten years.

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On January 6, 2020, Ridik Pte. acquired 100% equity interest in Ridik Consulting Private Limited (“Ridik Consulting”) from third-party selling shareholders with the final purchase price of $5,520 (396,700 Indian Rupees). The fair value of the net liabilities acquired was $3,839 (275,800 Indian Rupees) and goodwill was recognized at $9,359 (672,500 Indian Rupees).

The goodwill recognized represents the expected synergies and is not tax deductible.

On January 29, 2021, Qiner acquired the remaining 20% equity interest from Srustijeet Mishra and Routray Sibashis with final purchase price of $0.62 million (or approximately SGD 828,135), in the form of cash of $0.43 million (or approximately SGD 579,695) and the Company’s common shares valued at $0.18 million (or approximately SGD 248,441). Ridik Pte. and its subsidiaries are now wholly-owned subsidiaries of the Company.

Investment in and disposal of CLPS Guangdong Zhichuang

On July 27, 2020, the Company and a third-party company incorporated CLPS Guangdong Zhichuang Software Technology Co., Ltd. (“CLPS Guangdong Zhichuang”) in Shenzhen. The Company holds 10% of equity interest in CLPS Guangdong Zhichuang valued at $0.14 million (RMB 1,000,000). On August 13, 2020, January 5, 2021, and February 2, 2021, the Company injected $28,571 (RMB 200,000), $46,476 (RMB 300,000) and $15,487 (RMB 100,000) to CLPS Guangdong Zhichuang, respectively. The Company recognized the equity interest in CLPS Guangdong Zhichuang as equity investment without readily determined fair value.

In April 2022, the Company sold its 10% equity interest in CLPS Guangdong Zhichuang to the other shareholder for $0.1 million (RMB 900,000). After the disposal, the Company no longer holds any equity interest in CLPS Guangdong Zhichuang.

Investment in and disposal of CLPS Shenzhen Robotics

On August 28, 2020, the Company, the Chairman of the Company and a third-party company incorporated CLPS Shenzhen Robotics Co. Ltd. (“CLPS Shenzhen Robotics”) in Shenzhen. The Company holds 10% of equity interest in CLPS Shenzhen Robotics valued at $0.14 million (RMB 1,000,000). On September 15, 2020, the Company injected $147,451 (RMB1,000,000) to CLPS Shenzhen Robotics. The Company recognized the equity interest in CLPS Guangdong Zhichuang as equity investment without readily determined fair value.

In May 2023, the Company divested its entire 10% equity interest in CLPS Shenzhen Robotics, receiving the investment in the same month.

Acquisition in and dissolution of CareerWin

In January 2021, JAJI China entered into an agreement with CareerWin to purchase CareerWin’s 30% equity interest in JAJI HR. JAJI China previously owned 70% of JAJI HR. After the transaction, JAJI China owned 100% of JAJI HR. At the same time, JAJI HR entered into a share purchase agreement with shareholders of CareerWin to purchase 100% equity interests of CareerWin to expand headhunting business, with JAJI China completing the purchase of 30% equity interest of JAJI HR as one of the pre-closing conditions. The total cash consideration of both transactions was $308,975 (RMB2 million). The total consideration was allocated to the acquisition of 100% equity interests in CareerWin and the acquisition of 30% noncontrolling interest in JAJI HR at $289,980 (RMB1.88 million) and $18,995 (RMB0.12 million), respectively.

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The acquisition of the 100% equity interest in CareerWin was completed on March 3, 2021 and was accounted for as a business combination using the purchase method of accounting. The purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. The most significant variables in the valuation are discount rate, terminal value, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 4,037 |
Accounts receivable |  |  | 24,811 |
Property and equipment, net |  |  | 2,117 |
Customer contracts |  |  | 126,680 |
Other payable and other current liabilities |  |  | (71,488 | )
Wages payable |  |  | (5,099 | )
Tax payables |  |  | (2,576 | )
Deferred tax liabilities |  |  | (25,336 | )
Goodwill |  |  | 236,834 |
Total consideration |  | $ | 289,980 |

Identifiable intangible assets acquired include customer relationship, which were valued using an income approach and determined to carry estimated remaining useful lives of approximately five years. The goodwill recognized represents the expected synergies and is not tax deductible.

Pro forma financial information of CareerWin is not presented as the effects of the acquisition on the Company’s consolidated financial statements were not material.

In January 2023, CareerWin was liquidated.

Investment in SSIT

On February 3, 2021, CLPS Shanghai reached a capital increase agreement with the three shareholders of Shanghai Shier Information Technology Co., Ltd. (“SSIT”). After the capital increase, the Company holds 35% of equity interest in SSIT valued at $0.08 million (RMB 538,500). The company injected the capital of $0.08 million (RMB 538,500) on March 2, 2021. The Company accounts for the investment in SSIT as an equity method investment due to its significant influence over the entity. For the year ended June 30, 2021, the Company’s share in SSIT’s result of operations was a loss of $9,445 (RMB 62,537).

Investment in UniDev

On July 8, 2021, the Company reached a capital increase agreement with two third parties of the target company Beijing UniDev Software Co., Ltd. (“UniDev”). After the capital increase, the Company holds 15% of equity interest in UniDev for $0.26 million (RMB 1,689,000).

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Investment in Fuson

On August 1, 2021, the Company reached an equity transfer and capital increase agreement with a third party of the target company Fuson Group Limited (“Fuson”). After the equity transfer and capital increase, the Company holds 35.02% of equity interest in Fuson for $0.16 million (HKD 1,225,000). The Company made the first payment of $0.08 million (HKD 612,500) on August 16, 2021.

Acquisition of MSCT

On August 16, 2021, Growth Ring reached a capital increase agreement with the prior shareholder of MSCT. After the capital increase, the Company holds 53.33% equity interest in MSCT and its wholly owned subsidiaries. The Company injected the capital of $0.2 million (HKD 1,600,000) on August 16, 2021.

As MSCT does not possess all the elements that are necessary to conduct normal operations as a business and had not yet commenced operations, the transactions were accounted for asset combinations using a cost accumulation and allocation model under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed. The carrying amounts of the net identifiable assets of MSCT as of the date of acquisition were as follows:

|  | Amounts |
Cash acquired |  | $ | 205,711 |
Technology |  |  | 151,168 |
Other payable and other current liabilities |  |  | (5,390 | )
Deferred tax liabilities |  |  | (23,971 | )
Noncontrolling interests |  |  | (121,807 | )
Total consideration |  | $ | 205,711 |

Identifiable intangible assets acquired include technology, which were valued using an income approach and determined to carry estimated remaining useful lives of approximately ten years.

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Results of Operations

Results of Operations for Continuing Operations

The following table sets forth a summary of our consolidated statements of operations for the periods indicated.

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Revenue from third parties |  | $ | 150,298,963 |  |  | $ | 151,970,357 |  |  | $ | 125,792,221 |
Revenue from related parties |  |  | 57,576 |  |  |  | 52,024 |  |  |  | 269,472 |
Less: Cost of revenues from third parties |  |  | (115,827,597 | ) |  |  | (110,989,394 | ) |  |  | (85,664,401 | )
Less: Cost of revenue from related parties |  |  | (47,212 | ) |  |  | (43,951 | ) |  |  | (226,356 | )
Gross profit |  |  | 34,481,730 |  |  |  | 40,989,036 |  |  |  | 40,170,936 |
Operating incomes (expenses): |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing expenses |  |  | (3,300,555 | ) |  |  | (4,103,066 | ) |  |  | (3,753,236 | )
Research and development expenses |  |  | (8,336,999 | ) |  |  | (7,971,145 | ) |  |  | (13,337,913 | )
General and administrative expenses |  |  | (21,641,317 | ) |  |  | (23,045,664 | ) |  |  | (16,784,688 | )
Impairment of goodwill |  |  | (2,382,538 | ) |  |  | - |  |  |  | - |
Subsidies and other operating income |  |  | 1,256,070 |  |  |  | 1,536,394 |  |  |  | 2,080,087 |
Total operating expenses |  |  | (34,405,339 | ) |  |  | (33,583,481 | ) |  |  | (31,795,750 | )
Income from operation |  |  | 76,391 |  |  |  | 7,405,555 |  |  |  | 8,375,186 |
Other income |  |  | 1,123,612 |  |  |  | 854,250 |  |  |  | 296,319 |
Other expenses |  |  | (430,357 | ) |  |  | (575,605 | ) |  |  | (351,045 | )
Income before income tax and share of income in equity investees |  |  | 769,646 |  |  |  | 7,684,200 |  |  |  | 8,320,460 |
Provision for income taxes |  |  | 674,344 |  |  |  | 3,045,992 |  |  |  | 1,257,124 |
Income before share of income in equity investees |  |  | 95,302 |  |  |  | 4,638,208 |  |  |  | 7,063,336 |
Share of income (loss) in equity investees, net of tax |  |  | 70,263 |  |  |  | (50,297 | ) |  |  | (44,121 | )
Net income |  |  | 165,565 |  |  |  | 4,587,911 |  |  |  | 7,019,215 |
Less: Net (loss) income attributable to noncontrolling interests |  |  | (26,964 | ) |  |  | 132,483 |  |  |  | 202,643 |
Net income attributable to CLPS Incorporation’s shareholders |  | $ | 192,529 |  |  | $ | 4,455,428 |  |  | $ | 6,816,572 |
Basic earnings per common share |  |  | 0.01 |  |  |  | 0.21 |  |  |  | 0.39 |
Weighted average number of share outstanding – basic |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Diluted earnings per common share |  |  | 0.01 |  |  |  | 0.21 |  |  |  | 0.39 |
Weighted average number of share outstanding – diluted |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |
Supplemental information: |  |  |  |  |  |  |  |  |  |  |  |
Non-GAAP income before income tax and share of income of equity investees |  |  | 5,630,480 |  |  |  | 14,869,062 |  |  |  | 13,449,156 |
Non-GAAP net income |  |  | 5,026,399 |  |  |  | 11,772,773 |  |  |  | 12,147,911 |
Non-GAAP net income attributable to CLPS Incorporation’s shareholders |  |  | 5,053,363 |  |  |  | 11,640,290 |  |  |  | 11,945,268 |
Non-GAAP basic earnings per common share |  |  | 0.22 |  |  |  | 0.56 |  |  |  | 0.69 |
Weighted average number of share outstanding – basic |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Non-GAAP diluted earnings per common share |  |  | 0.22 |  |  |  | 0.55 |  |  |  | 0.68 |
Weighted average number of share outstanding – diluted |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |

Use of Non-GAAP Financial Measures

The consolidated financial information is prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), except that the consolidated statement of changes in shareholders’ equity, consolidated statements of cash flows, and the detailed notes have not been presented. The Company uses non-GAAP income before income tax and share of loss income of equity investees, non-GAAP net income, non-GAAP net income attributable to CLPS Incorporation’s shareholders, and basic and diluted non-GAAP net income per share, which are non-GAAP financial measures. Non-GAAP income before income tax and share of loss income of equity investees is income before income tax and share of loss income of equity investees excluding share-based compensation expenses and impairment of goodwill. Non-GAAP net income is net income excluding share-based compensation expenses and impairment of goodwill. Non-GAAP net income attributable to CLPS Incorporation’s shareholders is net income attributable to CLPS Incorporation’s shareholders excluding share-based compensation expenses and impairment of goodwill. Basic and diluted non-GAAP net income per share is non-GAAP net income attributable to CLPS Incorporation’s shareholders divided by weighted average number of shares used in the calculation of basic and diluted net income per share. The Company believes that separate analysis and exclusion of the non-cash impact of share-based compensation expenses and impairment of goodwill clarity to the constituent parts of its performance. The Company reviews these non-GAAP financial measures together with GAAP financial measures to obtain a better understanding of its operating performance. It uses the non-GAAP financial measure for planning, forecasting and measuring results against the forecast. The Company believes that non-GAAP financial measures are useful supplemental information for investors and analysts to assess its operating performance without the effect of non-cash share-based compensation expenses and impairment of goodwill, which have been and will continue to be significant recurring expenses in its business. However, the use of non-GAAP financial measures has material limitations as an analytical tool. One of the limitations of using non-GAAP financial measures is that they do not include all items that impact the Company’s net income for the period. In addition, because non-GAAP financial measures are not measured in the same manner by all companies, they may not be comparable to other similar titled measures used by other companies. In light of the foregoing limitations, you should not consider non-GAAP financial measure in isolation from or as an alternative to the financial measure prepared in accordance with U.S. GAAP.

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The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, or as a substitute for, the financial information prepared and presented in accordance with U.S. GAAP. The following table sets forth a reconciliation of non-GAAP general and administrative expense, non-GAAP income before income tax and share of loss of equity investees, non-GAAP net income, non-GAAP net income attributable to CLPS Incorporation’s shareholders, and non-GAAP Basic and diluted earnings per common share for the periods indicated:

|  | For the year ended June 30, 2023 |
Cost of revenues |  |  | (115,874,809 | )
Less: share-based compensation expenses |  |  | (16,212 | )
Non-GAAP cost of revenues |  |  | (115,858,597 | )
Selling and marketing expenses |  |  | (3,300,555 | )
Less: share-based compensation expenses |  |  | (129,060 | )
Non-GAAP selling and marketing expenses |  |  | (3,171,495 | )
General and administrative expenses |  |  | (21,641,317 | )
Less: share-based compensation expenses |  |  | (2,333,024 | )
Non-GAAP general and administrative expenses |  |  | (19,308,293 | )
Income before income tax and share of income in equity investees |  |  | 769,646 |
Add: share-based compensation expenses |  |  | 2,478,296 |
Add: impairment of goodwill |  |  | 2,382,538 |
Non-GAAP income before income tax and share of loss of equity investees |  |  | 5,630,480 |
Net income |  |  | 165,565 |
Add: share-based compensation expenses |  |  | 2,478,296 |
Add: impairment of goodwill |  |  | 2,382,538 |
Non-GAAP net income |  |  | 5,026,399 |
Net income attributable to CLPS Incorporation’s shareholders |  |  | 192,529 |
Add: share-based compensation expenses |  |  | 2,478,296 |
Add: impairment of goodwill |  |  | 2,382,538 |
Non-GAAP net income attributable to CLPS Incorporation’s shareholders |  |  | 5,053,363 |
Weighted average number of share outstanding used in computing GAAP and non-GAAP basic earnings |  |  | 23,153,976 |
GAAP basic earnings per common share |  |  | 0.01 |
Add: share-based compensation expenses and impairment of goodwill |  |  | 0.21 |
Non-GAAP basic earnings per common share |  |  | 0.22 |
Weighted average number of share outstanding used in computing GAAP diluted earnings |  |  | 23,153,976 |
Weighted average number of share outstanding used in computing non-GAAP diluted earnings |  |  | 23,153,976 |
GAAP diluted earnings per common share |  |  | 0.01 |
Add: share-based compensation expenses and impairment of goodwill |  |  | 0.21 |
Non-GAAP diluted earnings per common share |  |  | 0.22 |

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For the Years Ended June 30, 2023 and 2022

Revenues

We derive revenues by providing integrated IT services and solutions, including: (i) IT consulting services, which primarily includes application development services for banks and institutions in the financial industry, which are billed on a time-and-expense basis, (ii) customized IT solutions services, which primarily includes customized solution development and maintenance service for general enterprises with acceptance requirement, which are billed either on a time-and-expense basis with enforceable right to payment or on a fixed-price basis, and (iii) other revenue from product and third-party software sales, training and headhunting.

Our customer contracts may be categorized by pricing model into time-and-expense contracts and fixed-price contracts. Under time-and-expense contracts, we are compensated for actual time incurred by our IT professionals at negotiated daily billing rates. We are also entitled to charge overtime fees in addition to the daily billing rates under some time-and-expense contracts. Fixed-price contracts require us to develop customized IT solutions throughout the contractual period, and we are paid in installments upon completion of specified milestones under the contracts.

The following table presents our revenues by our service lines.

|  | For the Year ended June 30, |
|  | 2023 |  |  | 2022 |  |  |  |  |  |  |
|  | Revenue |  |  | % of total Revenue |  |  | Revenue |  |  | % of total Revenue |  |  | Variance |  |  | Variance % |
IT consulting services |  | $ | 144,286,502 |  |  |  | 96.0 | % |  | $ | 144,092,811 |  |  |  | 94.8 | % |  |  | 193,691 |  |  |  | 0.1 | %
Customized IT solution services |  |  | 4,554,200 |  |  |  | 3.0 | % |  |  | 6,738,118 |  |  |  | 4.4 | % |  |  | (2,183,918 | ) |  |  | (32.4 | )%
Other |  |  | 1,515,837 |  |  |  | 1.0 | % |  |  | 1,191,452 |  |  |  | 0.8 | % |  |  | 324,385 |  |  |  | 27.2 | %
Total |  |  | 150,356,539 |  |  |  | 100.0 | % |  |  | 152,022,381 |  |  |  | 100.0 | % |  |  | (1,665,842 | ) |  |  | (1.1 | )%

Our total revenues decreased by approximately $1.6 million, or 1.1%, to approximately $150.4million for the fiscal year ended June 30, 2023, from approximately $152.0 million for the fiscal year ended June 30, 2022.

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For the year ended June 30, 2023, revenue derived from our IT consulting services increased by 0.1% to $144.3 million from $144.1 million in fiscal 2022, primarily reflecting the increasing demands for our IT consulting services from banks and other financial institutions. For fiscal 2023 and 2022, 38.2% and 41.2% of our IT consulting services revenue were from international banks, respectively. In fiscal 2023, we strengthened our expertise in the financial industry to leverage our existing industry knowledge and grew our customer base of local Chinese financial institutions.

Revenue from customized IT solution services decreased by $2.1 million, or 32.4%, to $4.6 million for the year ended June 30, 2023, from $6.7 million in the same period of the previous year. The decrease was primarily due to decreasing demand from existing clients.

Revenue from other services increased by $0.3 million, or 27.2%, to $1.5 million for the year ended June 30, 2023, from $1.2 million in the prior year period.

The number of clients remained consistent at 265 for the year ended June 30,2023 compared to the prior year period. Revenues from top five clients accounted for 49.1% and 49.0% of the Company’s total revenues for fiscal 2023 and 2022, respectively.

Revenue generated outside of Mainland China for the year ended June 30, 2023 accounted for 10.8% of total revenue compared to 9.3% in the prior year period.

Cost of revenues

Our cost of revenues mainly consisted of compensation benefit expenses for our IT professionals, travel expenses and material costs. Our cost of revenues increased by $4.9 million or 4.4% to approximately $115.9 million in fiscal 2023 from approximately $111.0 million in fiscal 2022 primarily due to the increase in IT professional compensation costs. as a result of optimization of our R&D staff structure by allocating a number of staff to deliver IT services to meet the increased demand, as well as increased labor costs. As a percentage of revenues, our cost of revenues was 77.1% and 73.0% for fiscal 2023 and 2022, respectively.

Gross profit and gross margin

Our gross profit decreased by $6.5 million, or 15.9%, to approximately $34.5 million in fiscal 2023 from approximately $41.0 million in fiscal 2022. Gross margin decreased to 22.9% in fiscal 2023 from 27.0% for the same period of last year.

Selling and marketing expenses

Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and also included entertainment, travel and transportation, and other expenses relating to our marketing activities.

Selling and marketing expenses decreased by $0.8 million, or 19.6%, to $3.3 million in fiscal 2023 from $4.1 million in fiscal 2022. The decrease was primarily due to improved efficiency in talent acquisition using an intelligent automation solution, which helped the Company to reduce time and cost associated with the talent acquisition process. Accordingly, as a percentage of sales, our selling expenses were 2.2% of revenues in fiscal 2023 compared to 2.7% in fiscal 2022.

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Research and development (“R&D”) expenses

R&D expenses primarily consisted of compensation and benefit expenses relating to our research and development personnel as well as office overhead and other expenses relating to our R&D activities. Our R&D expenses were $8.3 million in fiscal 2023, which increased by $0.3 million or 4.6% compared to $8.0 million in fiscal 2022, representing 5.5% and 5.2% of our total revenues for fiscal 2023 and 2022, respectively.

General and administrative expenses

General and administrative expenses primarily consisted of salary and compensation expenses relating to our finance, legal, human resources and executive office personnel, and included share-based compensation expenses, rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs.

General and administrative expenses increased by $1.0 million, or 4.2%, to $24.0 million in fiscal 2023 from $23.0 million in the prior year. After the deduction of $2.3 million non-cash share-based compensation expenses related to the grants under the 2021 Incentive Compensation Plan and deduction of $2.4 million goodwill impairment losses, non-GAAP general and administrative expenses increased by $3.2 million, or 20.2%, to $19.3 million in fiscal 2023 from $16.1 million in the same period of the previous year.

Subsidies and other operating income

Subsidies and other operating income primarily included government subsidies which represented amounts granted by local government authorities as a general incentive for us to promote development of the local technology industry. The Company records government subsidies in subsidies and other operating income upon received and when there is no further performance obligation. Total government subsidies amounted to $1.3 million and $1.5 million in fiscal 2023 and 2022, respectively.

Income before income taxes and share of loss in equity investees

Income before income taxes and share of loss in equity investees decreased by $6.9 million to a $0.8 million income in fiscal 2023 from an income of $7.7 million in fiscal 2022. After the deduction of non-cash share-based compensation expenses and goodwill impairment losses, non-GAAP income before income taxes and share of loss in equity investees decreased by $9.3 million, or 62.1%, to $5.6 million in fiscal 2023 from $14.9 million in the same period of the previous year.

Provision for income taxes

Our provision for income taxes in fiscal 2023 decreased by $2.3 million to $0.7 million from $3.0 million provision for income taxes in fiscal 2022, mainly due to the decrease of income before income taxes and share of loss in equity investees.

Share of loss in equity investees, net of tax

The share of loss in equity investees, net of tax in fiscal 2023 was net equity investment income of SSIT, and Fuson. The share of loss in equity investees, net of tax in fiscal 2022 was net equity investment loss of SSIT, EMIT and Fuson.

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Net income

Net income decreased by $4.4 million, or 96.4%, to $0.2 million in fiscal 2023 from a net income of $4.6 million in fiscal 2022. After the deduction of $2.5 million non-cash share-based compensation expenses and $2.4 million goodwill impairment losses, non-GAAP net income decreased by $6.8 million, or 57.3%, to $5.0 million in fiscal 2023 from $11.8 million in the previous year.

Other comprehensive (loss) income

Foreign currency translation adjustments amounted to a loss of $3.5 million and a loss of $1.8 million for the years ended June 30, 2023 and 2022, respectively. The balance sheet amounts with the exception of equity as of June 30, 2023 were translated at 7.2513 RMB to 1.00 USD as compared to 6.6981 RMB to 1.00 USD as of June 30, 2022. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the years ended June 30, 2023 and 2022 were 6.9536 RMB to 1.00 USD and 6.4554 RMB to 1.00 USD, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operation.

For the Years Ended June 30, 2022 and 2021

Revenues

We derive revenues by providing integrated IT services and solutions, including: (i) IT consulting services, which primarily includes application development services for banks and institutions in the financial industry, which are billed on a time-and-expense basis, (ii) customized IT solutions services, which primarily includes customized solution development and maintenance service for general enterprises with acceptance requirement, which are billed either on a time-and-expense basis with enforceable right to payment or on a fixed-price basis, and (iii) other revenue from product and third-party software sales, training and headhunting.

Our customer contracts may be categorized by pricing model into time-and-expense contracts and fixed-price contracts. Under time-and-expense contracts, we are compensated for actual time incurred by our IT professionals at negotiated daily billing rates. We are also entitled to charge overtime fees in addition to the daily billing rates under some time-and-expense contracts. Fixed-price contracts require us to develop customized IT solutions throughout the contractual period, and we are paid in installments upon completion of specified milestones under the contracts.

The following table presents our revenues by our service lines.

|  | For the Year ended June 30, |
|  | 2022 |  |  | 2021 |  |  |  |  |  |  |
|  | Revenue |  |  | % of total Revenue |  |  | Revenue |  |  | % of total Revenue |  |  | Variance |  |  | Variance % |
IT consulting services |  | $ | 144,092,811 |  |  |  | 94.8 | % |  | $ | 122,273,395 |  |  |  | 97.0 | % |  |  | 21,819,416 |  |  |  | 17.8 | %
Customized IT solution services |  |  | 6,738,118 |  |  |  | 4.4 | % |  |  | 3,130,646 |  |  |  | 2.5 | % |  |  | 3,607,472 |  |  |  | 115.2 | %
Other |  |  | 1,191,452 |  |  |  | 0.8 | % |  |  | 657,652 |  |  |  | 0.5 | % |  |  | 533,800 |  |  |  | 81.2 | %
Total |  |  | 152,022,381 |  |  |  | 100.0 | % |  |  | 126,061,693 |  |  |  | 100.0 | % |  |  | 25,960,688 |  |  |  | 20.6 | %

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Our total revenues increased by approximately $26.0 million, or 20.6%, to approximately $152.0 million for the fiscal year ended June 30, 2022 from approximately $126.1 million for the fiscal year ended June 30, 2021. The overall growth in our revenues reflects an increase in revenues from our IT consulting services and derived primarily from existing customers.

For the year ended June 30, 2022, revenue derived from our IT consulting services increased by 17.8% to $144.1 million from $122.3 million in fiscal 2021, primarily reflecting the increasing demands for our IT consulting services from banks and other financial institutions. For fiscal 2022 and 2021, 41.2% and 40.1% of our IT consulting services revenue were from international banks, respectively. In fiscal 2022, we strengthened our expertise in the financial industry to leverage our existing industry knowledge and grew our customer base of local Chinese financial institutions.

Revenue from customized IT solution services increased by $3.6 million, or 115.2%, to $6.7 million for the year ended June 30, 2021, from $3.1 million in the same period of the previous year. The increase was primarily due to increasing demand from existing clients.

Revenue from other services increased by $0.5 million, or 81.2%, to $1.2 million for the year ended June 30, 2022, from $0.7 million in the prior year period.

The number of clients increased by 14, or 5.6%, to 265 for the year ended June 30, 2022 from 251 in the prior year period. Revenues from top five clients accounted for 49.0% and 45.7% of the Company’s total revenues for fiscal 2022 and 2021, respectively.

Revenue generated outside of Mainland China for the year ended June 30, 2022 accounted for 9.3% of total revenue compared to 10.7% in the prior year period.

Cost of revenues

Our cost of revenues mainly consisted of compensation benefit expenses for our IT professionals, travel expenses and material costs. Our cost of revenues increased by $25.1 million or 29.3% to approximately $111.0 million in fiscal 2022 from approximately $85.9 million in fiscal 2021 primarily as a result of optimization of our R&D staff structure by allocating a number of staff to deliver IT services to meet the increased demand, as well as the lockdown in cities where our operations were impacted such as Shanghai, following the resurgence of COVID-19 cases and the increased prevention costs associated with it. As a percentage of revenues, our cost of revenues was 73.0% and 68.1% for fiscal 2022 and 2021, respectively.

Gross profit and gross margin

Our gross profit increased by $0.8 million, or 2.0%, to approximately $41.0 million in fiscal 2022 from approximately $40.2 million in fiscal 2021. Gross margin decreased to 27.0% in fiscal 2022 from 31.9% for the same period of last year.

Selling and marketing expenses

Selling and marketing expenses primarily consisted of salary and compensation expenses relating to our sales and marketing personnel, and also included entertainment, travel and transportation, and other expenses relating to our marketing activities.

Selling and marketing expenses increased by $0.3 million or 9.3% to $4.1 million in fiscal 2022 from $3.8 million in fiscal 2021. Accordingly, as a percentage of sales, our selling expenses were 2.7% of revenues in fiscal 2022 compared to 3.0% in fiscal 2021. We expect our selling and marketing expenses to increase as we continue our business expansion, we expect these expenses to remain relatively steady as a percentage of our net revenues to support our business growth in the future.

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Research and development (“R&D”) expenses

R&D expenses primarily consisted of compensation and benefit expenses relating to our research and development personnel as well as office overhead and other expenses relating to our R&D activities. Our R&D expenses were $8.0 million in fiscal 2022, which decreased by $5.3 million or 40.2% compared to $13.3 million in fiscal 2021, representing 5.2% and 10.6% of our total revenues for fiscal 2022 and 2021, respectively. The decrease was primarily due to the optimization of our R&D staff structure by allocating a number of staff to deliver IT services to meet the increased demand.

General and administrative expenses

General and administrative expenses primarily consisted of salary and compensation expenses relating to our finance, legal, human resources and executive office personnel, and included share-based compensation expenses, rental expenses, depreciation and amortization expenses, office overhead, professional service fees and travel and transportation costs.

General and administrative expenses increased by $6.2 million, or 37.3%, to $23.0 million in fiscal 2022 from $16.8 million in the prior year. After the deduction of $7.2 million non-cash share-based compensation expenses related to the grants under the 2020 Incentive Compensation Plan, non-GAAP general and administrative expenses increased by $4.3 million, or 36.3%, to $16.1 million in fiscal 2022 from $11.8 million in the same period of the previous year.

Subsidies and other operating income

Subsidies and other operating income primarily included government subsidies which represented amounts granted by local government authorities as a general incentive for us to promote development of the local technology industry. The Company records government subsidies in subsidies and other operating income upon received and when there is no further performance obligation. Total government subsidies amounted to $1.5 million and $2.1 million in fiscal 2022 and 2021, respectively.

Income before income taxes and share of loss in equity investees

Income before income taxes and share of loss in equity investees decreased by $0.6 million to a $7.7 million income in fiscal 2022 from an income of $8.3 million in fiscal 2021. After the deduction of non-cash share-based compensation expenses, non-GAAP income before income taxes and share of loss in equity investees increased by $1.5 million, or 10.6%, to $14.9 million in fiscal 2022 from $13.4 million in the same period of the previous year.

Provision for income taxes

Our provision for income taxes in fiscal 2022 increased by $1.7 million to $3.0 million from $1.3 million provision for income taxes in fiscal 2021, mainly due to a higher effective tax rate at 25.0%, the standard statutory corporate income tax rate in mainland China. By renewing our High and New Technology Enterprise status this year, we will be entitled to a corporate income tax preferential rate of 15.0%.

Share of loss in equity investees, net of tax

The share of loss in equity investees, net of tax in fiscal 2022 was net equity investment loss of SSIT, EMIT and Fuson. The share of loss in equity investees, net of tax in fiscal 2021 was net equity investment loss of SSIT and EMIT.

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Net income

Net income decreased by $2.4 million or 34.6% to $4.6 million in fiscal 2022 from a net income of $7.0 million in fiscal 2021. After the deduction of $7.2 million non-cash share-based compensation expenses, non-GAAP net income decreased by $0.3 million, or 3.1%, to $11.8 million in fiscal 2022 from $12.1 million in the previous year.

Other comprehensive (loss) income

Foreign currency translation adjustments amounted to loss of $1.8 million and income of $2.6 million for the years ended June 30, 2022 and 2021, respectively. The balance sheet amounts with the exception of equity as of June 30, 2022 were translated at 6.6981 RMB to 1.00 USD as compared to 6.4566 RMB to 1.00 USD as of June 30, 2021. The equity accounts were stated at their historical rate. The average translation rates applied to the income statements accounts for the years ended June 30, 2022 and 2021 were 6.4554 RMB to 1.00 USD and 6.6212 RMB to 1.00 USD, respectively. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S, dollar terms without giving effect to any underlying change in our business or results of operation.

Cash Flows through Our Organization

CLPS Incorporation is a holding company with no operations of its own. We conduct our operations in Mainland China primarily through our subsidiaries in mainland China. As a result, although other means are available for us to obtain financing at the holding company level, CLPS Incorporation’s ability to pay dividends to the shareholders and to service any debt it may incur may depend upon dividends paid by our PRC subsidiaries. If any of our subsidiaries incurs debt on its own behalf, the instruments governing such debt may restrict its ability to pay dividends to CLPS Incorporation. In addition, our PRC subsidiaries are permitted to pay dividends to CLPS Incorporation only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Further, our PRC subsidiaries are required to make appropriations to certain statutory reserve funds. Under PRC law, CLPS Incorporation may provide funding to our PRC subsidiaries only through capital contributions or loans, subject to satisfaction of applicable government registration and approval requirements. The subsidiaries have not declared or paid any cash dividends to the holding company. CLPS Incorporation has not declared or paid any cash dividends to pay any cash dividends on its ordinary shares. The Company provides cash support to its subsidiaries according its business development plan. For fiscal years 2021, 2022, and 2023, the Company provided cash support to its subsidiaries in Mainland China, Singapore and Hong Kong SAR. The amounts were offset when the Company’s consolidated financial statements were prepared. The balances due from subsidiaries to the Company were US$7.6 million, US$22.8 million, and US$24.7 million as of June 30 for fiscal 2021, 2022, and 2023, respectively. The subsidiaries provide cash support to the Company according its business development plan. The balances due to subsidiaries from the Company were Nil, US$7.1 million, and US$7.6 million as of June 30 for fiscal 2021, 2022, and 2023, respectively. The balances were reflected in the section “PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION” in our financial statements for fiscal 2021, 2022, and 2023, respectively. For the years ended June 30, 2021, 2022, and 2023, cash and cash equivalents of PRC companies were RMB 62.66 million (US$9.71 million), 99.0 million (US$14.8 million), and 129.1 million (US$17.8 million), respectively.

Liquidity and Capital Resources

On February 23, 2021, the Company entered into an agreement with Maxim Group LLC (“Maxim”) that Maxim will serves as a Placement Agent for the Company in connection with the proposed offering of registered securities of the Company, including shares of the Company’s common stock. On February 28, 2021, the Company entered into a securities purchase agreement (“SPA”) with certain accredited investors. According to the SPA, the Company agreed to sell 2,666,666 shares of the Company’s common stock and issue unregistered warrants to purchase up to an additional 2,666,666 shares of common stock in the concurrent private placement transaction (the transaction). On March 3, 2021, the Company issued 2,666,666 common shares at US$6.00 per share to those investors, with a par value of $0.0001 per share, and issued 2,666,666 warrants, generating total gross proceeds of $15,999,996. Net proceeds from the transaction after issuance cost of $1,317,119 were $14,682,877 which was allocated to common shares and warrants issued on their relative fair value basis of $11,131,829 and $3,551,048, respectively.

As of June 30, 2023, we had cash and cash equivalents of approximately $22.3 million. Our current assets were approximately $72.9 million, and our current liabilities were approximately $26.3 million. Total shareholders’ equity as of June 30, 2023 was approximately $65.5 million. We believe that we will have sufficient working capital to operate our business for the next 12 months from the issuance date of this report.

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Substantially all of our operations are conducted in China and all of our revenue, expenses, cash and cash equivalents are denominated in RMB. RMB is subject to the exchange control regulation in China, and, as a result, we may have difficulty distributing any dividends outside of China due to PRC exchange control regulations that restrict our ability to convert RMB into U.S. dollars. As of June 30, 2023, cash and cash equivalents of approximately RMB129.1 million ($17.8 million), SGD1.7 million ($1.3 million), AUD0.02 million ($0.01 million), HKD22.2 million ($2.8 million), INR2.7 million ($0.03 million), MYR0.4 million ($09 million), JPY5.0 million ($0.03 million), USD1 million, and PHP4.4 million ($0.08 million) were held by the Company and its subsidiaries in Mainland China, Singapore, Australia, Hong Kong, India, Malaysia, Japan, the United States of America, and the Philippines, respectively. We would need to accrue and pay withholding taxes if we were to distribute funds from our subsidiaries in China to our offshore subsidiaries. We do not intend to repatriate such funds in the foreseeable future, as we plan to use existing cash balance in PRC for general corporate purposes.

In assessing our liquidity, we monitor and analyze our cash on hand, our ability to generate sufficient revenue sources in the future and our operating and capital expenditure commitments. The Company plans to fund working capital through its operations, bank borrowings and additional capital contribution from shareholders. Our operating cash flow was positive for the year ended June 30, 2023. We have historically funded our working capital needs primarily from operations, advance payments from customers and loans from shareholders. Our working capital requirements are affected by the efficiency of our operations, the numerical volume and dollar value of our sales contracts, the progress or execution on our customer contracts, and the timing of accounts receivable collections.

The following table sets forth summary of our cash flows for the periods indicated:

|  | For the Years Ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Net cash provided by (used in) operating activities |  | $ | 9,705,951 |  |  | $ | 3,200,889 |  |  | $ | (2,609,773 | )
Net cash used in investing activities |  |  | (306,046 | ) |  |  | (16,290,683 | ) |  |  | (5,619,471 | )
Net cash (used in) provided by financing activities |  |  | (4,319,331 | ) |  |  | 7,474,641 |  |  |  | 19,340,588 |
Effect of exchange rate change |  |  | (1,175,928 | ) |  |  | (727,242 | ) |  |  | 975,918 |
Net increase (decrease) in cash |  |  | 3,904,646 |  |  |  | (6,342,395 | ) |  |  | 12,087,262 |
Cash and cash equivalents at the beginning of the year |  |  | 18,396,987 |  |  |  | 24,739,382 |  |  |  | 12,652,120 |
Cash and cash equivalents at the end of the year |  |  | 22,301,633 |  |  | $ | 18,396,987 |  |  | $ | 24,739,382 |

Operating Activities

Net cash provided by operating activities was approximately $9.7 million in fiscal 2023, including net income of $0.2 million, adjusted for non-cash items of $7.2 million and positive adjustments for changes in operating assets and liabilities of $3.4 million. The adjustments for changes in operating assets and liabilities mainly included the decrease in accounts receivable of $0.5 million. The adjustments for changes in operating assets and liabilities also included a decrease in prepayment, deposits and other assets of $3.5 million, a decrease in salaries and benefits payable of $0.8 million, an increase in accounts payable and other liabilities of $0.2 million, and an increase in tax payables of $0.1 million in fiscal 2023.

Net cash provided by operating activities was approximately $3.2 million in fiscal 2022, including net income of $4.6 million, adjusted for non-cash items of $8.2 million and negative adjustments for changes in operating assets and liabilities of $9.6 million. The adjustments for changes in operating assets and liabilities mainly included the increase in accounts receivable of $12.3 million due to increased sales in fiscal 2022. During fiscal 2022, our accounts receivable turnover was 116 days, an increase of 16 days from 100 days in fiscal 2021. The adjustments for changes in operating assets and liabilities also included an increase in salaries and benefits payable of $0.2 million and an increase in accounts payable and other liabilities of $1.7 million in fiscal 2022.

Net cash used in operating activities was approximately $2.6 million in fiscal 2021, including net income of $7.0 million, adjusted for non-cash items of $5.7 million and negative adjustments for changes in operating assets and liabilities of $15.3 million. The adjustments for changes in operating assets and liabilities mainly included the increase in accounts receivable of $16.7 million due to increased sales in fiscal 2021. During fiscal 2021, our accounts receivable turnover was 100 days, an increase of 9 days from 91 days in fiscal 2020. The adjustments for changes in operating assets and liabilities also included an increase in salaries and benefits payable of $0.3 million and an increase in accounts payable and other payables of $0.4 million in fiscal 2021.

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Investing Activities

Net cash used in investing activities was approximately $0.3 million in fiscal 2023, primarily due to our purchase of property and equipment of $0.5 million, disposition of long term investment of $0.1 million, repayments from a related party of $0.2 million in fiscal 2023, to better manage opportunities and capitalize on the growth potential in the human resource related industry.

Net cash used in investing activities was approximately $16.3 million in fiscal 2022, primarily due to our purchase of office building, office equipment and furniture of $20.8 million, disposition of long term investment of $0.4 million, loans provided to related party of $0.08 million, and maturities of short-term investments of $4.2 million in fiscal 2022, to better manage opportunities and capitalize on the growth potential in the human resource related industry.

Net cash used in investing activities was approximately $5.6 million in fiscal 2021, primarily due to our purchase of office building, office equipment and furniture of $1.1 million, disposition of subsidiary of $0.2 million, addition of long term investment of $0.3 million, loans provided to Infogain and related party of $0.3 million, our business acquisition of $0.3 million and short-term investments of $3.4 million in fiscal 2021, to better manage opportunities and capitalize on the growth potential in the human resource related industry.

Financing Activities

Net cash used in financing activities was approximately $4.3 million in fiscal 2023. During the fiscal 2023, we had bank loans of approximately $23.4 million, repaid loans of approximately $26.3 million, and paid dividend of $1.4 million.

Net cash provided by financing activities was approximately $7.5 million in fiscal 2022. During the fiscal 2022, we had bank loans of approximately $22.0 million and repaid loans of approximately $14.5 million.

Net cash provided by financing activities was approximately $19.3 million in fiscal 2021. During the fiscal 2021, we had bank loans of approximately $13.3 million, repaid loans of approximately $8.3 million, received capital contribution from private placement of $14.7 million, received capital contribution from option exercise of $0.1 million and purchase of noncontrolling interest of $0.5 million.

Capital Expenditures

The Company made capital expenditures of $0.5 million, $20.8 million, and $1.1 million for the years ended June 30, 2023, 2022, and 2021, respectively. In these periods, our capital expenditures were mainly used for purchases of office building and office equipment. The Company will continue to make capital expenditures to meet the expected growth of its business.

Impact of Inflation

We do not believe the impact of inflation on our company is material. Our operations are in China and China’s inflation rates have been relatively stable over the last two years: 3.7% in 2022 and 3.4% in 2021.

Contractual Obligations

The Company’s subsidiaries lease office spaces under various operating leases. Operating lease expenses amounted to $1,086,622, $1,413,521, and $942,606 for the years ended June 30, 2023, 2022, and 2021, respectively. The following table sets forth our contractual obligations and commercial commitments as of June 30, 2023:

|  | Payment Due by Period |
|  | Total |  |  | Less than 1 Year |  |  | 1-3 Years |  |  | More than 3 Years |
Operating lease arrangements |  | $ | 839,045 |  |  | $ | 733,982 |  |  | $ | 105,063 |  |  | $ | - |
Bank loans |  |  | 10,554,617 |  |  |  | 10,554,617 |  |  |  | - |  |  |  | - |
Total |  | $ | 11,393,662 |  |  | $ | 11,288,599 |  |  | $ | 105,063 |  |  | $ | - |

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Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements and undisclosed material cash requirement for the years ended June 30, 2023 that have or that in the opinion of management are likely to have, a current or future material effect on our financial condition or results of operations.

Subsequent Event

None.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures.

We believe that the following accounting policies are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

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Revenue recognition

We account for revenue recognition in accordance with ASC Topic 606, Revenue from contracts with Customers (“ASC 606”). We provide a comprehensive range of IT consulting services, customized IT solution services and other service, which primarily are on a time-and-expense basis, or fixed-price basis. Revenue is recognized when control of promised goods or services is transferred to our customers in an amount of consideration to which an entity expects to be entitled to in exchange for those services.

IT consulting services

IT consulting services are time-and-expense basis contracts. The series of IT consulting services are substantially the same from day to day, and each day of the service is considered to be distinct and separately identifiable as it benefits the customer daily. Further, the uncertainty related to the service consideration is resolved on a daily basis as we satisfy our obligation to perform IT service daily with enforceable right to payment for performance completed to date. Thus, revenue is recognized as service is performed and the customer simultaneously receives and consumes the benefits from the service daily.

Customized IT solution service

Revenues from customized IT solution contracts require us to perform services for systems design, planning and integrating based on customers’ specific needs which requires significant production and customization. The required customization work period is generally less than one year. Upon delivery of the services, customer acceptance is generally required. In the same contract, we are generally required to provide post-contract customer support (“PCS’) for a period from three months to one year (“PCS period”) after the customized application is delivered. The type of service for PCS is stand-ready service on when-and-if-available basis.

There are two performance obligations identified in the customized IT solution contract: the delivery of customized IT solution service and the completion of the PCS. The transaction price is allocated between the two performance obligations based on the relative standalone selling price, estimated using the cost plus method.

We recognize revenue for the delivery of customized IT solution service at a point in time when the system is implemented and accepted by the customer. Where we have enforceable right to payment for performance completed to date, revenue is recognized over time, using the output method. Revenue for PCS is recognized ratably over time as the customer simultaneously receive and consume the benefits throughout the PCS period.

Differences between the timing of billings and the recognition of revenues are recorded as contract assets which is included in the prepayments, deposits and other assets, net, or contract liabilities on the consolidated balance sheets. Contract assets are classified as current assets and the full balance is reclassified to accounts receivables when the right to payment becomes unconditional. The impairment loss of contracts assets was immaterial as of June 30, 2023 and 2022, respectively and the cumulative-effect adjustment due to the adoption of ASU 2016-13 was also immaterial.

Costs incurred in advance of revenue recognition arising from direct and incremental staff costs in respect of services provided under the fixed fee contracts according to the customer’s requirements prior to the delivery of services are recorded as deferred contract costs which is included in the prepayments, deposits and other assets, net on the consolidated balance sheets. Such deferred contract costs are recognized upon the recognition of the related revenues.

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Other contracts

Other contracts primarily comprise of the sales of headhunting services, consulting and administrative services. Revenue of headhunting services for other contracts is recognized at a point in time when control is transferred to the customers, which generally occurs when the service is accepted by customers. Revenue of consulting and administrative services for other contracts is recognized over time as the customer simultaneously receives and consumes the benefits from the service we perform.

Income taxes

We account for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized, when it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

We account for uncertainties in income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the consolidated statements of comprehensive (loss)/ income in the period incurred. All of the tax returns of our subsidiaries in China remain subject to examination by the tax authorities for five years from the date of filing through year 2026, and the examination period was extended to 10 years for entities qualified as High and New Technology Enterprises (“HNTEs”) in 2018 and thereafter.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

| A. | Directors and senior management

The following table sets forth our executive officers and directors, their ages and the positions held by them, as of the date of this Annual Report:

Name |  | Age |  | Position
Xiao Feng Yang |  | 60 |  | Chairman of the Board
Raymond Ming Hui Lin |  | 59 |  | Chief Executive Officer and Director
Rui Yang |  | 40 |  | Chief Financial Officer
Li Li |  | 47 |  | Chief Operating Officer
Jin He Shao(1)(4) |  | 56 |  | Independent Director
Zhao Hui Feng(3) |  | 53 |  | Independent Director
Kee Chong Seng(2) |  | 71 |  | Independent Director

| (1) | Chair of the Audit Committee.

| (2) | Chair of the Compensation Committee.

| (3) | Chair of the Nominating Committee.

| (4) | Audit Committee Financial Expert.

Xiao Feng Yang is the chairman of the board of the Company. Mr. Yang has over 20 years of executive management and operational experience in the IT services business. From October 2012 to August 2020, Mr. Yang served as chairman and president of CLPS. From April 2009 to October 2012, Mr. Yang served as deputy general manager of ADP China managing the service operations of HR BPO in China. Prior to 2002, Mr. Yang was the Human Resource Director of Phillips. Mr. Yang graduated from Tongji University, Shanghai, China, with a Bachelor’s degree in electrical engineering. Mr. Yang received his MBA degree both from Shanghai University of Finance and Webster University (US).

Raymond Ming Hui Lin, is the chief executive officer and director of the Company. Mr. Lin joined CLPS in February 2009 as chief executive officer. From January 2008 to January 2009, Mr. Lin was a business consultant of VanceInfo. After VanceInfo acquired A-IT Software (Shanghai) Co. Ltd., Mr. Lin acted as the general manager of A-IT Software (Shanghai) Co. Ltd. from April 2002 to December 2007. Mr. Lin is an IT outsourcing service veteran with a deep understanding of IT talent acquisition, training, development and service delivery. He has developed and pioneered the first kind of training programs for mainframe and VisionPLUS (a credit card processing solution) in China, which has made CLPS as one of the largest mainframe resource powerhouse and the VisionPLUS project team in Greater China. In 2015, Mr. Lin became the MSE senior advisor in Fudan University, Shanghai, China.

Rui Yang is the chief financial officer of the Company effective as of December 17, 2020. From November 1, 2019 to December 16, 2020, Ms. Yang served as the Acting Chief Financial Officer of the Company. Ms. Yang has over 10 years of financial experiences in the financial and IT industry. Ms. Yang joined the Company in August 2015 as Vice President for finance controller. From December 2014 to August 2015, Ms. Yang served as financial analyst supervisor at Shanghai Origin International Logistics Co., Ltd. From February 2010 to July 2014, Ms. Yang served as senior financial analyst at Pactera Technology International Ltd. Ms. Yang holds a Bachelor’s Degree in Management from Northwest Agriculture and Forestry University and a Master’s Degree in Economics from Shanghai University of Finance and Economics. Ms. Yang holds the PRC Certified Public Accountant certificate.

Li Li is the chief operating officer of the Company. Mr. Li was appointed as the COO in June 2019. Mr. Li has 20 years of professional and IT experience in the financial and IT industry. From June 2017 to June 2019, Mr. Li served as Director, Head of Business Analysis& Quality Engineering at a major credit card payment processing company in China. From July 2013 to June 2017, Mr. Li served as Executive Manager, Head of Business Solution and Quality Assurance at Commonwealth Bank of Australia China. Mr. Li graduated from Tianjin University, Tianjin China, with a Bachelor’s degree in Computer Science. Mr. Li holds MSE degree from Fu Dan University, Shanghai China.

Jin He Shao has served as our independent director since January 2018. From January 2002 to present, Mr. Shao has been a partner at Shanghai Huajin Accounting& Consulting Professional Services. From August 1995 to December 2001, he served as senior tax manager at Phillips (China) Investment Co., Ltd. Mr. Shao received a joint MBA degree from Shanghai University of Finance & Economics and The Webster University. Mr. Shao holds the PRC equivalent of the CPA license. In addition, Mr. Shao attended Shanghai Grain College where he majored in finance and accounting, and STV University where he majored in auditing.

Zhao Hui Feng has served as our independent director since July 2020. From March 2017 to August 2022, Mr. Feng was the general manager at Dalian Wanda Commercial Properties Co., Ltd. From February 2016 to March 2017, Mr. Feng served as the founder and chief executive officer at Shanghai Gold Education Data System Ltd., Co. From December 2013 to January 2016, Mr. Feng served as the general manager and chief operating officer at Beijing Zhide Chuanghui Network Technology Inc. Mr. Feng received a Master’s Degree in Computer Science from Southern Illinois University and a Bachelor’s Degree in Computer Science and Technology from the University of Science and Technology of China.

Kee Chong Seng has served as our independent director since September 2019. Mr. Kee spent a career in the information technology industry, most recently as an operation manager at Citibank from 2003 until his full retirement in 2015.

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None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years that is material to the evaluation of the ability or integrity of any of our directors, director nominees or executive officers.

Limitation on Liability and Other Indemnification Matters

The Companies Law does not limit the extent to which Memorandum and Articles of Association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our Memorandum and Articles of Association permit indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such unless such losses or damages arise from dishonesty of such directors or officers willful default of fraud. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

| B. | Compensation

Executive Compensation

The following table shows the annual compensation paid by us for the years ended June 30, 2023, 2022, and 2021.

Name/principal position |  | Year |  | Salary |  |  | Equity Compensation |  |  | All Other Compensation |  |  | Total Paid |
Xiao Feng Yang, Chairman of the Board(1) |  | 2023 |  | $ | 104,651 |  |  |  | — |  |  | $ | — |  |  | $ | 104,651 |
|  | 2022 |  | $ | 106,104 |  |  |  | — |  |  | $ | — |  |  | $ | 106,104 |
|  | 2021 |  | $ | 99,445 |  |  | $ | — |  |  | $ | — |  |  | $ | 99,445 |
Raymond Ming Hui Lin, CEO and Director(2) |  | 2023 |  | $ | 258,614 |  |  | $ | — |  |  | $ | — |  |  | $ | 258,614 |
|  | 2022 |  | $ | 257,531 |  |  | $ | — |  |  | $ | — |  |  | $ | 257,531 |
|  | 2021 |  | $ | 192,747 |  |  |  | — |  |  | $ | — |  |  | $ | 192,747 |
Rui Yang, CFO(3) |  | 2023 |  | $ | 152,031 |  |  | $ | — |  |  | $ | — |  |  | $ | 152,031 |
|  | 2022 |  | $ | 133,841 |  |  | $ | — |  |  | $ | — |  |  | $ | 133,841 |
|  | 2021 |  | $ | 75,742 |  |  | $ | — |  |  | $ | — |  |  | $ | 75,742 |
Li Li, Chief Operating Officer(4) |  | 2023 |  | $ | 205,359 |  |  | $ | — |  |  | $ | — |  |  | $ | 205,359 |
|  | 2022 |  | $ | 216,175 |  |  | $ | — |  |  | $ | — |  |  | $ | 216,175 |
|  | 2021 |  | $ | 183,202 |  |  | $ | — |  |  | $ | — |  |  | $ | 183,202 |
Jin He Shao, Independent Director(5) |  | 2023 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2022 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2021 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
Kee Chong Seng, Independent Director(6) |  | 2023 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2022 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2021 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
Zhao Hui Feng, Independent Director(7) |  | 2023 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2022 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |
|  | 2021 |  | $ | 18,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,000 |

(1) | Appointed Chairman effective as of December 9, 2017 and President effective from December 9, 2017 to August 19, 2020.

(2) | Appointed Chief Executive Officer effective as of December 9, 2017.

(3) | Appointed Chief Financial Officer effective as of December 17, 2020 and Acting Chief Financial Officer effective from November 1, 2019 to December 16, 2020.

(4) | Appointed Chief Operating Officer effective as of June 2019.

(5) | Appointed Independent Director effective as of January 2018.

(6) | Appointed Independent Director effective as of September 2019.

(7) | Appointed Independent Director effective as of July 2020.

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Under Chinese law, we may only terminate employment agreements without cause and without penalty by providing notice of non-renewal one month prior to the date on which the employment agreement is scheduled to expire. If we fail to provide this notice or if we wish to terminate an employment agreement in the absence of cause, then we are obligated to pay the employee one month’s salary for each year we have employed the employee. We are, however, permitted to terminate an employee for cause without penalty to our company, where the employee has committed a crime or the employee’s actions or inactions have resulted in a material adverse effect to us.

Compensation Committee Interlocks and Insider Participation

None of our officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more officers serving as a member of our board of directors.

Outstanding Equity Incentive Awards at Fiscal Year-End

We have adopted a 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan is a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the 2017 Plan is to recognize contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our Company. The Company granted an aggregate of 671,469 restricted shares (“RSUs”) to key employees and directors under the 2017 Plan on July 12, 2018. No grants were made in fiscal 2018. The following is a summary of the 2017 Plan and is qualified by the full text of the 2017 Plan.

Administration. The 2017 Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the 2017 Plan as the “Committee”).

Number of Shares of Common Shares. The number of common shares that may be issued under the 2017 Plan is 2,210,000. Shares issuable under the 2017 Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the 2017 Plan for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will count toward the number of shares issued under the 2017 Plan. The number of common shares issuable under the 2017 Plan is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the Plan. No award granted under the 2017 Plan may be transferred, except by will, the laws of descent and distribution.

Eligibility. All key employees and directors of the Company are eligible to receive awards under the 2017 Plan.

Awards to Participants. The 2017 Plan provides for discretionary awards of, among others, stock options, stock awards and stock unit awards to participants. Each award made under the Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the 2017 Plan.

Stock Options. The Committee has the discretion to grant non-qualified stock options or incentive stock options to participants and to set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options. The aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in any calendar year is 100,000, except that the aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in the calendar year in which such Key Employee begins employment with the Company or its Subsidiaries is 250,000.

Stock Awards. The Committee has the discretion to grant stock awards to participants. Shares granted under the 2017 Plan will be effective and exercisable as of the Company’s completion of our initial public offering of its securities and other terms, restrictions and qualifications that may be set forth in the individual grant agreements. Stock awards will consist of common shares granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by us and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse. The aggregate maximum number of shares that may be used for Stock Awards, Stock Bonus Awards and or Stock Unit Awards that may be granted to any Key Employee in any calendar year is 250,000, or, in the event the award is settled in cash, an amount equal to the fair market value of such number of shares on the date on which the award is settled.

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Payment for Stock Options and Withholding Taxes. The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to us the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing us to withhold common shares otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld; and (iv) by delivery of previously acquired common shares that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.

Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule. The Board may terminate, suspend or amend the 2017 Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. No awards may be granted under the 2017 Plan on or after the tenth anniversary of the effective date of the 2017 Plan.

On July 12, 2018, the Board of Directors approved, upon a recommendation of the Compensation Committee, several restricted stock grants to the members of executive management and the Board of the Company pursuant to the terms of the Plan. Specifically, the Company granted an aggregate of 671,469 RSUs to key employees and directors under the Plan. No grants were made in fiscal 2018. RSUs granted to key employees and directors generally have a term of three years, but are subject to earlier termination in connection with termination of continuous service to the Company. RSUs are valid for a period of 10 years from July 12, 2018 to July 11, 2028. RSUs vest one-third per year over a three-year period, with the first one third vesting on the grant date. As at the grant date of July 12, 2018, the weighted-average fair value per share was $12.22 and the estimated total fair value of the restricted shares granted was $8.2 million. Our 2017 Plan was automatically terminated upon the 2020 Plan’s taking effect.

We have adopted a 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan is a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the 2019 Plan is to recognize contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our Company. The Company has granted no shares under the 2019 Plan yet. The following is a summary of the 2019 Plan and is qualified by the full text of the 2019 Plan.

Administration. The 2019 Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the Plan as the “Committee”).

Number of Shares of Common Shares. The number of common shares that may be issued under the 2019 Plan is 2,200,000. Shares issuable under the 2019 Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the 2019 Plan for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will count toward the number of shares issued under the Plan. The number of common shares issuable under the Plan is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the 2019 Plan. No award granted under the 2019 Plan may be transferred, except by will, the laws of descent and distribution.

Eligibility. Selected employees, directors, and consultants of the Company are eligible to receive awards under the 2019 Plan.

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Awards to Participants. The 2019 Plan provides for discretionary awards of, among others, stock options, stock awards, stock unit awards, or SAR to participants. Each award made under the 2019 Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the 2019 Plan.

Stock Options. The Committee has the discretion to grant non-qualified stock options or incentive stock options to participants and to set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options. The aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in any calendar year is 200,000, except that the aggregate maximum number of shares as to which a Key Employee may receive Stock Options and Stock Appreciation Rights in the calendar year in which such Key Employee begins employment with the Company or its Subsidiaries is 350,000.

Stock Awards. The Committee has the discretion to grant stock awards to participants. Shares granted under the 2019 Plan will be effective upon issuance, and other terms, restrictions and qualifications that may be set forth in the individual grant agreements. Stock awards will consist of common shares granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by us and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse.

Stock Unit Awards. The Committee has the discretion to grant stock unit awards to participants. Each stock unit award shall entitle the participant to receive, on the date or the occurrence of an event (including the attainment of performance goals), a share or cash equal to the fair market value of a share on the date of such event as provided in the stock unit award agreement. The number of share unit awards awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Unless otherwise set forth in the stock unit agreement, the participant receiving a stock unit award shall have no rights of a shareholder of the Company, including voting or dividends or other distributions rights, with respect to any stock units prior to the date they are settled in Shares.

SARs. The Committee may grant SARs to participants. Upon exercise, an SAR entitles the participant to receive from the Company the number of shares having an aggregate fair market value equal to the excess of the fair market value of one share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the shares it would otherwise be obligated to deliver in an amount equal to the fair market value of such shares on the date of exercise.

Payment for Stock Options and Withholding Taxes. The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to us the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing us to withhold common shares otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld; and (iv) by delivery of previously acquired common shares that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.

Amendment of Award Agreements; Amendment and Termination of the Plan; Term of the Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule. The Board may terminate, suspend or amend the 2019 Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. Notwithstanding the foregoing, neither the Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. No awards may be granted under the 2019 Plan on or after the tenth anniversary of the effective date of the 2019 Plan. Our 2019 Plan was automatically terminated upon the 2020 Plan’s taking effect.

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On April 3, 2020, our annual meeting of shareholders approved the 2020 Equity Incentive Plan (the “2020 Plan”). All of our employees, officers, and directors, and consultants are eligible to be granted options, restricted stock awards, stock unit awards, or stock appreciate rights (each, an “Award”) under the 2020 Plan. The 2020 Plan is currently administered by the Board, which has all the power to administer the 2020 Plan according to its terms, including the power to grant Awards, determine who may be granted Awards and the types and amounts of Awards to be granted, prescribe Award agreements, and establish programs for granting Awards. Awards may be made under the 2020 Plan for up to 11,011,663 of our common shares. 6,109,320 restricted shares have been granted under the 2020 Plan as of today.

The 2020 Plan is a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to employees, directors and consultants of the Company. The purpose of the 2020 Plan is to recognize contributions made to our company and its subsidiaries by such individuals and to provide them with additional incentive to achieve the objectives of our Company. The following is a summary of the 2020 Plan and is qualified by the full text of the 2020 Plan.

Administration. The 2020 Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the 2020 Plan as the “Committee”).

Number of Shares of Common Shares. The number of common shares that may be issued under the 2020 Plan is 11,011,663. Shares issuable under the 2020 Plan may be authorized but unissued shares or treasury shares. If there is a lapse, forfeiture, expiration, termination or cancellation of any award made under the 2020 Plan for any reason, the shares subject to the award will again be available for issuance. Any shares subject to an award that are delivered to us by a participant, or withheld by us on behalf of a participant, as payment for an award or payment of withholding taxes due in connection with an award will not again be available for issuance, and all such shares will count toward the number of shares issued under the 2020 Plan. The number of common shares issuable under the 2020 Plan is subject to adjustment, in the event of any reorganization, recapitalization, stock split, stock distribution, merger, consolidation, split-up, spin-off, combination, subdivision, consolidation or exchange of shares, any change in the capital structure of the company or any similar corporate transaction. In each case, the Committee has the discretion to make adjustments it deems necessary to preserve the intended benefits under the 2020 Plan. No award granted under the 2020 Plan may be transferred, except by will, the laws of descent and distribution.

Eligibility. All employees, directors, and consultants of the Company are eligible to receive awards under the 2020 Plan.

Awards to Participants. The Plan provides for discretionary awards of, among others, stock options, stock awards, stock unit awards and stock appreciation rights to participants. Each award made under the 2020 Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the 2020 Plan.

Stock Options. The Committee has the discretion to grant non-qualified stock options or incentive stock options to participants and to set the terms and conditions applicable to the options, including the type of option, the number of shares subject to the option and the vesting schedule; each option will expire ten years from the date of grant and no dividend equivalents may be paid with respect to stock options. The aggregate maximum number of shares as to which an Employee may receive Stock Options and Stock Appreciation Rights in any calendar year is 800,000, except that the aggregate maximum number of shares as to which an Employee may receive Stock Options and Stock Appreciation Rights in the calendar year in which such Employee begins employment with the Company or its Subsidiaries is 1,000,000.

Stock Awards. The Committee has the discretion to grant stock awards to participants. Shares granted under the 2020 Plan will be effective and exercisable as of the Company’s completion of our initial public offering of its securities and other terms, restrictions and qualifications that may be set forth in the individual grant agreements. Stock awards will consist of common shares granted without any consideration from the participant or shares sold to the participant for appropriate consideration as determined by the Board. The number of shares awarded to each participant, and the restrictions, terms and conditions of the award, will be at the discretion of the Committee. Subject to the restrictions, a participant will be a shareholder with respect to the shares awarded to him or her and will have the rights of a shareholder with respect to the shares, including the right to vote the shares and receive dividends on the shares; provided that dividends otherwise payable on any performance-based stock award will be held by us and will be paid to the holder of the stock award only to the extent the restrictions on such stock award lapse, and the Committee in its discretion can accumulate and hold such amounts payable on any other stock awards until the restrictions on the stock award lapse. The aggregate maximum number of shares that may be used for Stock Awards, Stock Bonus Awards and or Stock Unit Awards that may be granted to any employee in any calendar year is 800,000 or, in the event the award is settled in cash, an amount equal to the fair market value of such number of shares on the date on which the award is settled.

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Stock Unit Awards. The Committee may, in its discretion, grant stock unit awards to any participant. Each stock unit subject to the Award shall entitle the participant to receive, on the date or the occurrence of an event (including the attainment of performance goals) as described in the stock unit award agreement, a Share or cash equal to the fair market value of a Share on the date of such event as provided in the stock unit award agreement.

Stock Appreciation Rights or SAR. The Committee may grant SARs to participants. Upon exercise, an SAR entitles the participant to receive from the Company the number of Shares having an aggregate fair market value equal to the excess of the fair market value of one Share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of Shares with respect to which the SAR is being exercised. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the Shares it would otherwise be obligated to deliver in an amount equal to the fair market value of such Shares on the date of exercise. Cash shall be delivered in lieu of any fractional Shares. The terms and conditions of any such Award shall be determined at the time of grant.

Payment for Stock Options and Withholding Taxes. The Committee may make one or more of the following methods available for payment of any award, including the exercise price of a stock option, and for payment of the minimum required tax obligation associated with an award: (i) cash; (ii) cash received from a broker-dealer to whom the holder has submitted an exercise notice together with irrevocable instructions to deliver promptly to us the amount of sales proceeds from the sale of the shares subject to the award to pay the exercise price or withholding tax; (iii) by directing us to withhold common shares otherwise issuable in connection with the award having a fair market value equal to the amount required to be withheld; and (iv) by delivery of previously acquired common shares that are acceptable to the Committee and that have an aggregate fair market value on the date of exercise equal to the exercise price or withholding tax, or certification of ownership by attestation of such previously acquired shares.

Amendment of Award Agreements; Amendment and Termination of the 2020 Plan; Term of the 2020 Plan. The Committee may amend any award agreement at any time, provided that no amendment may adversely affect the right of any participant under any agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or stock exchange rule. The Board may terminate, suspend or amend the 2020 Plan, in whole or in part, from time to time, without the approval of the shareholders, unless such approval is required by applicable law, regulation or stock exchange rule, and provided that no amendment may adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. Notwithstanding the foregoing, neither the 2020 Plan nor any outstanding award agreement can be amended in a way that results in the repricing of a stock option. Repricing is broadly defined to include reducing the exercise price of a stock option or cancelling a stock option in exchange for cash, other stock options with a lower exercise price or other stock awards. No awards may be granted under the 2020 Plan on or after the tenth anniversary of the effective date of the 2020 Plan.

On April 24, 2023, our annual meeting of shareholders approved the 2023 Equity Incentive Plan (the “2023 Plan”). All of our employees, officers, and directors, and consultants are eligible to be granted options, restricted stock awards, stock unit awards, or stock appreciate rights (each, an “Award”) under the 2023 Plan. The 2023 Plan is currently administered by the Board, which has all the power to administer the 2023 Plan according to its terms, including the power to grant Awards, determine who may be granted Awards and the types and amounts of Awards to be granted, prescribe Award agreements, and establish programs for granting Awards. Awards may be made under the 2023 Plan for up to 20,000,000 of our common shares. 1,934,000 restricted shares have been granted under the 2023 Plan as of today.

The 2023 Plan is a stock-based compensation plan that provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to employees, directors and consultants of the Company and its subsidiaries. The purpose of the 2023 Plan is to attract and retain outstanding individuals as employees, directors and consultants of the Company and its subsidiaries, to recognize the contributions made to the Company and its subsidiaries by employees, directors and consultants, and to provide such employees, directors and consultants with additional incentive to expand and improve the profits and achieve the objectives of the Company and its subsidiaries, by providing such employees, directors and consultants with the opportunity to acquire or increase their proprietary interest in the Company through receipt of awards. The following is a summary of the 2023 Plan and is qualified by the full text of the 2023 Plan.

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Administration. The 2023 Plan will be administered by our board of directors, or, once constituted, the Compensation Committee of the board of directors (we refer to body administering the 2023 Plan as the “Committee”).

Number of Shares of Common Shares. The number of common shares that may be issued under the 2023 Plan is 20,000,000. Shares issuable under the 2023 Plan may be authorized but unissued shares or treasury shares. The number of shares delivered by a participant or withheld by the Company on behalf of any such participant as full or partial payment of an award, including the exercise price of a stock option or of any required withholding taxes, shall not again be available for issuance pursuant to subsequent awards, and shall count towards the aggregate number of shares that may be issued under the 2023 Plan. Any shares purchased by the Company with proceeds from a stock option exercise shall not again be available for issuance pursuant to subsequent awards, shall count against the aggregate number of shares that may be issued under the 2023 Plan and shall not increase the number of shares available under the 2023 Plan. If there is a lapse, forfeiture, expiration, termination or cancellation of any award for any reason, or if shares are issued under such award and thereafter are reacquired by the Company pursuant to rights reserved by the Company upon issuance thereof, the shares subject to such award or reacquired by the Company shall again be available for issuance pursuant to subsequent awards, and shall not count towards the aggregate number of shares that may be issued under the 2023 Plan.

Eligibility. All employees, directors, and consultants of the Company are eligible to receive awards under the 2023 Plan.

Awards to Participants. The Plan provides for discretionary awards of, among others, stock options, stock awards, stock unit awards and stock appreciation rights to participants. Each award made under the 2023 Plan will be evidenced by a written award agreement specifying the terms and conditions of the award as determined by the Committee in its sole discretion, consistent with the terms of the 2023 Plan.

Stock Options. Subject to the terms of the 2023 Plan, the Committee may from time to time grant stock options to participants. Stock Options granted under the 2023 Plan to employees shall be non-qualified stock options (NSOs) unless the award agreement expressly provides that the stock option is an incentive stock options (ISO). Stock options granted under the 2023 Plan to consultants and directors who are not employees shall be NSOs The grant of each stock option shall be evidenced by a written stock option agreement specifying the type of stock option granted, the exercise period, the exercise price, the terms for payment of the exercise price, the expiration date of the stock option, the number of shares to be subject to each stock option and such other terms and conditions established by the Committee, in its sole discretion, not inconsistent with the 2023 Plan.

Stock Awards. The Committee may, in its discretion, (a) grant shares under the 2023 Plan to any participant without consideration from such participant or (b) sell shares under the 2023 Plan to any participant for such amount of cash, shares or other consideration as the Committee deems appropriate. Each shares granted or sold hereunder shall be subject to such restrictions, conditions and other terms as the Committee may determine at the time of grant or sale, the general provisions of the Plan, the restrictions, terms and conditions of the related Stock Award Agreement

Stock Unit Awards. The Committee may, in its discretion, grant stock unit awards to any participant. Each stock unit subject to the award shall entitle the participant to receive, on the date or the occurrence of an event (including the attainment of performance goals) as described in the stock unit award agreement, a share or cash equal to the fair market value of a share on the date of such event as provided in the stock unit award agreement.

Stock Appreciation Rights or SAR. The Committee may grant SARs to participants. Upon exercise, a SAR entitles the participant to receive from the Company the number of shares having an aggregate fair market value equal to the excess of the fair market value of one share as of the date on which the SAR is exercised over the exercise price, multiplied by the number of shares with respect to which the SAR is being exercised. The Committee, in its discretion, shall be entitled to cause the Company to elect to settle any part or all of its obligations arising out of the exercise of an SAR by the payment of cash in lieu of all or part of the shares it would otherwise be obligated to deliver in an amount equal to the fair market value of such shares on the date of exercise. Cash shall be delivered in lieu of any fractional Shares. The terms and conditions of any such award shall be determined at the time of grant.

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Payment for Stock Options and Withholding Taxes. In connection with any award, and as a condition to the issuance or delivery of any Shares to the participant in connection therewith, the Company shall require the participant to pay the Company the minimum amount of federal, state, local or foreign taxes required to be withheld, and in the Company’s sole discretion, the Company may permit the participant to pay the Company up to the maximum individual statutory rate of applicable withholding. The Company in its sole discretion may make available one or more of the following alternatives for the payment of such taxes: (i) in cash; (ii) in cash received from a broker-dealer to whom the participant has submitted notice together with irrevocable instructions to deliver promptly to the Company the amount of sales proceeds from the sale of the shares subject to the award to pay the withholding taxes; (iii) by directing the Company to withhold such number of shares otherwise issuable in connection with the award having an aggregate fair market value equal to the minimum amount of tax required to be withheld; (iv) by delivering previously acquired shares of the Company that are acceptable to the Board that have an aggregate fair market value equal to the amount required to be withheld; or (v) by certifying to ownership by attestation of such previously acquired shares. The Committee shall have the sole discretion to establish the terms and conditions applicable to any alternative made available for payment of the required withholding taxes.

Amendment of Award Agreements; Amendment and Termination of the 2023 Plan; Term of the 2023 Plan. The Committee shall have the authority to amend any award agreement at any time; provided however, that no such amendment shall adversely affect the right of any participant under any outstanding award agreement in any material way without the written consent of the participant, unless such amendment is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. The Board may terminate, suspend, or amend the 2023 Plan, in whole or in part, from time to time, without the approval of the shareholders of the Company, unless such approval is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. No amendment or termination of the 2023 Plan shall adversely affect the right of any participant under any outstanding award in any material way without the written consent of the participant, unless such amendment or termination is required by applicable law, regulation or rule of any stock exchange on which the shares are listed. Subject to the foregoing, the Committee may correct any defect or supply an omission or reconcile any inconsistency in the 2023 Plan or in any award granted hereunder in the manner and to the extent it shall deem desirable, in its sole discretion, to effectuate the 2023 Plan. The Board shall have the authority to amend the 2023 Plan to the extent necessary or appropriate to comply with applicable law, regulation or accounting rules in order to permit participants who are located outside of the United States to participate in the 2023 Plan. Notwithstanding anything to the contrary contained herein, no awards shall be granted on or after the tenth anniversary of the adoption of this Plan.

Director Compensation

All directors hold office until the next annual meeting of shareholders until their successors have been duly elected and qualified. There are no family relationships among our directors or executive officers. Officers are elected by and serve at the discretion of the Board of Directors. Employee directors do not receive any compensation for their services. Non-employee directors are entitled to receive $1,500 per month for serving as directors and may receive option grants from our company.

Employment Agreements

Xiao Feng Yang Employment Agreement

On December 9, 2017, we entered into an employment agreement with Xiao Feng Yang pursuant to which he agreed to serve as our President. The agreement provides for an annual base salary of RMB144,000 and HK$566,472 (a total of approximately USD94,100) payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, commencing with the year ended June 30, 2018, Mr. Yang will be entitled to receive an annual cash bonus the extent and timing of which are to be determined by the Company’s Compensation Committee; Mr. Yang is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. This employment agreement was automatically terminated upon Mr. Yang’s resignation in August 2020. The Company has paid Mr. Yang any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the employment agreement.

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Raymond Ming Hui Lin Employment Agreement

On December 9, 2017, we entered into an employment agreement with Raymond Ming Hui Lin pursuant to which he agreed to serve as our Chief Executive Officer. The agreement provides for an annual base salary of RMB144,000 and HK$389,880 (a total of approximately USD71,400) payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, commencing with the year ended June 30, 2018, Raymond Ming Hui Lin will be entitled to receive an annual cash bonus the extent and timing of which are to be determined by the Company’s Compensation Committee; he is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. The term of the agreement shall expire on December 8, 2022, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by him for “good reason” (as defined in the agreement), Raymond Ming Hui Lin shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Raymond Ming Hui Lin has agreed not to compete with us for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.

Rui Yang Employment Agreement

On November 1, 2019, we entered into an employment agreement with Rui Yang pursuant to which she agreed to serve as our Acting Chief Financial Officer. Ms. Yang was appointed as Chief Financial Officer effective as of December 17, 2020. The agreement provides for an annual salary of RMB420,000 (a total of approximately USD60,000) payable in accordance with the Company’s ordinary payroll practices. Under the terms of the agreement, commencing with the year ended June 30, 2020, Ms. Yang will be entitled to receive an annual cash bonus the extent and timing of which are to be determined by the Company’s Compensation Committee; she is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. The term of the agreement shall expire on October 2024, which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of her salary through the date of her termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of her benefits under the agreement. If her employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by her for “good reason” (as defined in the agreement), Rui Yang shall be entitled to receive severance payments equal to 9 months’ of her base salary and a pro rata portion of her target annual bonus for the year when termination occurs. Rui Yang has agreed not to compete with us for 9 months after the termination of her employment; she also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.

Li Li Employment Agreement

On June 2019, we entered into an employment agreement with Li Li pursuant to which he agreed to serve as our Chief Operating Officer. The agreement provides an annual salary of RMB 360,000 and HK$273,600 (approximately US$85,200) and 12,000 shares of common stock to be granted in June 2020. Under the terms of the agreement, commencing with the year ended June 30, 2019, Li Li will be entitled to receive an annual cash bonus the extent and timing of which are to be determined by the Company’s Compensation Committee; he is also entitled to reimbursement of reasonable expenses, and vacation, sick leave, health and other benefits customary to the agreements of this nature. The term of the agreement shall expire on June 2022; which term will automatically extend for additional 12 month periods unless a party to the agreement terminates it upon 90 days’ notice. If the executive’s employment with the Company is terminated for any reason, the Company will pay to such executive any unpaid portion of his salary through the date of his termination, and any unpaid bonus through the date of termination, as well as any unpaid or unused portions of his benefits under the agreement. If his employment is terminated at our election without “cause” (as defined in the agreement), which requires 30 days’ advanced notice, or by him for “good reason” (as defined in the agreement), Li Li shall be entitled to receive severance payments equal to 9 months’ of his base salary and a pro rata portion of his target annual bonus for the year when termination occurs. Li Li has agreed not to compete with us for 9 months after the termination of his employment; he also executed certain non-solicitation, confidentiality and other covenants customary for agreements of this nature.

| C. | Board Practices

Composition of Board; Risk Oversight

Our Board of Directors presently consists of 5 directors. Pursuant to our Memorandum and Articles of Association, our officers will be elected by and serve at the discretion of the board. Our directors are not subject to a term of office and hold office until such time as they resign or are removed from office by resolution of our shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors, or becomes physically or mentally incapable of acting as director. Except as noted above, there are no family relationships between any of our executive officers and directors. Officers are elected by, and serve at the discretion of, the board of directors. Our board of directors shall hold meetings on at least a quarterly basis.

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Under the NASDAQ rules we are only required to maintain a board of directors comprised of at least 50% independent directors, and an audit committee of at least two members, comprised solely of independent directors who also meet the requirements of Rule 10A-3 under the Securities Exchange Act of 1934. There are no membership qualifications for directors. Further, there are no share ownership qualifications for directors unless so fixed by us in a general meeting. There are no other arrangements or understandings pursuant to which our directors are selected or nominated.

There is no formal requirement under the Company’s memorandum and articles of association mandating that we hold an annual meeting of our shareholders. However, notwithstanding the foregoing, we intend to hold such annual meetings to, among other things, elect our directors. We plan to hold our next annual shareholders meeting on the first quarter of 2023.

While it may be deemed a “controlled company” under the NASDAQ Marketplace Rules (specifically, as defined in Rule 5615(c)), the Company does not intend to avail itself of the corporate governance exemptions afforded to a controlled company under the NASDAQ Marketplace Rules. Similarly, the Company intends to comply with all applicable NASDAQ corporate governance requirements irrespective of its “foreign private issuer” status.

Our board plays a significant role in our risk oversight. The board makes all relevant Company decisions. As such, it is important for us to have our Chief Executive Officer serve on the board as he plays key roles in the risk oversight or the Company. As a company with a small board of directors, we believe it is appropriate to have the involvement and input of all of our directors in risk oversight matters.

Director Independence

Our board has reviewed the independence of our directors, applying the NASDAQ independence standards. Based on this review, the board determined that each of Zhao Hui Feng, Jin He Shao, and Kee Chong Seng are “independent” within the meaning of the NASDAQ rules. In making this determination, our board considered the relationships that each of these non-employee directors has with us and all other facts and circumstances our board deemed relevant in determining their independence. As required under applicable NASDAQ rules, we anticipate that our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.

Board Committees

Currently, three committees have been established under the board: the Audit Committee, the Compensation Committee and the Nominating Committee.

The Audit Committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of the financial statements of our company, including the appointment, compensation and oversight of the work of our independent auditors. The Compensation Committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers and all forms of compensation, and also administers our incentive compensation plans and equity-based plans (but our board retains the authority to interpret those plans). The Nominating Committee of the board is responsible for the assessment of the performance of the board, considering and making recommendations to the board with respect to the nominations or elections of directors and other governance issues. The nominating committee considers diversity of opinion and experience when nominating directors.

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Audit Committee

The Audit Committee will be responsible for, among other matters:

| ● | appointing, compensating, retaining, evaluating, terminating, and overseeing our independent registered public accounting firm;

| ● | discussing with our independent registered public accounting firm the independence of its members from its management;

| ● | reviewing with our independent registered public accounting firm the scope and results of their audit;

| ● | approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;

| ● | overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;

| ● | reviewing and monitoring our accounting principles, accounting policies, financial and accounting controls, and compliance with legal and regulatory requirements;

| ● | coordinating the oversight by our board of directors of our code of business conduct and our disclosure controls and procedures

| ● | establishing procedures for the confidential and or anonymous submission of concerns regarding accounting, internal controls or auditing matters; and

| ● | reviewing and approving related-party transactions.

Our Audit Committee consists of Zhao Hui Feng, Jin He Shao, and Kee Chong Seng, with Mr. Shao serving as chair of the Audit Committee. Our board has affirmatively determined that each of the members of the Audit Committee meets the definition of “independent director” for purposes of serving on an Audit Committee under Rule 10A-3 of the Exchange Act and NASDAQ rules. In addition, our board has determined that Mr. Shao qualifies as an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K and meets the financial sophistication requirements of the NASDAQ rules.

Compensation Committee

The Compensation Committee will be responsible for, among other matters:

| ● | reviewing and approving, or recommending to the board of directors to approve the compensation of our CEO and other executive officers and directors;

| ● | reviewing key employee compensation goals, policies, plans and programs;

| ● | administering incentive and equity-based compensation;

| ● | reviewing and approving employment agreements and other similar arrangements between us and our executive officers; and

| ● | appointing and overseeing any compensation consultants or advisors.

Our Compensation Committee consists of Zhao Hui Feng, Jin He Shao, and Kee Chong Seng, with Mr. Kee serving as chair of the Compensation Committee. Our board has affirmatively determined that each of the members of the Compensation Committee meets the definition of “independent director” for purposes of serving on Compensation Committee under NASDAQ rules.

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Nominating Committee

The Nominating Committee will be responsible for, among other matters:

| ● | selecting or recommending for selection candidates for directorships;

| ● | evaluating the independence of directors and director nominees;

| ● | reviewing and making recommendations regarding the structure and composition of our board and the board committees;

| ● | developing and recommending to the board corporate governance principles and practices;

| ● | reviewing and monitoring the Company’s Code of Business Conduct and Ethics; and

| ● | overseeing the evaluation of the Company’s management

Our Nominating Committee consists of consists of Zhao Hui Feng, Jin He Shao, and Kee Chong Seng, with Mr. Feng serving as chair of the Nominating Committee. Our board has affirmatively determined that each of the members of the Nominating Committee meets the definition of “independent director” for purposes of serving on a Nominating Committee under NASDAQ rules.

Duties of Directors

Under Cayman Islands law, our directors have a duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. We have the right to seek damages if a duty owed by our directors is breached. The functions and powers of our board of directors include, among others:

| ● | appointing officers and determining the term of office of the officers;

| ● | authorizing the payment of donations to religious, charitable, public or other bodies, clubs, funds or associations as deemed advisable;

| ● | exercising the borrowing powers of the company and mortgaging the property of the company;

| ● | executing checks, promissory notes and other negotiable instruments on behalf of the company; and

| ● | maintaining or registering a register of mortgages, charges or other encumbrances of the company.

A director may vote, attend a board meeting or sign a document on our behalf with respect to any contract or transaction in which he or she is interested. A director must promptly disclose the interest to all other directors after becoming aware of the fact that he or she is interested in a transaction we have entered into or are to enter into. A general notice or disclosure to the board or otherwise contained in the minutes of a meeting or a written resolution of the board or any committee of the board that a director is a shareholder, director, officer or trustee of any specified firm or company and is to be regarded as interested in any transaction with such firm or company will be sufficient disclosure, and, after such general notice, it will not be necessary to give special notice relating to any particular transaction.

The directors may receive such remuneration as our board of directors may determine from time to time. Each director is entitled to be repaid or prepaid for all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred in attending meetings of our board of directors or committees of our board of directors or shareholder meetings or otherwise in connection with the discharge of his or her duties as a director. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. Our board of directors may exercise all the powers of the company to borrow money and to mortgage or charge our undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the company or of any third party.

A director is not required to hold shares as a qualification to office.

| D. | Employees

The table below provides information as to the total number of employees at the end of the last three fiscal years. We have no contracts or collective bargaining agreements with labor unions and have never experienced work stoppages due to labor dispute. We consider our relations with our employees to be good.

|  | 2023 |  |  | 2022 |  |  | 2021 |
Number of Employees |  |  | 3,509 |  |  |  | 3,824 |  |  |  | 3,352 |

| E. | Share Ownership

See Item 7 below.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

| A. | Major shareholders

The following table sets forth certain information regarding beneficial ownership of our shares by each person who is known by us to beneficially own more than 5% of our shares. The table also identifies the share ownership of each of our directors, each of our named executive officers, and all directors and officers as a group. Except as otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Our major shareholders do not have different voting rights than any other holder of our shares.

We have determined beneficial ownership in accordance with the rules of the SEC. Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to subscribe for within 60 days of September 18, 2018 through the exercise of any warrants or other rights. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power or the power to receive the economic benefit with respect to all common shares that they beneficially own, subject to applicable community property laws. None of the stockholders listed in the table are a broker-dealer or an affiliate of a broker dealer. None of the stockholders listed in the table are located in the United States and none of the common shares held by them are located in the United States. Applicable percentage ownership is based on 25,586,122 common shares outstanding as of September 24, 2023. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o CLPS Incorporation, c/o Unit 1102, 11th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR.

Name of Beneficial Owner |  | Common Shares |  |  | Ownership% (1) |
Xiao Feng Yang (2)(7) |  |  | 5,667,950 |  |  |  | 22.15 | %
Raymond Ming Hui Lin (3)(6)(7) |  |  | 7,605,873 |  |  |  | 29.73 | %
Rui Yang (4)(6) |  |  | 690,710 |  |  |  | 2.7 | %
Li Li(6)(8) |  |  | 819,863 |  |  |  | 3.2 | %
Jin He Shao (5)(7) |  |  | 17,000 |  |  |  | * |
Kee Chong Seng(7)(10) |  |  | 30,500 |  |  |  | * |
Zhao Hui Feng(7)(9) |  |  | 14,000 |  |  |  | * |
All directors and executive officers as a group (7 persons) |  |  | 14,845,896 |  |  |  | 58.02 | %
Qinrui Ltd. (2) |  |  | 4,976,000 |  |  |  | 19.45 | %
Qinhui Ltd. (3) |  |  | 4,999,996 |  |  |  | 19.54 | %
5% or greater beneficial owners as a group |  |  | 9,975,996 |  |  |  | 38.99 | %

* | Less than 1%.

(1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the common shares or the power to receive the economic benefit of the common shares.

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(2) | A British Virgin Islands corporation with the mailing address of c/o Vistra Corporate Services Centre, Wickham’s Cay II, Road Town, Tortola, VG 1110, British Virgin Islands, with Xiao Feng Yang as its sole shareholder. As such, Mr. Yang is deemed to be the owner of all shares of the Company held by this entity. Also includes the vested portion of the restricted stock granted dated as of July 12, 2018. The total grant of 220,823 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of May 6, 2020. The total grant of 250,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 80,000 common shares and 30% vests immediately on the grant date of award, the rest 70% vests on May 6, 2021. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 20,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 50,000 common shares and vest immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 270,000 common shares and vest immediately on the grant date of award. From September 24, 2021 to September 24, 2022, a total of 220,823 shares were disposed of in various occasions, resulting in the net increased holding of 49,177 shares. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 50,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 75,000 common shares vests in whole immediately on the grant date of award.

(3) | A British Virgin Islands corporation with the mailing address of c/o Vistra Corporate Services Centre, Wickham’s Cay II, Road Town, Tortola, VG 1110, British Virgin Islands, with Raymond Ming Hui Lin as its sole shareholder. As such, Mr. Lin is deemed to be the owner of all shares of the Company held by this entity. Also includes the vested portion of the restricted stock granted dated as of July 12, 2018. The total grant of 220,823 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of May 6, 2020. The total grant of 250,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 80,000 common shares and 30% vests immediately on the grant date of award, the rest 70% vests on May 6, 2021. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 520,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 350,000 common shares and 50,000 vest immediately on the grant date of award, the rest will vest on May 23, 2022. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 517,000 common shares and vest immediately on the grant date of award. From September 24, 2021 to September 24, 2022, a total of 100,211 shares were disposed of in various occasions, resulting in the net increased holding of 716,789 shares. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 325,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 530,000 common shares vests in whole immediately on the grant date of award.

(4) | Represents 17,793 shares, which she purchased prior to the Company’s IPO, and the vested portion of the restricted stock granted dated as of May 6, 2020. The total grant of 50,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of June, 24, 2020. The total grant of 12,000 common shares vested in whole on November 1, 2020. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 50,000 common shares and 30% vests immediately on the grant date of award, the rest 70% vests on May 6, 2021. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 20,000 common shares vests in whole immediately on the grant date of award. The total grant of 12,000 common shares vested in whole on November 1, 2021. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 100,000 common shares and vest on May 23, 2022. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 100,000 common shares and vest immediately on the grant date of award. From September 24, 2021 to September 24, 2022, a total of 31,120 shares were disposed of in various occasions, resulting in the net increased holding of 180,880 shares. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 48,000 common shares and 12,000 vest on November 1, 2022. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 150,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 250,000 common shares vests in whole immediately on the grant date of award. From September 24, 2022 to September 24, 2023, a total of 28,738 shares were disposed of in various occasions, resulting in the net increased holding of 383,262 shares.

(5) | Represents vested portion of the restricted stock granted dated as of July 12, 2018. The total grant of 3,000 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 3,000 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 3,000 common shares vests in whole immediately on the grant date of award.

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(6) | Executive officer.

(7) | Director.

(8) | The total grant of 12,000 common shares vests in one year after the date of award. Represents vested portion of the restricted stock granted dated as of May 6, 2020. The total grant of 100,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of June, 24, 2020. The total grant of 12,000 common shares vested in whole on June 11, 2021. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 150,000 common shares and 30% vests immediately on the grant date of award, the rest 70% vests on May 6, 2021. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 12,000 common shares vested in whole on June 11, 2022. Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 150,000 common shares and 30% vests immediately on the grant date of award, the rest 70% vests on May 6, 2021. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 20,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 150,000 common shares and vest on May 23, 2022. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 76,000 common shares and 10,000 vest on June 11, 2022. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 150,000 common shares vests in whole immediately on the grant date of award. From September 24, 2021 to September 24, 2022, a total of 22,671 shares were disposed of in various occasions, resulting in the net increased holding of 299,329 shares. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 76,000 common shares and 22,000 vest on June 11, 2022. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 100,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 150,000 common shares vests in whole immediately on the grant date of award. From September 24, 2022 to September 24, 2023, a total of 12,725 shares were acquired from the market.

(9) | Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 3,000 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 3,000 common shares vests in whole immediately on the grant date of award.

(10) | Represents vested portion of the restricted stock granted dated as of November 6, 2020. The total grant of 3,000 common shares vests in three equal installments, with the first installment vesting upon grant, and the second and third – on the first and second anniversary of the grant. Represents vested portion of the restricted stock granted dated as of May 7, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 23, 2021. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of January 31, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. From March 10, 2021 to April 1, 2022 a total of 16,500 shares were acquired from the market. Represents vested portion of the restricted stock granted dated as of November 14, 2022. The total grant of 2,000 common shares vests in whole immediately on the grant date of award. Represents vested portion of the restricted stock granted dated as of August 16, 2023. The total grant of 3,000 common shares vests in whole immediately on the grant date of award.

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As of September 24, 2023, there were nine holders of record entered in our share register, of which no holders were U.S. residents. The number of individual holders of record is based exclusively upon our share register and does not address whether a share or shares may be held by the holder of record on behalf of more than one person or institution who may be deemed to be the beneficial owner of a share or shares in our company. To our knowledge, no other shareholder beneficially owns more than 5% of our shares. Our company is not owned or controlled directly or indirectly by any government or by any corporation or by any other natural or legal person severally or jointly. Our major shareholders do not have any special voting rights.

| B. | Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. The related parties that had transactions or balances with the Company in 2023 and 2022 consisted of:

Related Party |  | Relationship with the Company
Xiao Feng Yang |  | Chairman of the Board
Raymond Ming Hui Lin |  | CEO of the Company
EMIT |  | Equity investee of the Company
Beijing Bright Technology Co., Ltd (“Beijing Bright”) |  | Noncontrolling interest shareholder of JAJI China
UniDev |  | Equity investee of the Company
Fuson Group Limited (“Fuson”) |  | Equity investee of the Company
MCT |  | Noncontrolling interest shareholder of MSCT

(a) | Related party balances

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Due from related parties: |  |  |  |  |  |
UniDev |  | $ | 201,908 |  |  | $ | 44,341 |
Fuson |  |  | 189,363 |  |  |  | 3,887 |
EMIT |  |  | - |  |  |  | 226,421 |
Beijing Bright |  |  | - |  |  |  | 102,993 |
Total |  | $ | 391,271 |  |  | $ | 377,642 |

Due from related parties mainly represents loan provided to UniDey and Fuson and unreceived IT service fee from Fuson.

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Due to related parties: |  |  |  |  |  |
UniDev |  | $ | 19,445 |  |  | $ | 33,727 |
MCT |  |  | 5,444 |  |  |  | 5,541 |
EMIT |  |  | - |  |  |  | 27,616 |
Total |  | $ | 24,889 |  |  | $ | 66,884 |

Due to related parties mainly represents the unpaid consulting service fee to UniDev and unpaid administrative fee to MCT.

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(b) | Related party transactions

|  |  |  | For the year ended, |
|  |  |  | 2023 |  |  | 2022 |  |  | 2021 |
a) |  | Consulting services provided to the related parties |  |  |  |  |  |  |  |  |
|  | UniDev |  | $ | - |  |  | $ | 46,008 |  |  | $ | - |
|  | EMIT |  |  | 158 |  |  |  | 6,016 |  |  |  | - |
|  | Fuson |  |  | 57,418 |  |  |  | - |  |  |  | - |
|  | CLPS Lihong |  |  | - |  |  |  | - |  |  |  | 269,472 |
|  | Total |  | $ | 57,576 |  |  | $ | 52,024 |  |  | $ | 269,472 |
b) |  | Services provided by the related parties |  |  |  |  |  |  |  |  |  |  |  |
|  | EMIT |  | $ | 221,584 |  |  | $ | 157,762 |  |  | $ | 758,976 |
|  | UniDev |  |  | 269,966 |  |  |  | 34,995 |  |  |  | - |
|  | Beijing Bright |  |  | 99,208 |  |  |  | 142,487 |  |  |  | 604,033 |
|  | Total |  | $ | 590,758 |  |  | $ | 335,244 |  |  | $ | 1,363,009 |
c) |  | Loans provided to the related parties |  |  |  |  |  |  |  |  |  |  |  |
|  | UniDev |  | $ | 143,810 |  |  | $ | - |  |  | $ | - |
|  | Fuson |  |  | 130,402 |  |  |  | - |  |  |  | - |
|  | EMIT |  |  | - |  |  |  | 83,651 |  |  |  | 151,783 |
|  | Total |  | $ | 274,212 |  |  | $ | 83,651 |  |  | $ | 151,783 |
d) |  | Repayment of loans from the related parties |  |  |  |  |  |  |  |  |  |  |  |
|  | EMIT |  | $ | 204,211 |  |  | $ | 15,491 |  |  | $ | - |
|  | Total |  | $ | 204,211 |  |  | $ | 15,491 |  |  | $ | - |
e) |  | Interest income received from the related parties |  |  |  |  |  |  |  |  |  |  |  |
|  | UniDev |  | $ | 6,342 |  |  | $ | - |  |  | $ | - |
|  | Fuson |  |  | 1,518 |  |  |  | - |  |  |  | - |
|  | EMIT |  |  | 3,704 |  |  |  | 9,260 |  |  |  | - |
|  | Total |  | $ | 11,564 |  |  | $ | 9,260 |  |  | $ | - |
f) |  | Rental income from the related party |  |  |  |  |  |  |  |  |  |  |  |
|  | Fuson |  | $ | 10,718 |  |  | $ | 3,587 |  |  | $ | - |

| C. | Interests of Experts and Counsel

Not required.

ITEM 8. FINANCIAL INFORMATION

| A. | Consolidated Statements and Other Financial Information.

See Item 18 for our audited consolidated financial statements.

Legal Proceedings

We are currently not involved in any legal proceedings; nor are we aware of any claims that could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Dividend Policy

The holders of shares of our common shares are entitled to dividends out of funds legally available when and as declared by our board of directors. Our board of directors has never declared a dividend and does not anticipate declaring a dividend in the foreseeable future. Should we decide in the future to pay dividends, as a holding company, our ability to do so and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiary and other holdings and investments. In addition, the operating companies may, from time to time, be subject to restrictions on their ability to make distributions to us, including as a result of restrictive covenants in loan agreements, restrictions on the conversion of local currency into U.S. dollars or other hard currency and other regulatory restrictions. In the event of our liquidation, dissolution or winding up, holders of our common shares are entitled to receive, ratably, the net assets available to shareholders after payment of all creditors.

| B. | Significant Changes

Except as disclosed elsewhere in this Annual Report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this Annual Report.

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ITEM 9. THE OFFER AND LISTING

| A. | Offer and Listing Details

The following table sets forth, for the calendar months indicated and through June 30, 2023, the monthly high and low sale prices for our shares, as reported on NASDAQ Stock Market. The closing price for the Company’s securities on October 13, 2023 was $0.96 per share.

|  | Shares |
|  | High |  |  | Low |
Monthly Highs and Lows |  |  |  |  |  |
June 2023 |  | $ | 1.38 |  |  | $ | 1.18 |
July 2023 |  | $ | 1.25 |  |  | $ | 1.02 |
August 2023 |  | $ | 1.12 |  |  | $ | 0.96 |
September 2023 |  | $ | 1.61 |  |  | $ | 1.32 |

| B. | Plan of Distribution

Not Applicable.

| C. | Markets

Our shares have been listed on the NASDAQ Stock Market under the symbol CLPS since May 24, 2018 following the completion of our initial public offering.

| D. | Selling Shareholders

Not Applicable.

| E. | Dilution

Not Applicable.

| F. | Expenses of the Issue

Not Applicable.

ITEM 10. ADDITIONAL INFORMATION

| A. | Share Capital

Not Applicable.

| B. | Memorandum and Articles of Association

The information required by Item 10.B of Form 20-F is included in the section titled “Description of Share Capital” in our Registration Statement on Form F-1 initially filed with the SEC on March 27, 2018, and subsequently updated (File No.: 333-223956), which section is incorporated herein by reference.

| C. | Material Contracts

The information required by Item 10.B of Form 20-F is included in the sections titled “Our Business,” “Directors and Executive Officers,” “Related Party Transactions,” and “Underwriting” in our Registration Statement on Form F-1 initially filed with the SEC on March 27, 2018, and subsequently updated (File No.: 333-223956), which section is incorporated herein by reference.

| D. | Exchange controls

Under Cayman Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our shares.

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| E. | Taxation

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our common shares is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our common shares, such as the tax consequences under state, local and other tax laws.

Cayman Islands Taxation

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Material PRC Income Tax Considerations

Under the new EIT Law and the Implementing Rules, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered as a resident enterprise and will be subject to a PRC income tax on its global income. According to the Implementing Rules, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” Accordingly, our holding company may be considered a resident enterprise and may therefore be subject to a PRC income tax on our global income. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises and not those invested in by individuals or foreign enterprises, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or controlled by or invested in by individuals or foreign enterprises. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiary, such PRC income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

If the PRC tax authorities determine that CLPS Incorporation or any of our subsidiaries outside of China is a “resident enterprise” for PRC enterprise income tax purposes, a number of PRC tax consequences could follow. First, CLPS Incorporation or any of our subsidiaries outside of China may be subject to enterprise income tax at a rate of 25% on our worldwide taxable income, as well as PRC enterprise income tax reporting obligations. Second, under the EIT Law and its implementing rules, dividends paid between “qualified resident enterprises” are exempt from enterprise income tax.

If CLPS Incorporation or any of our subsidiaries outside of China were treated as a PRC “non-resident enterprise” under the EIT Law, then dividends that it receives from its PRC operating subsidiary (assuming such dividends were considered sourced within the PRC) (1) may be subject to a 5% PRC withholding tax, if the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “PRC - Hong Kong Tax Treaty”) were applicable, or (2) if such treaty does not apply (i.e., because the PRC tax authorities may deem the Hong Kong enterprise to be a conduit not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to its shareholders.

Finally, the new “resident enterprise” classification could result in a situation in which a 10% PRC tax is imposed on dividends we pay to its non-PRC shareholders that are not PRC tax “resident enterprises” and gains derived by them from transferring our common shares or warrants, if such income is considered PRC-sourced income by the relevant PRC authorities. In such event, we may be required to withhold the 10% PRC tax on any dividends paid to its non-PRC resident shareholders. Our non-PRC resident shareholders also may be responsible for paying PRC tax at a rate of 10% on any gain realized from the sale or transfer of common shares or warrants in certain circumstances. We would not, however, have an obligation to withhold PRC tax with respect to such gain. If any such PRC taxes apply, a non-PRC resident shareholder may be entitled to a reduced rate of PRC taxes under an applicable income tax treaty and or a foreign tax credit against such shareholder’s domestic income tax liability (subject to applicable conditions and limitations). Prospective investors should consult with their own tax advisors regarding the applicability of any such taxes, the effects of any applicable income tax treaties, and any available foreign tax credits.

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General

The following is a summary of the material U.S. federal income tax consequences of owning and disposing of our ordinary shares. The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to a beneficial owner of our shares that is for U.S. federal income tax purposes:

| ● | an individual citizen or resident of the United States;

| ● | a corporation (or other entity treated as a corporation) that is created or organized (or treated as created or organized) in or under the laws of the United States, any state thereof or the District of Columbia;

| ● | an estate whose income is includible in gross income for U.S. federal income tax purposes regardless of its source; or

| ● | a trust if (i) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust, or (ii) it has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If a beneficial owner of our shares is not described as a U.S. Holder in one of the four bullet points above and is not an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes, such owner will be considered a “Non-U.S. Holder.”

This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing Treasury regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These authorities are subject to change or differing interpretations, possibly on a retroactive basis.

This discussion does not address all aspects of U.S. federal income taxation that may be relevant to us or to any particular holder of our shares based on such holder’s individual circumstances. In particular, this discussion considers only holders that own our shares as capital assets within the meaning of Section 1221 of the Code. This discussion also does not address the potential application of the alternative minimum tax or the U.S. federal income tax consequences to holders that are subject to special rules, including:

| ● | financial institutions or financial services entities;

| ● | broker-dealers;

| ● | taxpayers who have elected mark-to-market accounting;

| ● | tax-exempt entities;

| ● | governments or agencies or instrumentalities thereof;

| ● | insurance companies;

| ● | regulated investment companies;

| ● | real estate investment trusts;

| ● | certain expatriates or former long-term residents of the United States;

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| ● | persons that actually or constructively own 5% or more of our voting shares;

| ● | persons that acquired our shares pursuant to the exercise of employee stock options, in connection with employee stock incentive plans or otherwise as compensation;

| ● | persons that hold our shares as part of a straddle, constructive sale, hedging, conversion or other integrated transaction; or

| ● | persons whose functional currency is not the U.S. dollar.

This discussion does not address any aspect of U.S. federal non-income tax laws, such as gift or estate tax laws, or state, local or non-U.S. tax laws. Additionally, this discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold our securities through such entities. If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our shares, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. This discussion also assumes that any distribution made (or deemed made) in respect of our shares and any consideration received (or deemed received) by a holder in connection with the sale or other disposition of such shares will be in U.S. dollars.

We have not sought, and will not seek, a ruling from the Internal Revenue Service (or “IRS”), or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree with one or more aspects of the discussion herein, and its determination may be upheld by a court. Moreover, there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements in this discussion.

BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR HOLDER OF OUR SECURITIES MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, EACH HOLDER OF OUR SECURITIES IS URGED TO CONSULT WITH ITS TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR SECURITIES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS AND APPLICABLE TAX TREATIES.

Tax Consequences to U.S. Holders of Common Shares

Taxation of Distributions Paid on Common Shares

Subject to the passive foreign investment company (or “PFIC”), rules discussed below, a U.S. Holder generally will be required to include in gross income as ordinary income the amount of any cash dividend paid on our common shares. A cash distribution on such shares will be treated as a dividend for U.S. federal income tax purposes to the extent the distribution is paid out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Any distributions in excess of such earnings and profits generally will be applied against and reduce the U.S. Holder’s basis in its common shares and, to the extent in excess of such basis, will be treated as gain from the sale or exchange of such common shares.

With respect to corporate U.S. Holders, dividends on our shares will not be eligible for the dividends-received deduction generally allowed to domestic corporations in respect of dividends received from other domestic corporations. With respect to non-corporate U.S. Holders, dividends on our shares may be taxed at the lower applicable long-term capital gains rate provided that (1) our common shares are readily tradable on an established securities market in the United States or, in the event we are deemed to be a Chinese “resident enterprise” under the EIT Law, we are eligible for the benefits of the Agreement between the Government of the United States of America and the Government of the People’s Republic of China for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income, or the “U.S.-PRC Tax Treaty,” (2) we are not a PFIC, as discussed below, for either the taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under published IRS authority, shares are considered for purposes of clause (1) above to be readily tradable on an established securities market in the United States only if they are listed on certain exchanges, which presently include the Nasdaq Stock Market. U.S. Holders should consult their own tax advisors regarding the tax treatment of any dividends paid with respect to our common shares.

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If PRC taxes apply to dividends paid to a U.S. Holder on our common shares, such U.S. Holder may be entitled to a reduced rate of PRC tax under the U.S-PRC Tax Treaty. In addition, such PRC taxes may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Taxation on the Disposition of Common Shares

Upon a sale or other taxable disposition of our common shares, and subject to the PFIC rules discussed below, a U.S. Holder should recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in the common shares. Capital gains recognized by U.S. Holders generally are subject to U.S. federal income tax at the same rate as ordinary income, except that long-term capital gains recognized by non-corporate U.S. Holders are generally subject to U.S. federal income tax at a maximum rate of 20%. Capital gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period for the common shares exceeds one year. The deductibility of capital losses is subject to various limitations. If PRC taxes would otherwise apply to any gain from the disposition of our common shares by a U.S. Holder, such U.S. Holder may be entitled to a reduction in or elimination of such taxes under the U.S.-PRC Tax Treaty. Any PRC taxes that are paid by a U.S. Holder with respect to such gain may be treated as foreign taxes eligible for credit against such holder’s U.S. federal income tax liability (subject to certain limitations that could reduce or eliminate the available tax credit). U.S. Holders should consult their own tax advisors regarding the creditability of any such PRC tax and their eligibility for the benefits of the U.S.-PRC Tax Treaty.

Passive Foreign Investment Company Rules

A foreign (i.e., non-U.S.) corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets. Based on our current composition and assets, we do not expect to be treated as a PFIC under the current PFIC rules. Our PFIC status, however, will not be determinable until after the end of each taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any future taxable year. If we are determined to be a PFIC and a U.S. Holder did not make either a timely qualified electing fund (or “QEF”), election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) common shares, or a mark-to-market election, as described below, such holder generally will be subject to special rules with respect to:

| ● | any gain recognized by the U.S. Holder on the sale or other disposition of its common shares; and

| ● | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the common shares during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the common shares).

Under these rules,

| ● | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the common shares;

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| ● | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income;

| ● | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and

| ● | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year of the U.S. Holder.

In general, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our common shares by making a timely QEF election to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. There can be no assurance, however, that we will pay current dividends or make other distributions sufficient for a U.S. Holder who makes a QEF election to satisfy the tax liability attributable to income inclusions under the QEF rules, and the U.S. Holder may have to pay the resulting tax from its other assets. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.

The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS. In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.

If a U.S. Holder has made a QEF election with respect to our common shares, and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares), any gain recognized on the appreciation of our common shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of a PFIC’s earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to those U.S. Holders who made a QEF election. The tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.

Although a determination as to our PFIC status will be made annually, an initial determination that our company is a PFIC will generally apply for subsequent years to a U.S. Holder who held common shares while we were a PFIC, whether or not we meet the test for PFIC status in those years. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our common shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any taxable year of ours that ends within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and the U.S. Holder holds (or is deemed to hold) our common shares, the PFIC rules discussed above will continue to apply to such shares unless the holder makes a purging election, and pays the tax and interest charge with respect to the gain inherent in such shares attributable to the pre-QEF election period.

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Alternatively, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) shares in us and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its common shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its common shares at the end of its taxable year over the adjusted basis in its common shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of its common shares over the fair market value of its common shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s basis in its common shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the common shares will be treated as ordinary income.

The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the SEC, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our common shares under their particular circumstances.

If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC or will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs. If a U.S. Holder owns (or is deemed to own) shares during any year in a PFIC, such holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is made). The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our common shares should consult their own tax advisors concerning the application of the PFIC rules to our common shares under their particular circumstances.

Tax Consequences to Non-U.S. Holders of Common Shares

Dividends paid to a Non-U.S. Holder in respect to its common shares generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains in the United States).

In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other disposition of our common shares, unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from United States sources generally is subject to tax at a 30% rate or a lower applicable tax treaty rate).

Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base in the United States) generally will be subject to tax in the same manner as for a U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.

Backup Withholding and Information Reporting

In general, information reporting for U.S. federal income tax purposes should apply to distributions made on our common shares within the United States to a non-corporate U.S. Holder and to the proceeds from sales and other dispositions of our common shares by a non-corporate U.S. Holder to or through a U.S. office of a broker. Payments made (and sales and other dispositions effected at an office) outside the United States will be subject to information reporting in limited circumstances. In addition, backup withholding of United States federal income tax, currently at a rate of 28%, generally will apply to dividends paid on our common shares to a non-corporate U.S. Holder and the proceeds from sales and other dispositions of shares by a non-corporate U.S. Holder, in each case who (a) fails to provide an accurate taxpayer identification number; (b) is notified by the IRS that backup withholding is required; or (c) in certain circumstances, fails to comply with applicable certification requirements. A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly executed applicable IRS Form W-8 or by otherwise establishing an exemption.

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Backup withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S. Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding the application of backup withholding and the availability of and procedure for obtaining an exemption from backup withholding in their particular circumstances.

F. Dividends and paying agents

Not required.

G. Statement by experts

Not required.

H. Documents on display

Documents concerning us that are referred to in this document may be inspected at c/o Unit 1000, 10th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR. In addition, we file annual reports and other information with the Securities and Exchange Commission. We file annual reports on Form 20-F and submit other information under cover of Form 6-K. As a foreign private issuer, we are exempt from the proxy requirements of Section 14 of the Exchange Act and our officers, directors and principal shareholders are exempt from the insider short-swing disclosure and profit recovery rules of Section 16 of the Exchange Act. Annual reports and other information we file with the Commission may be inspected at the public reference facilities maintained by the Commission at Room 1024, 100 F. Street, N.E., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such offices upon payment of the prescribed fees. You may call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms and you can request copies of the documents upon payment of a duplicating fee, by writing to the Commission. In addition, the Commission maintains a web site that contains reports and other information regarding registrants (including us) that file electronically with the Commission which can be assessed at http://www.sec.gov.

I. Subsidiary Information

Not required.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk primarily relates to interest income generated by excess cash, which is mostly held in interest-bearing bank deposits. While interest-earning instruments carry a degree of interest rate risk, we have not been exposed, nor do we anticipate being exposed, to material risks due to changes in market interest rates.

Foreign Currency Risk

A majority of the Company’s expense transactions are denominated in RMB and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

Our functional currency is the RMB, and our financial statements are presented in U.S. dollars. The RMB appreciated by 8.6% in fiscal 2021, and depreciated by 3.7% in fiscal 2022, and depreciated by 8.3% in fiscal 2023, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect our financial results reported in the U.S. dollar terms without giving effect to any underlying changes in our business or results of operations. Currently, our assets, liabilities, revenues and costs are denominated in RMB.

To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

On February 28, 2021, the Company entered into a securities purchase agreement (“SPA”) with certain accredited investors. According to the SPA, the Company agreed to sell 2,666,666 shares of the Company’s common stock and issue unregistered warrants to purchase up to an additional 2,666,666 shares of common stock in the concurrent private placement transaction (the transaction). On March 3, 2021, the Company issued 2,666,666 common shares at US$6.00 per share to those investors, with a par value of $0.0001 per share, and issued 2,666,666 warrants, generating total gross proceeds of $15,999,996. Net proceeds from the transaction after issuance cost of $1,317,119 were $14,682,877 which was allocated to common shares and warrants issued on their relative fair value basis of $11,131,829 and $3,551,048, respectively. All 2,666,666 warrants are currently outstanding and will automatically expire on March 2, 2026 if not being exercised already. The terms of the warrant agreement are provided as exhibit 10.17 hereto in Item 19.

125

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There has been no default of any indebtedness nor is there any arrearage in the payment of dividends.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 (“Exchange Act”) Rules 13a-15(e) or 15d-15(e)) as of June 30, 2022 as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15.

Based on that evaluation, management, including our Chief Executive Officer and Chief Financial Officer, has concluded as of June 30, 2023, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023. In making this assessment, management used the framework set forth in the report Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication and (v) monitoring. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of June 30, 2023.

It is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm perform an audit of our internal control over financial reporting, internal control deficiencies may have been identified. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial results or prevent fraud may be adversely affected, and investor confidence and the market price of our shares may be adversely impacted.”

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the year ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 16. RESERVED

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

Our Board of Directors has determined that Jin He Shao is an audit committee financial expert as that term is defined in Item 16A(b) of Form 20-F, and “independent” as that term is defined in the NASDAQ listing standards.

ITEM 16B. CODE OF ETHICS.

Our Board has adopted a code of business conduct and ethics that applies to our directors, officers and employees. A copy of this code is available on our website. We intend to disclose on our website any amendments to the Code of Business Conduct and Ethics and any waivers of the Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions.

126

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The following table represents the approximate aggregate fees for services billed by Ernst & Young Hua Ming LLP for the period indicated:

|  | June 30, 2023 |  |  | June 30, 2022 |
|  | USD’000 |  |  | USD’000 |
Audit Fees |  | $ | 454 |  |  | $ | 474 |
Audit Related Fees |  |  | 7 |  |  |  | 5 |
Tax Fees |  |  | - |  |  |  | - |
All Other Fees |  |  | - |  |  |  | - |
Total Fees |  | $ | 461 |  |  | $ | 479 |

Our Audit Committee evaluated and approved in advance the scope and cost of the engagement of an auditor before the auditor rendered its audit and non-audit services.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

No purchase of our securities was made by us or our affiliates in 2023.

ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

There are no significant differences between our corporate governance practices and those followed by the U.S. domestic companies under Nasdaq Stock Market Rules.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

None.

127

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

The financial statements are filed as part of this Annual Report beginning on page F-1.

128

CLPS INCORPORATION

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JUNE 30, 2023, 2022 AND 2021

CLPS INCORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|  | Page
Consolidated Financial Statements |  |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1408) |  | F-2
Consolidated Balance Sheets as of June 30, 2022 and 2023 |  | F-3 - F-4
Consolidated Statements of Comprehensive (loss) / Income for the Years Ended June 30, 2021, 2022 and 2023 |  | F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 2021, 2022 and 2023 |  | F-6
Consolidated Statements of Cash Flows for the Years Ended June 30, 2021, 2022 and 2023 |  | F-7- F-8
Notes to the Consolidated Financial Statements for the Years Ended June 30, 2021, 2022 and 2023 |  | F-9- F-57

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of CLPS Incorporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of CLPS Incorporation (the “Company”) as of June 30, 2023 and 2022, the related consolidated statements of comprehensive (loss)/income, changes in shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with U.S. generally accepted accounting principles.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases using a modified retrospective approach in the year ended June 30, 2023.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. We determined that there are no critical audit matters.

/s/ Ernst & Young Hua Ming LLP

We have served as the Company’s auditor since 2018.

Shanghai, the People’s Republic of China

October 18, 2023

F-2

CLPS INCORPORATION

CONSOLIDATED BALANCE SHEETS

(Amounts in U.S. dollars (“$”), except for number of shares)

|  |  |  |  | As of June 30, |
|  | Notes |  |  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  | $ | 22,214,029 |  |  | $ | 18,396,987 |
Restricted cash |  |  |  |  |  |  | 87,604 |  |  |  | - |
Accounts receivable, net |  |  | 4 |  |  |  | 48,515,467 |  |  |  | 53,769,887 |
Prepayments, deposits and other assets, net |  |  | 5 |  |  |  | 1,665,736 |  |  |  | 4,215,414 |
Amounts due from related parties |  |  | 13 |  |  |  | 391,271 |  |  |  | 377,642 |
Total Current Assets |  |  |  |  |  | $ | 72,874,107 |  |  | $ | 76,759,930 |
Non-current assets: |  |  |  |  |  |  |  |  |  |  |  |
Property and equipment, net |  |  | 6、21 |  |  |  | 20,112,305 |  |  |  | 20,601,098 |
Intangible assets, net |  |  | 7 |  |  |  | 726,175 |  |  |  | 970,044 |
Goodwill |  |  | 8 |  |  |  | - |  |  |  | 2,363,841 |
Operating lease right-of-use assets |  |  | 9 |  |  |  | 815,324 |  |  |  | - |
Long-term investments |  |  | 10 |  |  |  | 456,598 |  |  |  | 610,386 |
Prepayments, deposits and other assets, net |  |  | 5 |  |  |  | 252,656 |  |  |  | 248,456 |
Deferred tax assets, net |  |  | 14 |  |  |  | 81,899 |  |  |  | 327,040 |
Total Assets |  |  |  |  |  | $ | 95,319,064 |  |  | $ | 101,880,795 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Bank loans |  |  | 11 |  |  | $ | 10,554,617 |  |  | $ | 14,474,363 |
Accounts payable |  |  |  |  |  |  | 690,035 |  |  |  | 343,597 |
Accrued expenses and other current liabilities |  |  |  |  |  |  | 324,021 |  |  |  | 352,402 |
Tax payables |  |  | 14 |  |  |  | 2,503,375 |  |  |  | 2,355,066 |
Contract liabilities |  |  |  |  |  |  | 918,470 |  |  |  | 587,140 |
Salaries and benefits payable |  |  | 12 |  |  |  | 10,586,239 |  |  |  | 12,203,933 |
Operating lease liabilities |  |  | 9 |  |  |  | 712,302 |  |  |  | - |
Amounts due to related parties |  |  | 13 |  |  |  | 24,889 |  |  |  | 66,884 |
Total current liabilities |  |  |  |  |  | $ | 26,313,948 |  |  | $ | 30,383,385 |
Non-current liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Operating lease liabilities |  |  | 9 |  |  |  | 104,114 |  |  |  | - |
Deferred tax liabilities |  |  | 14 |  |  |  | 185,382 |  |  |  | 150,547 |
Unrecognized tax benefit |  |  | 14 |  |  |  | 2,320,918 |  |  |  | 2,587,194 |
Other non-current liabilities |  |  |  |  |  |  | 885,901 |  |  |  | 959,069 |
Total Liabilities |  |  |  |  |  | $ | 29,810,263 |  |  | $ | 34,080,195 |

F-3

CLPS INCORPORATION

CONSOLIDATED BALANCE SHEETS - continued

(Amounts in U.S. dollars (“$”), except for number of shares)

|  |  |  |  | As of June 30, |
|  | Notes |  |  | 2023 |  |  | 2022 |
Commitments and Contingencies |  |  | 15 |  |  |  |  |  |  |  |  |
Shareholders’ Equity: |  |  |  |  |  |  |  |  |  |  |  |
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,650,122 shares issued and outstanding as of June 30, 2023; 22,444,822 shares issued and outstanding as of June 30, 2022 |  |  | 19 |  |  |  | 2,365 |  |  |  | 2,244 |
Additional paid-in capital |  |  | 19 |  |  |  | 58,183,383 |  |  |  | 55,705,209 |
Statutory reserves |  |  | 19 |  |  |  | 5,356,828 |  |  |  | 5,071,876 |
Retained earnings |  |  |  |  |  |  | 5,029,021 |  |  |  | 6,323,792 |
Accumulated other comprehensive loss |  |  | 19 |  |  |  | (3,990,594 | ) |  |  | (550,248 | )
Total CLPS Incorporation’s Shareholders’ Equity |  |  |  |  |  |  | 64,581,003 |  |  |  | 66,552,873 |
Noncontrolling interests |  |  | 20 |  |  |  | 927,798 |  |  |  | 1,247,727 |
Total Shareholders’ Equity |  |  |  |  |  |  | 65,508,801 |  |  |  | 67,800,600 |
Total Liabilities and Shareholders’ Equity |  |  |  |  |  | $ | 95,319,064 |  |  | $ | 101,880,795 |

The accompanying notes are an integral part of these consolidated financial statements.

F-4

CLPS INCORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

(Amounts in U.S. dollars (“$”), except for number of shares)

|  |  |  |  | For the years ended June 30, |
|  | Notes |  |  | 2023 |  |  | 2022 |  |  | 2021 |
Revenue from third parties |  |  |  |  |  | $ | 150,298,963 |  |  | $ | 151,970,357 |  |  | $ | 125,792,221 |
Revenue from related parties |  |  | 13 |  |  |  | 57,576 |  |  |  | 52,024 |  |  |  | 269,472 |
Total revenue |  |  | 21 |  |  |  | 150,356,539 |  |  |  | 152,022,381 |  |  |  | 126,061,693 |
Cost of revenue from third parties |  |  |  |  |  |  | (115,827,597 | ) |  |  | (110,989,394 | ) |  |  | (85,664,401 | )
Cost of revenue from related parties |  |  |  |  |  |  | (47,212 | ) |  |  | (43,951 | ) |  |  | (226,356 | )
Total cost of revenue |  |  |  |  |  |  | (115,874,809 | ) |  |  | (111,033,345 | ) |  |  | (85,890,757 | )
Gross profit |  |  |  |  |  |  | 34,481,730 |  |  |  | 40,989,036 |  |  |  | 40,170,936 |
Operating income (expenses): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Selling and marketing expenses |  |  |  |  |  |  | (3,300,555 | ) |  |  | (4,103,066 | ) |  |  | (3,753,236 | )
Research and development expenses |  |  |  |  |  |  | (8,336,999 | ) |  |  | (7,971,145 | ) |  |  | (13,337,913 | )
General and administrative expenses |  |  |  |  |  |  | (21,641,317 | ) |  |  | (23,045,664 | ) |  |  | (16,784,688 | )
Impairment of goodwill |  |  |  |  |  |  | (2,382,538 | ) |  |  | - |  |  |  | - |
Subsidies and other operating income |  |  |  |  |  |  | 1,256,070 |  |  |  | 1,536,394 |  |  |  | 2,080,087 |
Total operating expenses |  |  |  |  |  |  | (34,405,339 | ) |  |  | (33,583,481 | ) |  |  | (31,795,750 | )
Income from operations |  |  |  |  |  |  | 76,391 |  |  |  | 7,405,555 |  |  |  | 8,375,186 |
Other income |  |  |  |  |  |  | 1,123,612 |  |  |  | 854,250 |  |  |  | 296,319 |
Other expenses |  |  |  |  |  |  | (430,357 | ) |  |  | (575,605 | ) |  |  | (351,045 | )
Income before income tax and share of income in equity investees |  |  |  |  |  |  | 769,646 |  |  |  | 7,684,200 |  |  |  | 8,320,460 |
Provision for income taxes |  |  | 14 |  |  |  | 674,344 |  |  |  | 3,045,992 |  |  |  | 1,257,124 |
Income before share of income in equity investees |  |  |  |  |  |  | 95,302 |  |  |  | 4,638,208 |  |  |  | 7,063,336 |
Share of income (loss) in equity investees, net of tax |  |  |  |  |  |  | 70,263 |  |  |  | (50,297 | ) |  |  | (44,121 | )
Net income |  |  |  |  |  |  | 165,565 |  |  |  | 4,587,911 |  |  |  | 7,019,215 |
Less: net (loss) income attributable to noncontrolling interest |  |  |  |  |  |  | (26,964 | ) |  |  | 132,483 |  |  |  | 202,643 |
Net income attributable to CLPS Incorporation's shareholders |  |  |  |  |  | $ | 192,529 |  |  | $ | 4,455,428 |  |  | $ | 6,816,572 |
Other comprehensive (loss) income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation (loss) income |  |  |  |  |  | $ | (3,532,507 | ) |  | $ | (1,828,542 | ) |  | $ | 2,695,223 |
Less: foreign currency translation (loss) income attributable to noncontrolling interests |  |  |  |  |  |  | (92,161 | ) |  |  | (48,211 | ) |  |  | 102,475 |
Other comprehensive (loss) income attributable to CLPS Incorporation’s shareholders |  |  |  |  |  | $ | (3,440,346 | ) |  | $ | (1,780,331 | ) |  | $ | 2,592,748 |
Comprehensive (loss) income attributable to CLPS Incorporation's shareholders |  |  |  |  |  | $ | (3,247,817 | ) |  | $ | 2,675,097 |  |  | $ | 9,409,320 |
Comprehensive (loss) income attributable to noncontrolling interests |  |  |  |  |  |  | (119,125 | ) |  |  | 84,272 |  |  |  | 305,118 |
Comprehensive (loss) income |  |  |  |  |  | $ | (3,366,942 | ) |  | $ | 2,759,369 |  |  | $ | 9,714,438 |
Basic earnings per common share |  |  | 16 |  |  | $ | 0.01 |  |  | $ | 0.21 |  |  | $ | 0.39 |
Weighted average number of share outstanding – basic |  |  |  |  |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Diluted earnings per common share |  |  | 16 |  |  | $ | 0.01 |  |  | $ | 0.21 |  |  | $ | 0.39 |
Weighted average number of share outstanding – diluted |  |  |  |  |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |

The accompanying notes are an integral part of these consolidated financial statements.

F-5

CLPS INCORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in U.S. dollars (“$”), except for number of shares)

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Retained |  |  | Accumulated |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  | Earnings |  |  | Other |  |  |  |  |  |  |
|  |  |  |  | Common Share |  |  | Paid-in |  |  | Statutory |  |  | (Accumulated |  |  | Comprehensive |  |  | Noncontrolling |  |  |  |
|  | Notes |  |  | Shares |  |  | Amount |  |  | Capital |  |  | Surplus |  |  | Deficits) |  |  | Income (Loss) |  |  | Interests |  |  | Total |
Balance at June 30, 2020 |  |  |  |  |  |  | 15,930,330 |  |  |  | 1,593 |  |  |  | 28,586,048 |  |  |  | 2,803,811 |  |  |  | (2,680,143 | ) |  |  | (1,362,665 | ) |  |  | 1,268,716 |  |  |  | 28,617,360 |
Net Income for the year |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,816,572 |  |  |  | - |  |  |  | 202,643 |  |  |  | 7,019,215 |
Appropriation of statutory reserve |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,410,264 |  |  |  | (1,410,264 | ) |  |  | - |  |  |  | - |  |  |  | - |
Foreign currency translation loss |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,592,748 |  |  |  | 102,475 |  |  |  | 2,695,223 |
Purchase of subsidiaries’ shares from noncontrolling interests |  |  | 20 |  |  |  | 62,622 |  |  |  | 6 |  |  |  | 3,274 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (458,826 | ) |  |  | (455,546 | )
Disposal of subsidiaries |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (34,116 | ) |  |  | (34,116 | )
Stock-based compensation |  |  | 18 |  |  |  | - |  |  |  | - |  |  |  | 5,128,696 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,128,696 |
Exercise of share options and vesting of restricted shares |  |  | 18 |  |  |  | 1,568,392 |  |  |  | 157 |  |  |  | 116,073 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 116,230 |
Exercise of warrants |  |  | 17 |  |  |  | 65,542 |  |  |  | 6 |  |  |  | (6 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Issuance of common shares from private placement |  |  | 19 |  |  |  | 2,666,666 |  |  |  | 267 |  |  |  | 11,131,562 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 11,131,829 |
Warrants issued in connection with private placement |  |  | 19 |  |  |  | - |  |  |  | - |  |  |  | 3,551,048 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,551,048 |
Noncontrolling interests through an acquisition |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (5,107 | ) |  |  | (5,107 | )
Dividends paid to noncontrolling interests |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (34,137 | ) |  |  | (34,137 | )
Balance at June 30, 2021 |  |  |  |  |  |  | 20,293,552 |  |  |  | 2,029 |  |  |  | 48,516,695 |  |  |  | 4,214,075 |  |  |  | 2,726,165 |  |  |  | 1,230,083 |  |  |  | 1,041,648 |  |  |  | 57,730,695 |
Net Income for the year |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,455,428 |  |  |  | - |  |  |  | 132,483 |  |  |  | 4,587,911 |
Appropriation of statutory reserve |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 857,801 |  |  |  | (857,801 | ) |  |  | - |  |  |  | - |  |  |  | - |
Foreign currency translation loss |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,780,331 | ) |  |  | (48,211 | ) |  |  | (1,828,542 | )
Stock-based compensation |  |  | 18 |  |  |  | - |  |  |  | - |  |  |  | 7,184,862 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 7,184,862 |
Surrender of shares |  |  |  |  |  |  | (220,823 | ) |  |  | (22 | ) |  |  | 22 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Exercise of share options and vesting of restricted shares |  |  | 18 |  |  |  | 2,372,093 |  |  |  | 237 |  |  |  | 3,630 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,867 |
Noncontrolling interests through an acquisition |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 121,807 |  |  |  | 121,807 |
Balance at June 30, 2022 |  |  |  |  |  |  | 22,444,822 |  |  |  | 2,244 |  |  |  | 55,705,209 |  |  |  | 5,071,876 |  |  |  | 6,323,792 |  |  |  | (550,248 | ) |  |  | 1,247,727 |  |  |  | 67,800,600 |
Cumulative effect of adoption of ASU 2016-13 |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (26,664 | ) |  |  | - |  |  |  | - |  |  |  | (26,664 | )
Net Income for the year |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 192,529 |  |  |  | - |  |  |  | (26,964 | ) |  |  | 165,565 |
Appropriation of statutory reserve |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 284,952 |  |  |  | (284,952 | ) |  |  | - |  |  |  | - |  |  |  | - |
Foreign currency translation loss |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,440,346 | ) |  |  | (92,161 | ) |  |  | (3,532,507 | )
Disposal of a subsidiary |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 6,283 |  |  |  | 6,283 |
Stock-based compensation |  |  | 18 |  |  |  | - |  |  |  | - |  |  |  | 2,478,295 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,478,295 |
Exercise of share options and vesting of restricted shares |  |  | 18 |  |  |  | 1,205,300 |  |  |  | 121 |  |  |  | (121 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Noncontrolling interests through an acquisition |  |  | 3 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Dividends paid to noncontrolling interests |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (207,087 | ) |  |  | (207,087 | )
Dividends paid to shareholders |  |  |  |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,175,684 | ) |  |  | - |  |  |  | - |  |  |  | (1,175,684 | )
Balance at June 30, 2023 |  |  |  |  |  |  | 23,650,122 |  |  |  | 2,365 |  |  |  | 58,183,383 |  |  |  | 5,356,828 |  |  |  | 5,029,021 |  |  |  | (3,990,594 | ) |  |  | 927,798 |  |  |  | 65,508,801 |

The accompanying notes are an integral part of these consolidated financial statements.

F-6

CLPS INCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in U.S. dollars (“$”), except for number of shares)

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |
Net income |  | $ | 165,565 |  |  | $ | 4,587,911 |  |  | $ | 7,019,215 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Share-based compensation |  |  | 2,478,295 |  |  |  | 7,184,862 |  |  |  | 5,128,696 |
Depreciation and amortization |  |  | 1,219,812 |  |  |  | 912,248 |  |  |  | 677,241 |
Deferred tax expenses (benefits) |  |  | 264,027 |  |  |  | 245,830 |  |  |  | (413,609 | )
Lease expense to reduce operating lease right-of -use assets |  |  | 1,070,385 |  |  |  | - |  |  |  | - |
Loss/(gain) on disposal of a long-term investment |  |  | - |  |  |  | (138,479 | ) |  |  | - |
Share of (income) loss in equity investees, net of tax |  |  | (70,263 | ) |  |  | 50,297 |  |  |  | 44,121 |
Loss/(gain) on disposal of subsidiaries |  |  | 38,674 |  |  |  | - |  |  |  | (9,022 | )
(Reversal of) provision for doubtful accounts |  |  | (10,525 | ) |  |  | (178,010 | ) |  |  | 197,740 |
Loss from disposal of property and equipment |  |  | - |  |  |  | 19,188 |  |  |  | 26,399 |
Impairment of long-term investments |  |  | 85,326 |  |  |  | 102,155 |  |  |  | - |
Impairment of goodwill |  |  | 2,382,538 |  |  |  | - |  |  |  | - |
Others |  |  | (258,262 | ) |  |  | - |  |  |  | 25,615 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  |  | 454,071 |  |  |  | (12,317,416 | ) |  |  | (16,712,597 | )
Prepayment, deposits and other assets |  |  | 3,457,373 |  |  |  | (123,268 | ) |  |  | (728,562 | )
Prepaid income tax |  |  | - |  |  |  | - |  |  |  | 15,780 |
Amounts due from related parties |  |  | 27,836 |  |  |  | 222,553 |  |  |  | (224,429 | )
Accounts payable |  |  | 346,438 |  |  |  | (215,853 | ) |  |  | 363,697 |
Accrued expenses and other current liabilities |  |  | 3,850 |  |  |  | 106,994 |  |  |  | (18,349 | )
Contract liabilities |  |  | 331,330 |  |  |  | 260,228 |  |  |  | (378,628 | )
Tax payables |  |  | 148,309 |  |  |  | 640,057 |  |  |  | 279,413 |
Amounts due to related parties |  |  | (291,087 | ) |  |  | (115,260 | ) |  |  | 183,148 |
Salaries and benefits payable |  |  | (769,939 | ) |  |  | 174,100 |  |  |  | 309,914 |
Operating lease liabilities |  |  | (1,101,526 | ) |  |  | - |  |  |  | - |
Unrecognized tax benefit |  |  | (266,276 | ) |  |  | 1,782,752 |  |  |  | 1,604,444 |
Net cash provided by (used in) operating activities |  |  | 9,705,951 |  |  |  | 3,200,889 |  |  |  | (2,609,773 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |  |  |  |
Acquisition of property and equipment |  |  | (519,282 | ) |  |  | (20,750,110 | ) |  |  | (1,072,389 | )
Proceeds from disposal of property and equipment |  |  | 158,365 |  |  |  | 552 |  |  |  | - |
Acquisition of intangible assets |  |  | - |  |  |  | (9,076 | ) |  |  | (6,521 | )
Payments for business acquisitions, net of cash acquired from acquisitions |  |  | - |  |  |  | - |  |  |  | (304,476 | )
Acquisition of long-term investments |  |  | - |  |  |  | (409,625 | ) |  |  | (331,036 | )
Disposition of long-term investments |  |  | 111,066 |  |  |  | 786,427 |  |  |  | - |
Disposition of subsidiaries |  |  | 13,806 |  |  |  | - |  |  |  | (191,839 | )
Maturities of short-term investments |  |  | 14,130,000 |  |  |  | - |  |  |  | - |
Purchases of short-term investments |  |  | (14,130,000 | ) |  |  | - |  |  |  | - |
Maturities (purchases) of short-term investments, net |  |  | - |  |  |  | 4,159,309 |  |  |  | (3,375,521 | )
Repayments from a related party |  |  | 204,211 |  |  |  | 15,491 |  |  |  | - |
Loans provided to a third party |  |  | - |  |  |  | - |  |  |  | (185,906 | )
Loans provided to a related party |  |  | (274,212 | ) |  |  | (83,651 | ) |  |  | (151,783 | )
Net cash used in investing activities |  |  | (306,046 | ) |  |  | (16,290,683 | ) |  |  | (5,619,471 | )

F-7

CLPS INCORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

(Amounts in U.S. dollars (“$”), except for number of shares)

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |
Proceeds from short-term bank loans |  |  | 23,388,911 |  |  |  | 21,955,625 |  |  |  | 13,301,775 |
Repayments of short-term bank loans |  |  | (26,325,471 | ) |  |  | (14,484,851 | ) |  |  | (8,270,611 | )
Capital contributions from private placement and warrants, net of issuance costs |  |  | - |  |  |  | - |  |  |  | 14,682,877 |
Proceeds from exercise of options |  |  | - |  |  |  | 3,867 |  |  |  | 116,230 |
Purchase of noncontrolling interests |  |  | - |  |  |  | - |  |  |  | (455,546 | )
Dividends paid to shareholders |  |  | (1,175,684 | ) |  |  | - |  |  |  | - |
Dividends paid to noncontrolling interests |  |  | (207,087 | ) |  |  | - |  |  |  | (34,137 | )
Net cash (used in) provided by financing activities |  |  | (4,319,331 | ) |  |  | 7,474,641 |  |  |  | 19,340,588 |
Effect of exchange rate changes on cash |  |  | (1,175,928 | ) |  |  | (727,242 | ) |  |  | 975,918 |
Net increase (decrease) in cash |  |  | 3,904,646 |  |  |  | (6,342,395 | ) |  |  | 12,087,262 |
Cash and cash equivalents and restricted cash at the beginning of the year |  | $ | 18,396,987 |  |  | $ | 24,739,382 |  |  | $ | 12,652,120 |
Cash, cash equivalents and restricted cash at the end of the year |  | $ | 22,301,633 |  |  | $ | 18,396,987 |  |  | $ | 24,739,382 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |  |  |  |  |  |  |  |  |  |
Income tax paid |  | $ | 1,619,792 |  |  | $ | 676,179 |  |  | $ | 1,746,327 |
Interest paid |  | $ | 365,893 |  |  | $ | 342,144 |  |  | $ | 154,516 |
Reconciliation of cash, cash equivalents and restricted cash: |  |  | - |  |  |  | - |  |  |  | - |
Cash and cash equivalents |  | $ | 22,214,029 |  |  | $ | 18,396,987 |  |  | $ | 24,739,382 |
Restricted cash |  |  | 87,604 |  |  |  | - |  |  |  | - |
Total cash, cash equivalents and restricted cash shown in the statements of cash flows |  | $ | 22,301,633 |  |  | $ | 18,396,987 |  |  | $ | 24,739,382 |

The accompanying notes are an integral part of these consolidated financial statements.

F-8

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

CLPS Incorporation (“CLPS” or the “Company”), is a company that was established under the laws of the Cayman Islands on May 11, 2017 as a holding company. The Company, through its subsidiaries, designs, builds, and delivers IT services, solutions and product services. The Company customizes its services to specific industries with customer service teams typically based on-site at the customer locations. The Company’s solutions enable its clients to meet the changing demands in an increasingly global, internet-driven, and competitive marketplace. Mr. Xiao Feng Yang, the Company’s Chairman of the Board, together with Mr. Raymond Ming Hui Lin, the Company’s Chief Executive Officer (“CEO”) are the controlling shareholders of the Company (the “controlling shareholder”). On June 8, 2018, the Company completed its initial public offering (“IPO”) on the Nasdaq Capital Market.

Details of the significant subsidiaries of the Company are set out below:

Name of Entity |  | Date of Incorporation/ Acquisition |  | Place of Incorporation |  | Percentage of Equity Ownership |  |  | Principal Activities
Qiner Co., Limited (“Qiner”) |  | Incorporated on April 21, 2017 |  | Hong Kong, China |  |  | 100 | % |  | Holding Company
Qinheng Co., Limited (“Qinheng”) |  | Incorporated on June 9, 2017 |  | Hong Kong, China |  |  | 100 | % |  | Holding Company
Shanghai Qincheng Information Technology Co., Ltd. (“CLPS QC” or “WOFE”) |  | Incorporated on August 4, 2017 |  | Shanghai, China |  |  | 100 | % |  | Holding Company
Shanghai Chenqin Information Technology Services Co., Ltd. |  | Incorporated on May 31, 2021 |  | Shanghai, China |  |  | 100 | % |  | Holding Company
ChinaLink Professional Service Co., Ltd. (“CLPS Shanghai”) |  | Incorporated on August 30, 2005 |  | Shanghai, China |  |  | 100 | % |  | Software development
CLPS Dalian Co., Ltd. (“CLPS Dalian”) |  | Incorporated on May 25, 2011 |  | Dalian, China |  |  | 100 | % |  | Software development
CLPS Beijing Hengtong Co., Ltd. (“CLPS Beijing”) |  | Incorporated on March 30, 2015 |  | Beijing, China |  |  | 100 | % |  | Software development
CLPS Technology (Singapore) Pte. Ltd. (“CLPS SG”) |  | Incorporated on August 18, 2015 |  | Singapore |  |  | 100 | % |  | Software development
Ridik Technology (Australia) Pty Ltd. (“Ridik AU”) |  | Incorporated on November 10, 2015 |  | Australia |  |  | 100 | % |  | Software development
CLPS Technology (Hong Kong) Co., Limited (“CLPS Hong Kong”) |  | Incorporated on January 7, 2016 |  | Hong Kong, China |  |  | 100 | % |  | Software development
JAJI (Shanghai) Co., Ltd (“JAJI China”, formerly, Judge (Shanghai) Co., Ltd.) |  | Acquired on November 9, 2016 |  | Shanghai, China |  |  | 60 | % |  | Software development
CLPS Shenzhen Co., Ltd. (“CLPS Shenzhen”) |  | Incorporated on April 7, 2017 |  | Shenzhen, China |  |  | 100 | % |  | Software development
CLPS Guangzhou Co., Ltd. (“CLPS Guangzhou”) |  | Incorporated on September 27, 2017 |  | Guangzhou, China |  |  | 100 | % |  | Software development

F-9

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS - continued

Name of Entity |  | Date of Incorporation/ Acquisition |  | Place of Incorporation |  | Percentage of Equity Ownership |  |  | Principal Activities
CLPS Hangzhou Co. Ltd. (“CLPS Hangzhou”) |  | Incorporated on July 31, 2019 |  | Hangzhou, China |  |  | 100 | % |  | Software development
Ridik Pte. Ltd. (“Ridik Pte.”) |  | Acquired on September 26, 2019 |  | Singapore |  |  | 100 | % |  | Software development
Ridik Software Solutions Pte. Ltd. (“Ridik Software Pte.”) |  | Acquired on September 26, 2019 |  | Singapore |  |  | 100 | % |  | Software development
Qinson Credit Card Services Limited (“Qinson”) |  | Incorporated on December 31, 2019 |  | Hong Kong, China |  |  | 100 | % |  | Software development
CLPS Technology (California) Inc. (“CLPS California”) |  | Incorporated on January 2, 2020 |  | California, the United States of America |  |  | 100 | % |  | Software development
Hainan Qincheng Software Technology Co., Ltd. |  | Incorporated On January 20, 2021 |  | Hainan, China |  |  | 100 | % |  | Software development
CLPS Xi’an Co., Ltd. |  | Incorporated On April 15, 2021 |  | Xi’an, China |  |  | 100 | % |  | Software development

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The accompanying consolidated financial statements have been prepared in accordance with the United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying consolidated financial statements include the financial statements of CLPS and its subsidiaries. All inter-company balances and transactions have been eliminated upon consolidation. Results of subsidiaries and businesses acquired from third parties are consolidated from the date on which control is transferred to the Company.

Comparatives

Certain prior period amounts have been reclassified to conform to the current period presentation.

F-10

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Use of estimates and assumptions

In preparing the consolidated financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, allowance for doubtful accounts arising from expected credit losses, useful lives of property and equipment and intangible assets, goodwill impairment, the impairment of long-lived assets and long-term investments, purchase price allocation and fair value of noncontrolling interests for business combinations and asset acquisition, provision for accrued expenses and other current liabilities, valuation allowance of deferred tax assets, provision for uncertain tax positions, incremental borrowing rates for operating lease liabilities, fair value measurements of equity investments without readily determinable fair values, fair value of warrants and fair value of and estimated forfeitures for share-based compensation. Actual results could differ from those estimates.

Short-term investments

Short-term investments represent highly liquid investments in wealth management products placed with certain financial institutions. The principal amounts of these products are not guaranteed. The Company classifies these wealth management products as “trading” as they are bought and held principally for the purpose of selling them in the near term. Dividend and interest income are included in earnings. Any realized gains or losses on the sale of the short-term investments, are determined on a specific identification method, and realized and unrealized gains and losses and interest income from the investments are recorded in “Other income” in the Consolidated Statements of Comprehensive (loss) / income.

Cash and cash equivalents

Cash and cash equivalents primarily consist of cash and bank deposits, which are unrestricted as to withdrawal and use. The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains most of its bank accounts in the People’s Republic of China (“PRC”). Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.

Adoption of ASU 2016-13

On July 1, 2022, the Group adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Group changed the impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets. The adoption of the guidance resulted in a cumulative-effect adjustment to decrease the opening balance of retained earnings on July 1, 2022 by US$26,664 including the allowance for credit losses for accounts receivables, contract assets and other financial assets carried at amortized cost which are insignificant.

F-11

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Accounts receivable and allowance for doubtful accounts

Prior to the Company’s adoption of ASU 2016-13, accounts receivable are carried at net realizable value. An allowance for doubtful accounts is recorded in the period when loss is probable. The Company determines the adequacy of a reserve for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual customer exposures, as well as the historical trends of collections. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. The Company regularly reviews the adequacy and appropriateness of the allowance for doubtful accounts.

After the adoption of ASU 2016-13, The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable and contract assets and the estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the consolidated statements of comprehensive (loss) /income. The Company assesses collectability by reviewing accounts receivable and contract assets on a collective basis where similar characteristics exist, primarily based on similar business line, service or product offerings and on an individual basis when the Company identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, credit quality of the Company’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

F-12

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Long-term investments

The Company’s long-term investments consist of equity-method investments and equity investments without readily determinable fair values.

Investments in entities in which the Company can exercise significant influence but does not own a majority equity interest or control are accounted for using the equity method of accounting in accordance with ASC Topic 323, Investments-Equity Method and Joint Ventures (“ASC 323”). The share of earnings or losses of the investee are recognized in the consolidated statements of comprehensive(loss)/ income. Equity method adjustments include the Company’s proportionate share of investee income or loss, adjustments to recognize certain differences between the Company’s carrying value and its equity in net assets of the investee at the date of investment, impairments, and other adjustments required by the equity method. The Company assesses its equity investment for other-than-temporary impairment by considering factors as well as all relevant and available information including, but not limited to, current economic and market conditions, the operating performance of the investees including current earnings trends, the general market conditions in the investee’s industry or geographic area, factors related to the investee’s ability to remain in business, such as the investee’s liquidity, debt ratios, and cash burn rate and other company-specific information. Any gain or loss from the disposition of the equity method investments is included in the consolidated statements of comprehensive(loss)/ income equal to difference between the proceeds the Company receives and the carrying amounts of the investment disposed.

For equity investments without readily determinable fair values, the Company elects to use the measurement alternative in accordance with ASC Topic 321, Investments-Equity securities (“ASC 321”) to measure such investments at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer as of the date that the observable transaction occurred. These investments are measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the consolidated statements of comprehensive(loss)/ income equal to the amount by which the carrying value exceeds the fair value of the investment. For the years ended June 30, 2023, 2022 and 2021, no such investment was remeasured and accordingly no unrealized gains (losses) was recognized.

F-13

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Business combination

The Company accounts for all business combinations under 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 net assets including separately identifiable assets and liabilities the Company acquired, based on their estimated fair value. 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. The costs directly attributable to the acquisition are expensed as incurred. 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 noncontrolling interests. The excess of (i) the total of the cost of the acquisition, fair value of the noncontrolling 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 identifiable net assets of the acquiree, the difference is recognized directly in the consolidated statements of comprehensive(loss)/ income. The Company adopted Accounting Standards Update (“ASU”) No. 2017-01, Business Combinations (Topic 802): Clarifying the Definition of a Business, in determining whether it has acquired a business from July 1, 2019 on a prospective basis and there was no material impact on the consolidated financial statements.

The determination and allocation of fair values to the identifiable net assets acquired, liabilities assumed and noncontrolling interest is based on various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, 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 acquiree’s current business model and industry comparisons. Terminal values are based on the expected life of assets and forecasted cash flows over that period. Acquisition-related costs are recognized as general and administrative expenses in the consolidated statements of comprehensive(loss)/ income as incurred. Although the Company believes that the assumptions applied in the determination are reasonable based on information available at the date of acquisition, actual results may differ from forecasted amounts and the differences could be material.

Acquisitions that do not meet the accounting definition of a business combination are accounted for as asset acquisitions. For transactions determined to be asset acquisitions, the Company allocates the total cost of the acquisition, including transaction costs, to the assets acquired based on their relative fair values.

F-14

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Noncontrolling interests

The noncontrolling interests are presented in the consolidated balance sheets, separately from equity attributable to the shareholders of the Company. Noncontrolling interests in the results of the Company are presented on the face of the consolidated statements of comprehensive (loss)/ income as an allocation of the total income or loss for the year between noncontrolling interest holders and the shareholders of the Company.

Property and equipment, net

Property and equipment, net, are stated at cost less accumulated depreciation and impairment, if any. The straight-line method is used to compute depreciation over the estimated useful lives of the assets, as follows:

|  | Useful life
Leasehold improvements |  | The shorter of remaining lease terms or the estimated useful lives
Automobiles |  | 5 years
Equipment and office furniture |  | 1-5 years
Building |  | 31 or 50 years
Office building related facility, machinery and equipment |  | 1-5 years

Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is charged to the statements of comprehensive (loss)/ income.

Direct costs that are related to the construction of property and equipment and incurred in connection with bringing the assets to their intended use are capitalized as construction in progress. Construction in progress is transferred to specific property and equipment, and the depreciation of these assets commences when the assets are ready for their intended use.

Intangible assets, net

Intangible assets, net, are carried at cost less accumulated amortization and any recorded impairment. Intangible assets acquired through business combinations are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion, and are measured at fair value upon acquisition.

Amortization is computed using the straight-line method over the following estimated useful lives:

|  | Useful life
Customer contracts |  | 10 years
Customer relationship |  | 5 – 10 years
Software |  | 3 – 10 years

The Company does not have any indefinite-lived intangibles other than goodwill.

F-15

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Goodwill

Goodwill represents the excess of the consideration over the fair value of the net assets acquired at the date of acquisition. Goodwill is not amortized but rather tested for impairment at least annually at the reporting unit level by applying a fair-value based test in accordance with accounting and disclosure requirements for goodwill. This test is performed by management annually or more frequently if the Company believes impairment indicators are present. The Company had only one reporting unit (that also represented the Company’s single operating segment) as of June 30, 2023 and 2022. Goodwill was allocated 100% to the single reporting unit as of June 30, 2023 and 2022. The Company has the option to assess qualitative factors first to determine whether it is necessary to perform the two-step test in accordance with ASC 350-20, Intangibles - Goodwill and Other. If the Company believes, as a result of the qualitative assessment, that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount, the quantitative impairment test described above is required. Otherwise, no further testing is required. In the qualitative assessment, the Company considers primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations.

In performing quantitative impairment test, the Company compares the carrying amount of the reporting unit to the fair value of the reporting unit based on estimated fair value using a combination of the income approach and the market approach. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, an impairment loss shall be recognized in an amount equal to that excess.

Impairment loss of US$ 2,382,538, nil, nil was provided for the years ended June 30, 2023, 2022 and 2021, respectively.

Impairment of long-lived assets

The Company reviews its long-lived assets, other than goodwill, including property and equipment and intangible assets with definite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable in accordance with ASC Topic 360, Property, Plant and Equipment. When these events occur, the Company assesses recoverability by comparing the carrying values of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amounts of the assets, the Company would recognize an impairment loss based on the excess of the carrying value over the fair value of the assets and record the impairment in earnings. The adjusted carrying amount of the asset becomes the new cost basis and depreciated over the asset’s remaining useful live. Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities for the purpose of the impairment testing.

No impairment loss was provided for the years ended June 30, 2023, 2022 and 2021.

F-16

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition

The Company accounts for revenue recognition in accordance with ASC Topic 606, Revenue from contracts with Customers (“ASC 606”). The Company provides a comprehensive range of IT consulting services, customized IT solution services and other service, which primarily are on a time-and-expense basis, or fixed-price basis. Revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which an entity expects to be entitled to in exchange for those services.

IT consulting services

IT consulting services are time-and-expense basis contracts. The series of IT consulting services are substantially the same from day to day, and each day of the service is considered to be distinct and separately identifiable as it benefits the customer daily. Further, the uncertainty related to the service consideration is resolved on a daily basis as the Company satisfies its obligation to perform IT service daily with enforceable right to payment for performance completed to date. Thus, revenue is recognized as service is performed and the customer simultaneously receives and consumes the benefits from the service daily.

Customized IT solution service

Revenues from customized IT solution contracts require the Company to perform services for systems design, planning and integrating based on customers’ specific needs which requires significant production and customization. The required customization work period is generally less than one year. Upon delivery of the services, customer acceptance is generally required. In the same contract, the Company is generally required to provide post-contract customer support (“PCS’) for a period from three months to one year (“PCS period”) after the customized application is delivered. The type of service for PCS is stand-ready service on when-and-if-available basis.

There are two performance obligations identified in the customized IT solution contract: the delivery of customized IT solution service and the completion of the PCS. The transaction price is allocated between the two performance obligations based on the relative standalone selling price, estimated using the cost plus method.

The Company recognizes revenue for the delivery of customized IT solution service at a point in time when the system is implemented and accepted by the customer. Where the Company has enforceable right to payment for performance completed to date, revenue is recognized over time, using the output method. Revenue for PCS is recognized ratably over time as the customer simultaneously receive and consume the benefits throughout the PCS period.

Differences between the timing of billings and the recognition of revenues are recorded as contract assets which is included in the prepayments, deposits and other assets, net, or contract liabilities on the consolidated balance sheets. Contract assets are classified as current assets and the full balance is reclassified to accounts receivables when the right to payment becomes unconditional.

Costs incurred in advance of revenue recognition arising from direct and incremental staff costs in respect of services provided under the fixed fee contracts according to the customer’s requirements prior to the delivery of services are recorded as deferred contract costs which is included in the prepayments, deposits and other assets, net on the consolidated balance sheets. Such deferred contract costs are recognized upon the recognition of the related revenues.

F-17

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition (continued)

Other contracts

Other contracts primarily comprise of the sales of headhunting services, consulting and administrative services. Revenue of headhunting services for other contracts is recognized at a point in time when control is transferred to the customers, which generally occurs when the service is accepted by customers. Revenue of consulting and administrative services for other contracts is recognized over time as the customer simultaneously receives and consumes the benefits from the service as the Company performs.

The balances of contract assets arising from contracts with customers as of June 30, 2022 and 2023 were $1,461,411 and $691,025, respectively. The decrease in contract assets is mainly due to the decrease in revenue recognized from a customer. The balances of contract liabilities arising from contracts with customers as of June 30, 2022 and 2023 were $587,140 and $918,470, respectively. The increase in contractual liabilities is mainly due to the change of prepayment term of a customer. Revenue recognized in the year ended June 30, 2023 that was included in the contract liability balance at the beginning of the period was $560,256. This revenue was driven primarily by IT solution service performance obligations being satisfied.

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.

Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenues.

The Company is subject to value added tax (the “VAT”) that is imposed on and concurrent with the revenues earned for services provided in the PRC. The Company’s applicable value added tax rate is 6%. VAT are recorded as reduction of revenues when incurred.

The Company’s disaggregated revenue disclosures are presented in Note 21.

F-18

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Cost of revenues

Cost of revenues mainly consisted of compensation expenses for the Company’s IT professionals, travel expenses and material costs.

Research and development expenses

Research and development expenses are incurred in the development of new software modules and products in conjunction with anticipated customer projects. Technological feasibility for the Company’s software products is reached before the products are released for sale. To date, expenditures incurred after technological feasibility was established and prior to completion of software development have not been material, and accordingly, the Company has expensed all costs when incurred.

Government subsidies

Government subsidies mainly represent amounts granted by local government authorities as an incentive for companies to promote development of the local technology industry. The Company also receives government subsidies related to government sponsored projects, and records such government subsidies as a liability when it is received. The Company recognizes the government subsidies in the consolidated statements of comprehensive (loss)/ income when there is reasonable assurance that the Company will receive the government grant and comply with the conditions attached to the grant to be received.

Leases

Before adopted ASU 2016-02, a lease for which substantially all the benefits and risks incidental to ownership remain with the lessor is classified by the lessee as an operating lease. All leases of the Company are currently classified as operating leases. The Company records the total expenses on a straight-line basis over the lease term.

On July 1, 2022, the Group adopted ASU 2016-02, Leases (Topic 842), using the modified retrospective transition method and used an effective date of July 1, 2022 as the date of initial application. As a result, the comparative periods were not restated.

The Group has elected the package of practical expedients permitted which allows the Group not to reassess the following at adoption date: (i) whether any expired or existing contracts are or contains a lease, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases (i.e. whether those costs qualify for capitalization under ASU 2016-02).

The Group determines whether an arrangement is or contains a lease at inception. The Group’s accounting policy effective on the adoption date of ASU 2016-02 is as follows:

Operating lease as Lessee

The Group classifies a lease as a financing lease when the lease meets any one of the following criteria at lease commencement:

a. | The lease transfers ownership of the underlying asset to the lessee by the end of the lease term.

b. | The lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise.

c. | The lease term is for a major part of the remaining economic life of the underlying asset.

F-19

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Leases (continued)

The Group classifies a lease as a financing lease when the lease meets any one of the following criteria at lease commencement (continued):

d. | The present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset.

e. | The underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term.

When none of the criteria are met, the Group classifies a lease as an operating lease.

For operating leases, the Group records a lease liability and corresponding right-of-use (ROU) asset at lease commencement. Lease terms are based on the non-cancellable term of the lease and may contain options to extend the lease when it is reasonably certain that the Group will exercise the option. Lease liabilities represent the present value of the lease payments not yet paid, discounted using the discount rate for the lease at lease commencement.

The Group estimates its incremental borrowing rate for its leases at the commencement date to determine the present value of future lease payments when the implicit rate is not readily determinable in the lease. In estimating its incremental borrowing rate, the Group considers its credit rating and publicly available data of borrowing rates for loans of similar amount, currency and term as the lease.

Operating leases are presented as “Operating lease ROU assets” and “Operating lease liabilities”. Lease liabilities that become due within one year of the balance sheet date are classified as current liabilities. At lease commencement, operating lease ROU assets represent the right to use underlying assets for their respective lease terms and are recognized at amounts equal to the lease liabilities adjusted for any lease payments made prior to the lease commencement date, less any lease incentives received and any initial direct costs incurred by the Group.

After lease commencement, operating lease liabilities are measured at the present value of the remaining lease payments using the discount rate determined at lease commencement. Operating lease ROU assets are measured at the amount of the lease liabilities and further adjusted for prepaid or accrued lease payments, the remaining balance of any lease incentives received, unamortized initial direct costs and impairment of the ROU assets, if any. Operating lease expense is recognized as a single cost on a straight-line basis over the lease term.

F-20

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Leases (continued)

The cumulative effect of the changes made to the Group’s consolidated balance sheet as of July 1, 2022 for the adoption of ASU 2016-02 is as follows:

|  | Balance as of |  |  | Adjustments due to |  |  | Balance as of |
|  | June 30, |  |  | the adoption of |  |  | July 1, |
|  | 2022 |  |  | ASU 2016-02 |  |  | 2022 |
|  | US$ |  |  | US$ |  |  | US$ |
Assets: |  |  |  |  |  |  |  |  |
Prepayments and other current assets |  |  | 4,215,414 |  |  |  | (1,000 | ) |  |  | 4,214,414 |
Operating lease ROU assets |  |  | - |  |  |  | 1,607,044 |  |  |  | 1,607,044 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Operating lease liabilities (current) |  |  | - |  |  |  | 928,675 |  |  |  | 928,675 |
Operating lease liabilities (non-current) |  |  | - |  |  |  | 710,602 |  |  |  | 710,602 |
Accrued expenses and other liabilities |  |  | 352,402 |  |  |  | (33,233 | ) |  |  | 319,169 |

The impact of adopting ASU 2016-02 on the Group’s consolidated balance sheet as of June 30, 2023 are as follows:

|  |  |  |  |  |  |  | Effect of the |
|  |  |  |  |  |  |  | adoption of |
|  |  |  |  |  |  |  | ASU 2016-02 |
|  | As reported |  |  | Legacy GAAP |  |  | Higher/(lower) |
|  | US$ |  |  | US$ |  |  | US$ |
Assets: |  |  |  |  |  |  |  |  |
Operating lease ROU assets |  |  | 815,324 |  |  |  | - |  |  |  | 815,324 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Operating lease liabilities (current) |  |  | 712,302 |  |  |  | - |  |  |  | 712,302 |
Operating lease liabilities (non-current) |  |  | 104,114 |  |  |  | - |  |  |  | 104,114 |
Accrued expenses and other liabilities |  |  | 324,021 |  |  |  | 325,113 |  |  |  | (1,092 | )

The adoption of the standard did not have significant impact to the Group’s consolidated statements of comprehensive loss or cash flows for the year ended June 30, 2023.

F-21

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Employee defined contribution plan

Full time employees of the Company in the PRC participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the Company make contributions to the government for these benefits based on a certain percentage of the employee’s salaries. The Company has no legal obligation for the benefits beyond the contributions. The total amount is expensed as incurred. The expenses related to these plans were $6,180,287, $16,771,118 and $18,025,748 for the years ended June 30, 2021, 2022 and 2023, respectively.

Income taxes

The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized, when it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized.

The Company accounts for uncertainties in income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”). An uncertain tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the consolidated statements of comprehensive (loss)/ income in the period incurred. All of the tax returns of the Company’s subsidiaries in China remain subject to examination by the tax authorities for five years from the date of filing through year 2026, and the examination period was extended to 10 years for entities qualified as High and New Technology Enterprises (“HNTEs”) in 2018 and thereafter.

Warrants

Equity-classified warrants are initially measured at the grant date fair value. Subsequent changes in fair value are not recognized as long as the contract continues to be classified in equity. The Company, with the assistance of an independent third-party valuation firm, used the Black-Scholes pricing model to estimate the fair value of warrants. The determination of estimated fair value of warrants on the grant date was mainly affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These variables include the Company’s expected stock price volatility over the expected term of the awards, a risk-free interest rate and any expected dividends.

F-22

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Share-based payment

The Company accounts for share-based payment in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Share awards issued to employees and directors, including employee stock option plans (“ESOPs”) and restricted share units (“RSUs”) are measured at fair value at the grant date. The Company, with the assistance of an independent third-party valuation firm, determined the fair value of the share options granted to employees. The Company uses the binomial lattice model to estimate the fair value of ESOPs, and uses the closing stock price at the grant date to measure the fair value of RSUs. The Company recognizes compensation expenses, net of forfeitures, using the accelerated method over the requisite service periods.

Forfeitures are estimated at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting ESOPs and RSUs’ forfeitures and records share-based compensation expense only for those awards that are expected to vest.

A change in the terms or conditions of share-based payment awards is accounted for as a modification of awards. The Company measures the incremental compensation cost of a modification as the excess of the fair value of the modified awards over the fair value of the original awards immediately before its terms are modified, based on the share price and other pertinent factors at the modification date. For vested awards, the Company recognizes incremental compensation cost in the period the modification occurred. For unvested awards, the Company recognizes, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

A cancellation of an award that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted for as a repurchase for no consideration. Accordingly, the Company recognized previously unrecognized compensation cost at the cancellation date and reversed previously recognized share capital to additional paid-in capital.

Earnings per share

Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and potential common shares outstanding during the period, which may include RSUs, options and warrants. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect (i.e. an increase in earnings per share amounts) on earnings per share.

F-23

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Foreign currency

The functional currency of the Company is US$. The functional currencies of the Company’s subsidiaries are the local currency of the country in which the subsidiary operates, which is determined based on ASC Topic 830, Foreign Currency Matters (“ASC 830”).

Transactions denominated in foreign currencies are re-measured into the functional currency at the exchange rates as set forth in the H.10 statistical release of the U.S. Federal Reserve Board prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at the exchange rates prevailing at the balance sheet dates. Non-monetary items that are measured in terms of historical costs in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of comprehensive(loss)/ income.

The Company’s financial statements are reported using US$. The financial statements of the Company’s subsidiaries whose functional currencies are not US$ are translated from the functional currency to the reporting currency. Assets and liabilities are translated at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as accumulated comprehensive income (loss) and are shown as a separate component of other comprehensive income (loss) in the consolidated statements of comprehensive(loss)/ income.

Fair value of financial instruments

The Company applies ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided for fair value measurements.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs which are supported by little or no market activity.

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-24

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value of financial instruments (continued)

Financial instruments of the Company primarily consist of cash and cash equivalents, short-term investments, accounts receivable, other assets, note receivables, amounts due from related parties, equity investments without readily determinable fair values, accounts payable and other current liabilities, amounts due to related party, short-term bank loans and long-term bank loans. The carrying amounts of these financial instruments, except for short-term investments, equity investments without readily determinable fair values and long-term bank loans, approximate their fair values because of their generally short maturities.

The fair value of the Company’s trading securities is measured using the income approach, based on quoted market interest rates of similar instruments and other significant inputs derived from or corroborated by observable market data.

The carrying amount of long-term bank loans approximates its fair value due to the fact that the related interest rates approximate market rates for similar debt instruments of comparable maturities.

For equity investments without readily determinable fair values, the Company elected to use the measurement alternative to measure those investments in the cases of an impairment charge is recognized, fair value of an investment is remeasured in an acquisition/a disposal, and an orderly transaction for identical or similar investments of the same issuer is identified. The non-recurring fair value measurements to the carrying amount of an investment usually requires management to estimate a price adjustment for the different rights and obligations between a similar instrument of the same issuer with an observable price change in an orderly transaction and the investment held by the Company. The valuation methodologies involved require management to use the observable transaction price at the transaction date and other unobservable inputs (level 3) such as volatility of comparable companies and probability of exit events as it relates to liquidation and redemption preferences.

There is no assets and liabilities measured on a recurring basis or disclosed at fair value as of June 30, 2023 and 2022.

F-25

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value of financial instruments (continued)

For the years ended June 30, 2023 and 2022, there was no gain or loss recognized for the equity investments using the measurement alternative. As of June 30, 2023 and 2022, the Company had no financial assets and liabilities measured and recorded at fair value on a non-recurring basis.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements in ASC 820. The Company adopted ASU 2018-13 on July 1, 2020, which has no material impact to the Company’s consolidated financial statements.

Comprehensive income

Comprehensive income is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding transactions resulting from investments by owners and distributions to owners. Accumulated other comprehensive income (loss) of the Company includes foreign currency translation adjustments related to the Company’s subsidiaries whose functional currency is not US$.

Statements of cash flows

In accordance with ASC Topic 230, Statement of Cash Flows (“ASC 230”), cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Concentrations and risks

- Foreign currency risk

A majority of the transactions of the Company’s PRC subsidiaries are denominated in Renminbi (“RMB”) and a significant portion of the Company and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. Remittances in currencies other than RMB by the Company in China must be processed through the People’s Bank of China (“PBOC”) or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

The functional currency for the Company’s PRC subsidiaries is the RMB, and the financial statements are presented in U.S. dollars. The RMB appreciated by 8.6% in fiscal 2021, depreciated by 3.7% in fiscal 2022, and depreciated by 8.3% in fiscal 2023, respectively. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. The change in the value of the RMB relative to the U.S. dollar may affect the Company’s financial results reported in the U.S. dollar terms without giving effect to any underlying changes in its business or results of operations. Currently, the majority of the Company’s assets, liabilities, revenues and costs are denominated in RMB.

F-26

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Concentrations and risks (continued)

- Foreign currency risk (continued)

To the extent that the Company needs to convert U.S. dollars into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into U.S. dollar for the purpose of making payments for dividends, strategic acquisition or investments or other business purposes, appreciation of U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to the Company.

- Concentration of credit risk

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents, account receivables, other assets, note receivables, and amounts due from related parties. As of June 30, 2023 and 2022, US$17,809,090 and US$14,787,554 of the Company’s cash and cash equivalents was on deposit at financial institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain insurance to cover bank deposits in the event of bank failure. As of June 30, 2023, the Company and its subsidiaries had US$17,809,090, US$1,289,130, US$13,543, US$2,832,122, US$ 90,180, US$32,368, US$34,921, US$120,953 and US$79,326 of cash and cash equivalents on deposit at financial institutions in mainland China, Singapore, Australia, Hong Kong, Malaysia, India, Japan, America and Philippines, respectively. As of June 30, 2022, the Company and its subsidiaries had US$14,787,554, US$2,034,692, US$6,800, US$1,195,402, US$6,799, US$4,007, US$75,322, US$24,583 and US$91,828 of cash and cash equivalents on deposit at financial institutions in mainland China, Singapore, Australia, Hong Kong, Malaysia, India, Japan, America and Philippines, respectively. The Company continues to monitor the financial strength of the financial institutions. There has been no recent history of default in relation to these financial institutions.

The Company conducts credit evaluations on its customers and generally does not require collateral or other security from such customers. The Company periodically evaluates the creditworthiness of the existing customers in determining an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

- Significant customers

The top two customers and their affiliates accounted for 21.4%, and 9.4%, respectively, of total revenues during the year ended June 30, 2023, 20.6%, and 12.2%, respectively, of total revenues during the year ended June 30, 2022. The top two customers and their affiliates accounted for 19.1%, and 11.9%, respectively, of total revenues during the year ended June 30, 2021. The top two customers accounted for 32.3%, and 4.1%, respectively, of the Company’s total accounts receivable balance as of June 30, 2023, 30.2%, and 9.3%, respectively, of the Company’s total accounts receivable balance as of June 30, 2022.

Risks and uncertainties

The significant operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, may not be indicative of future results.

F-27

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 3 – ACQUISITION AND DECONSOLIDATIONS OF SUBSIDIARIES

Acquisition of CareerWin

In January 2021, JAJI China entered into an agreement with CareerWin to purchase CareerWin’s 30% equity interest in JAJI HR. JAJI China previously owned 70% of JAJI HR. After the transaction, JAJI China owned 100% of JAJI HR. At the same time, JAJI HR entered into a share purchase agreement with shareholders of CareerWin to purchase 100% equity interests of CareerWin to expand headhunting business, with JAJI China completing the purchase of 30% equity interest of JAJI HR as one of the pre-closing conditions. The total cash consideration of both transactions was $308,975 (RMB 2 million). The total consideration was allocated to the acquisition of 100% equity interests in CareerWin and the acquisition of 30% noncontrolling interest in JAJI HR (Note 19) at $289,980 (RMB 1.88 million) and $18,995 (RMB 0.12 million), respectively.

The acquisition of the 100% equity interest in Careerwin was completed on March 3, 2021 and was accounted for as a business combination using the purchase method of accounting. The purchase price allocation of the transaction was determined by the Company with the assistance of an independent appraisal firm based on the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date. The most significant variables in the valuation are discount rate, terminal value, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The purchase price allocation to assets acquired and liabilities assumed as of the date of acquisition was as follows:

|  | Amounts |
Cash acquired |  | $ | 4,037 |
Accounts receivable, net |  |  | 24,811 |
Property and equipment, net |  |  | 2,117 |
Intangible assets, net |  |  | 126,680 |
Accounts payable and other current liabilities |  |  | (71,488 | )
Tax payables |  |  | (2,576 | )
Salaries and benefits payable |  |  | (5,099 | )
Deferred tax liabilities |  |  | (25,336 | )
Goodwill |  |  | 236,834 |
Total consideration |  | $ | 289,980 |

Identifiable intangible assets acquired include customer relationship, which were valued using an income approach and determined to carry estimated remaining useful lives of approximately five years. The goodwill recognized represents the expected synergies and is not tax deductible.

Pro forma financial information of CareerWin is not presented as the effects of the acquisition on the Company’s consolidated financial statements were not material.

F-28

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 3 – ACQUISITION AND DECONSOLIDATIONS OF SUBSIDIARIES - continued

Acquisition of MSCT

On May 18, 2021, Growth Ring Ltd. (“Growth Ring”) entered into a capital increase agreement with Minshang Creative Technology Holdings Limited (“MCT”) to purchase MCT’s 53.33% equity interest in MSCT, at a total cash consideration of $205,711 (HK$1,600,000). After the transaction, Growth Ring owned 53.33% of MSCT and MCT owned the remaining 46.67% equity interests.

The acquisition of the 53.33% equity interest in MSCT was completed on August 16, 2021. As MSCT does not possess all the elements that are necessary to conduct normal operations as a business and had not yet commenced operations, such acquisition is accounted for as an acquisition of using a cost accumulation and allocation model under which the cost of the acquisition is allocated to the assets acquired and liabilities assumed. The carrying amounts of the net identifiable assets of MSCT as of the date of acquisition were as follows:

|  | Amounts |
Net assets acquired: |  |  |
Cash and cash equivalents |  | $ | 205,711 |
Intangible assets (Note 7) |  |  | 151,168 |
Other current liabilities |  |  | (5,390 | )
Deferred tax liabilities |  |  | (23,971 | )
Noncontrolling interests |  |  | (121,807 | )
Total consideration |  | $ | 205,711 |

The valuation used in the purchase price allocation described above was determined by the Company with the assistance of independent third-party valuation firm. The valuation report applied generally accepted valuation methodology, the income approach. As the acquiree is a private company, the fair value estimates of noncontrolling interest is based on significant inputs considered by market participants which mainly include (a) discount rate, (b) projected terminal value based on future cash flows, (c) equity multiples or enterprise value multiples of companies in the same industries and (d) adjustment for lack of control or lack of marketability.

F-29

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 4 – ACCOUNTS RECEIVABLE, NET

Accounts receivable, net consisted of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Trade accounts receivable |  | $ | 48,582,555 |  |  | $ | 53,896,259 |
Less: allowance for credit losses |  |  | (67,088 | ) |  |  | (126,372 | )
Accounts receivable, net |  | $ | 48,515,467 |  |  | $ | 53,769,887 |

The movement of the allowance for doubtful accounts is as follows:

|  | Fiscal Year |
|  | 2023 |  |  | 2022 |
Balance as of June 30, 2022 |  | $ | 126,372 |  |  | $ | 309,076 |
Adoption of ASU 2016-13 |  |  | 13,372 |  |  |  | - |
Provision for doubtful accounts |  |  | 11,238 |  |  |  | 2,508 |
Recovery of doubtful accounts |  |  | (15,788 | ) |  |  | (180,518 | )
Write off for doubtful account |  |  | (67,599 | ) |  |  | - |
Foreign currency translation adjustments |  |  | (507 | ) |  |  | (4,694 | )
Balance as of June 30, 2023 |  | $ | 67,088 |  |  | $ | 126,372 |

NOTE 5 – PREPAYMENTS, DEPOSITS AND OTHER ASSETS, NET

Prepayments, deposits and other assets, net consisted of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Prepaid expenses* |  | $ | 510,462 |  |  | $ | 928,025 |
Contract assets |  |  | 691,025 |  |  |  | 1,461,411 |
Advances and deposits to suppliers* |  |  | 155,179 |  |  |  | 728,238 |
Deferred contract costs |  |  | 114,400 |  |  |  | 714,127 |
Note receivables |  |  | 280,223 |  |  |  | 187,916 |
Advances to employees |  |  | 100,090 |  |  |  | 6,865 |
Government subsidies |  |  | - |  |  |  | 437,288 |
Prepaid VAT |  |  | 74,329 |  |  |  | - |
Less: allowance for credit loss |  |  | (7,316 | ) |  |  | - |
Total |  |  | 1,918,392 |  |  |  | 4,463,870 |
Less: non-current portion |  |  | (252,656 | ) |  |  | (248,456 | )
Prepayments, deposits and other assets – current portion |  | $ | 1,665,736 |  |  | $ | 4,215,414 |

* | Prepaid expenses, advances and deposits to suppliers primarily consists of advances and deposits to suppliers for purchasing goods or services that have not been received or provided.

F-30

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 5 – PREPAYMENTS, DEPOSITS AND OTHER ASSETS, NET - continued

The movement of the allowance for doubtful accounts is as follows:

|  | Fiscal Year |
|  | 2023 |  |  | 2022 |
Balance as of June 30, 2022 |  | $ | - |  |  | $ | - |
Adoption of ASU 2016-13 |  |  | 13,292 |  |  |  | - |
Recovery of doubtful accounts |  |  | (5,976 | ) |  |  | - |
Balance as of June 30, 2023 |  | $ | 7,316 |  |  | $ | - |

NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Office building |  | $ | 20,354,809 |  |  | $ | 20,198,454 |
Equipment |  |  | 1,067,695 |  |  |  | 1,224,250 |
Office building related facility, machinery and equipment |  |  | 182,503 |  |  |  | 225,773 |
Automobiles |  |  | 37,421 |  |  |  | 118,472 |
Office Furniture |  |  | 136,034 |  |  |  | 69,448 |
Leasehold improvements |  |  | 772,210 |  |  |  | 667,785 |
Total |  |  | 22,550,672 |  |  |  | 22,504,182 |
Less: accumulated depreciation |  |  | (2,438,367 | ) |  |  | (1,903,084 | )
Property and equipment, net |  | $ | 20,112,305 |  |  | $ | 20,601,098 |

Depreciation expense was $1,040,734, $709,836, and $404,063, for the years ended June 30, 2023, 2022 and 2021, respectively. No impairment loss was recognized for the years ended June 30, 2023, 2022 and 2021.

As of June 30, 2023, the office building with carrying amount of US$15,292,336 is mortgaged to secure financing credit facility of HKD 58,000,00 from Taipei Fubon Bank.

F-31

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 7 – INTANGIBLE ASSETS, NET

As of June 30, 2023 and 2022, intangible assets, net consisted of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Customer relationship |  | $ | 924,351 |  |  | $ | 1,021,509 |
Customer contracts |  |  | - |  |  |  | 344,003 |
Software |  |  | 222,982 |  |  |  | 228,853 |
Less: accumulated amortization |  |  | (421,158 | ) |  |  | (624,321 | )
Intangible assets, net |  | $ | 726,175 |  |  | $ | 970,044 |

During the year ended June 30, 2022, software of $150,468 was derived from the asset acquisition of MSCT with an estimated useful life of 10 years (Note 3).

The movement of intangible assets, net is as follow:

|  | For the year ended June 30, 2023 |
Balance as of July 1, 2022 |  | $ | 970,044 |
Addition |  |  | - |
Amortization |  |  | (179,078 | )
Disposal |  |  | (74,686 | )
Foreign currency translation adjustment |  |  | 9,895 |
Balance as of June 30, 2023 |  | $ | 726,175 |

The amortization expenses were $179,078, $202,412 and $273,178 for the years ended June 30, 2023, 2022 and 2021. Estimated future amortization expenses are as follows:

Year ending June 30, |  | Amortization expense |
2024 |  | $ | 121,050 |
2025 |  |  | 116,823 |
2026 |  |  | 109,954 |
2027 |  |  | 107,628 |
2028 |  |  | 107,493 |
2029 and after |  |  | 163,227 |
Total |  | $ | 726,175 |

No impairment losses were recognized for the years ended June 30, 2023, 2022 and 2021.

F-32

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 8 – GOODWILL

The changes in the carrying amount of goodwill for the year ended June 30, 2023 were as follows:

|  | For the year ended June 30, 2023 |
Balance as of July 1, 2022 |  | $ | 2,363,841 |
Impairment |  |  | (2,382,538 | )
Foreign currency translation adjustment |  |  | 18,697 |
Balance as of June 30, 2023 |  | $ | - |

For the year ended June 30, 2022，the Company performed a qualitative assessment of the goodwill for the reporting unit based on the requirements of ASC 350-20，evaluated all relevant factors, weighed all factors in their entirety and concluded that the two-step quantitative impairment test on goodwill was necessary as of June 30, 2022. The Company compared the carrying amount of the reporting unit to the fair value of the reporting unit based on estimated fair value using the income approach and the fair value of the reporting unit exceeded the carrying value of the reporting unit, goodwill is not impaired and the Company is not required to perform further testing, and no impairment loss shall be attributed to the parent or the noncontrolling interest.

For the year ended June 30, 2023, the Company bypassed the qualitative assessment and performed a quantitative assessment of the goodwill for the reporting unit based on the requirements of ASC 350-20. The Company performed a quantitative assessment by estimating the fair value of the reporting unit based on market approach using multiples of comparable companies and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The fair value of the reporting unit is less than its carrying value and therefore, impairment loss of US$2,382,538 was recognized for the year ended June 30, 2023.

NOTE 9 – LEASE

The Group has operating leases as the lessee for certain offices.

The Group’s lease agreements include lease payments that are fixed, do not contain material residual value guarantees or variable lease payments. The leases have remaining lease terms of up to four years without option to extend the lease. The Group’s leases do not contain restrictions or covenants that restrict the Group from incurring other financial obligations. The Group’s lease agreements may contain lease and non-lease components. Non-lease components primarily include payments for property management fee. Consideration for lease and non-lease components are allocated on a relative standalone selling price basis.

F-33

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 9 – LEASE- continued

Operating leases as Lessee- continued

The components of lease cost were as follows:

|  | For the year ended June 30, 2023 |
Operating lease cost |  | $ | 1,070,385 |

|  | For the year ended June 30, 2023 |
Other information |  |  |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |
Operating cash flows from operating leases |  | $ | 1,101,526 |
ROU assets obtained in exchange for new operating lease liabilities |  |  | 815,324 |
Weighted-average remaining lease term (in years): |  |  |  |
Operating leases |  |  | 1.21 |
Weighted-average discount rate: |  |  |  |
Operating leases |  |  | 5.54 | %

For the year ended June 30, 2023, total operating lease costs of US$ 783,669,US$ 263,775, US $ 55,082 were recorded in general and administrative expenses, selling expenses and research and development expenses, respectively.

Total expenses under operating leases were US$ 942,606 and US$ 1,413,521 for the years ended June 30, 2021 and 2022, respectively.

Future minimum lease payments for operating leases as of June 30, 2023 are as follows:

|  | Operating Leases |
For the year ended June 30,2024 |  | $ | 733,982 |
For the year ended June 30,2025 |  |  | 105,063 |
Thereafter |  |  | - |
Total minimum lease payments |  |  | 839,045 |
Less: imputed interest |  |  | 22,629 |
Total lease liability balance |  | $ | 816,416 |
Minimum payments related to leases not yet commenced as of June 30, 2023 |  |  | - |

F-34

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 10 – LONG-TERM INVESTMENTS

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Equity investments without readily determinable fair values |  |  |  |  |  |
Beijing UniDev Software Co., Ltd. (“UniDev”) |  | $ | 232,924 |  |  | $ | 252,161 |
Shenzhen Huaqin Robotics Co., Ltd. (“Huaqin Robotics”) |  |  | - |  |  |  | 149,296 |
Total equity investments without readily determinable fair values |  |  | 232,924 |  |  |  | 401,457 |
Equity method investments |  |  |  |  |  |  |  |
Fuson Group Limited (“Fuson”) |  |  | 210,243 |  |  |  | 139,164 |
Shanghai Shier Information Technology Co., Ltd. (“Shier”) |  |  | 13,431 |  |  |  | 69,765 |
Total equity method investments |  |  | 223,674 |  |  |  | 208,929 |
|  | $ | 456,598 |  |  | $ | 610,386 |

Equity investments without readily determinable fair values

The Company recognized an impairment loss of $32,744 for Huaqin Robotics for the year ended June 30, 2023 as “Other expenses” in the Consolidated Statements of Comprehensive (Loss)/Income. The investment was further disposed with no gains or losses recorded. There were no other downward adjustments (including impairment charges) or any upward adjustments recognized on equity investments without readily determinable fair value during any of the years presented

Equity method investments

On February 3, 2021, the Company purchased a 35% equity interest of Shier at a cash consideration of $83,228 (RMB 0.54 million).

On September 16, 2021, the Company purchased a 35.02% equity interest of Fuson at a cash consideration of $157,464 (HK$1.2 million).

The Company accounts for the investments in Shier and Fuson as equity method investments due to its significant influence over the entities.

The company recognized an impairment loss of $52,582 for Shier of for the year ended June 30, 2023 and an impairment loss of $102,155 of EMIT for the year ended June 30, 2022 as “Other expenses” in the Consolidated Statements of Comprehensive (Loss)/Income. No impairment loss was recorded for the year ended June 30, 2021.

The carrying amount of the equity method investments in excess of the Company’s proportionate interest was not material and recognized as equity method goodwill.

Selected financial information of the equity method investees are not presented as the effects were not material.

F-35

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 11 – BANK LOANS

Outstanding balances of bank loans consisted of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Loan from Bank of Shanghai Pudong Development |  | $ | 5,683,626 |  |  | $ | 7,040,738 |
Loan from China Merchants Bank |  |  | 3,491,928 |  |  |  | 5,931,331 |
Loan from Bank of Communication |  |  | 1,379,063 |  |  |  | 1,492,961 |
Loans from Development Bank of Singapore |  |  | - |  |  |  | 9,333 |
Total bank loans |  | $ | 10,554,617 |  |  | $ | 14,474,363 |
Less: Non-current portion |  |  | - |  |  |  | - |
Short-term bank loans and long-term bank loans – current portion |  | $ | 10,554,617 |  |  | $ | 14,474,363 |

Bank loans consisted of several bank loans denominated in RMB and SGD.

As of June 30, 2023, the Company had total financing credit facilities of RMB10,000,000 of which the unused amount was zero.

As of June 30, 2023, the Company had total financing credit facilities of RMB10,000,000 and HKD 58,000,000 of which the unused amount was HKD 58,000,000.

Interest expenses were $365,893, $447,187, and $156,749 for the years ended June 30, 2023, 2022 and 2021, respectively. The effective weighted average interest rates were 3.467%, 3.771% and 4.160% for the years ended June 30, 2023, 2022 and 2021, respectively.

As of June 30, 2023, all loan principal will be due within 1 year.

F-36

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 12 – SALARIES AND BENEFITS PAYABLE

Full time employees of the Company located in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The Company accrued for these benefits based on certain percentages of the employees’ salaries. Salaries and benefits payable included $ 1,181,491 and $1,550,145 accrued employer portion of social benefits payable to local governments as of June 30, 2023 and 2022, respectively.

NOTE 13 – RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. The related parties that had transactions or balances with the Company in 2023 and 2022 consisted of:

Related Party |  | Relationship with the Company
Xiao Feng Yang |  | Chairman of the Board
Raymond Ming Hui Lin |  | CEO of the Company
Economic Modeling Information Technology Co., Ltd. (“EMIT”) |  | Equity investee of the Company
Beijing Bright Technology Co., Ltd (“Beijing Bright”) |  | Noncontrolling interest shareholder of JAJI China
UniDev |  | Equity investee of the Company
Fuson Group Limited (“Fuson”) |  | Equity investee of the Company
MCT |  | Noncontrolling interest shareholder of MSCT

F-37

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 13 – RELATED PARTY TRANSACTIONS - continued

(a) Related party balances

The balances due from and due to related parties were as follows:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Due from related parties: |  |  |  |  |  |
UniDev |  | $ | 201,908 |  |  | $ | 44,341 |
Fuson |  |  | 189,363 |  |  |  | 3,887 |
EMIT |  |  | - |  |  |  | 226,421 |
Beijing Bright |  |  | - |  |  |  | 102,993 |
Total |  | $ | 391,271 |  |  | $ | 377,642 |

Due from related parties mainly represents loan provided to UniDey and Fuson and unreceived IT service fee from Fuson.

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Due to related parties: |  |  |  |  |  |
UniDev |  | $ | 19,445 |  |  | $ | 33,727 |
MCT |  |  | 5,444 |  |  |  | 5,541 |
EMIT |  |  | - |  |  |  | 27,616 |
Total |  | $ | 24,889 |  |  | $ | 66,884 |

Due to related parties mainly represents the unpaid consulting service fee to UniDev and unpaid administrative fee to MCT.

F-38

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 13 – RELATED PARTY TRANSACTIONS - continued

(b) | Related party transactions

|  | For the year ended, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
a) Consulting services provided to the related parties |  |  |  |  |  |  |  |  |
UniDev |  | $ | - |  |  | $ | 46,008 |  |  | $ | - |
EMIT |  |  | 158 |  |  |  | 6,016 |  |  |  | - |
Fuson |  |  | 57,418 |  |  |  | - |  |  |  | - |
CLPS Lihong |  |  | - |  |  |  | - |  |  |  | 269,472 |
|  | $ | 57,576 |  |  | $ | 52,024 |  |  | $ | 269,472 |
b) Services provided by the related parties |  |  |  |  |  |  |  |  |  |  |  |
EMIT |  | $ | 221,584 |  |  | $ | 157,762 |  |  | $ | 758,976 |
UniDev |  |  | 269,966 |  |  |  | 34,995 |  |  |  | - |
Beijing Bright |  |  | 99,208 |  |  |  | 142,487 |  |  |  | 604,033 |
|  | $ | 590,758 |  |  | $ | 335,244 |  |  | $ | 1,363,009 |
c) Loans provided to the related parties |  |  |  |  |  |  |  |  |  |  |  |
UniDev |  | $ | 143,810 |  |  | $ | - |  |  | $ | - |
Fuson |  |  | 130,402 |  |  |  | - |  |  |  | - |
EMIT |  |  | - |  |  |  | 83,651 |  |  |  | 151,783 |
|  | $ | 274,212 |  |  | $ | 83,651 |  |  | $ | 151,783 |
d) Repayment of loans from the related parties |  |  |  |  |  |  |  |  |  |  |  |
EMIT |  | $ | 204,211 |  |  | $ | 15,491 |  |  | $ | - |
|  | $ | 204,211 |  |  | $ | 15,491 |  |  | $ | - |
e) Interest income received from the related parties |  |  |  |  |  |  |  |  |  |  |  |
UniDev |  | $ | 6,342 |  |  | $ | - |  |  | $ | - |
Fuson |  |  | 1,518 |  |  |  | - |  |  |  | - |
EMIT |  |  | 3,704 |  |  |  | 9,260 |  |  |  | - |
|  | $ | 11,564 |  |  | $ | 9,260 |  |  | $ | - |
f) Rental income from the related party |  |  |  |  |  |  |  |  |  |  |  |
Fuson |  | $ | 10,718 |  |  | $ | 3,587 |  |  | $ | - |

F-39

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 14 – TAXES

| (a) | Corporate Income Taxes (“CIT”)

Cayman Islands and BVI

Under the current laws of the Cayman Islands and BVI, the Company and subsidiaries in BVI are not subject to tax on income or capital gains.

Hong Kong

Subsidiaries in Hong Kong are subject to Hong Kong Profits Tax rate at 16.5%, and foreign-derived income is exempted from income tax.

Singapore

Subsidiaries in Singapore are subject to Singapore Corporate Income Tax rate at 17.0%, and foreign-derived income is exempted from income tax.

Mainland China

Under the Enterprise Income Tax (“EIT”) Law of PRC, enterprises are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and tax exemption may be granted if qualified. EIT Law grants a preferential tax rate to High and New Technology Enterprises (“HNTEs”). An enterprise qualified as HNTE and awarded with the “HNTE” certificate may enjoy a reduced EIT rate of 15%. CLPS Shanghai, the Company’s main operating subsidiary in PRC, was recognized as qualified HNTEs since 2013. Its latest qualified periods are for 2022 to 2024 and it enjoys a preferential tax rate of 15%. JAJI (Shanghai), the Company’s operating subsidiary in PRC, was recognized as qualified HNTEs since 2022. Its latest qualified periods are for 2022 to 2024 and it enjoys a preferential tax rate of 15%.

A qualified enterprise in encouraged industries registered in the Hainan Free Trade Port (“HFTP”) and engaged in substantive operations may enjoy a reduced EIT rate of 15%. CLPS Hainan, a Company’s subsidiary in the PRC, was recognized as a qualified enterprise engaged in encouraged industries registered in the Hainan Free Trade Port and engaged in substantive operations. It enjoys the reduced EIT rate of 15%.

F-40

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 14 – TAXES - continued

Income (loss) before income taxes

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Mainland China |  | $ | 4,350,067 |  |  | $ | 17,366,634 |  |  | $ | 14,814,221 |
Non- Mainland China |  |  | (3,580,421 | ) |  |  | (9,682,434 | ) |  |  | (6,493,761 | )
|  | $ | 769,646 |  |  | $ | 7,684,200 |  |  | $ | 8,320,460 |

The following table reconciles the statutory rate to the Company’s effective tax rate:

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
PRC statutory income tax rate |  |  | 25.0 | % |  |  | 25.0 | % |  |  | 25.0 | %
Effect of income tax rate difference in other jurisdictions |  |  | 115.5 | % |  |  | 25.8 | % |  |  | 19.1 | %
Effect of tax rate changes on deferred taxes |  |  | 7.9 | % |  |  | (0.3 | )% |  |  | (0.5 | )%
Effect of PRC preferential tax rate and tax relief |  |  | (28.5 | )% |  |  | (10.1 | )% |  |  | (5.3 | )%
Tax exempt income |  |  | (5.1 | )% |  |  | - |  |  |  | - |
Research and development credits |  |  | (230.4 | )% |  |  | (18.0 | )% |  |  | (28.9 | )%
Business Insurance |  |  | 13.7 | % |  |  | 1.5 | % |  |  | 1.3 | %
Late payment interest |  |  | 42.5 | % |  |  | 0.5 | % |  |  | 0.6 | %
Withholding tax |  |  | 9.1 | % |  |  | - |  |  |  | 11.7 | %
Depreciation and Amortization |  |  | 7.5 | % |  |  | 0.4 | % |  |  | (0.2 | )%
Investment gain/loss |  |  | 43.2 | % |  |  | (1.5 | )% |  |  | (0.1 | )%
Statutory income/expense |  |  | (6.1 | )% |  |  | (1.4 | )% |  |  | 1.6 | %
Intercompany transfers |  |  | (24.7 | )% |  |  | 10.8 | % |  |  | 7.5 | %
Deferred tax |  |  | - |  |  |  | - |  |  |  | (0.3 | )%
Change in valuation allowances |  |  | 43.3 | % |  |  | 6.6 | % |  |  | (16.7 | )%
Goodwill Provision |  |  | 69.0 | % |  |  | - |  |  |  | - |
Others |  |  | 5.8 | % |  |  | 0.5 | % |  |  | 0.3 | %
Effective tax rate |  |  | 87.7 | % |  |  | 39.8 | % |  |  | 15.1 | %

F-41

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 14 – TAXES - continued

(a) | Corporate Income Taxes (“CIT”) (continued)

The provision (benefit) for income tax consists of the following:

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Current income tax |  | $ | 410,317 |  |  | $ | 2,800,162 |  |  | $ | 1,670,733 |
Deferred income tax |  |  | 264,027 |  |  |  | 245,830 |  |  |  | (413,609 | )
Total provision for income tax expenses |  | $ | 674,344 |  |  | $ | 3,045,992 |  |  | $ | 1,257,124 |

As of June 30, 2023, the Company had net operating loss carry forwards of approximately $1,950,947 from the Company’s PRC subsidiaries, which will expire between 2023 and 2028 if not utilized. As of June 30, 2023, the Company had net operating loss carry forwards of approximately $1,339,665, $262,813, $919,278, $270,086 and $41,493 from its operations in Singapore, Australia, Hong Kong, Japan and Philippines, respectively. The net operating losses in Singapore, Australia and Hong Kong will be carried forward indefinitely while the net operating losses in Japan and Philippines will be carried forward for 10 years and 5 years, respectively.

The significant components of the deferred tax assets and liabilities are as follows:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Deferred tax assets: |  |  |  |  |  |
Net operating loss carry forwards |  | $ | 996,177 |  |  | $ | 743,898 |
Accrued expenses |  |  | 39,516 |  |  |  | 163,497 |
Lease liability |  |  | 169,375 |  |  |  | - |
Share of investee’s loss |  |  | 27,078 |  |  |  | 129,191 |
Others |  |  | 28,724 |  |  |  | 71,714 |
Valuation allowances |  |  | (1,009,596 | ) |  |  | (781,260 | )
Total deferred tax assets |  | $ | 251,274 |  |  | $ | 327,040 |
Deferred tax liabilities: |  |  |  |  |  |  |  |
Right-of-use assets |  | $ | 169,375 |  |  | $ | - |
Intangible assets |  |  | 117,781 |  |  |  | 150,547 |
Share of investee’s income |  |  | 67,601 |  |  |  | - |
Total deferred tax liabilities |  | $ | 354,757 |  |  | $ | 150,547 |
Net deferred tax assets |  |  | 81,899 |  |  |  | 327,040 |
Net deferred tax liabilities |  |  | 185,382 |  |  |  | 150,547 |

As of June 30, 2023 and 2022, valuation allowances were provided against deferred tax assets in entities which were in a three-year cumulative losses position and/or are not forecasted to turn profits in the foreseeable future.

For the years ended June 30, 2023,2022 and 2021, the Company accrued dividend distribution withholding tax for the remittance of earnings from subsidiaries in Mainland China to offshore entities of $70,016, nil and $994,941, respectively. As of June 30, 2023 and 2022, the Company intended to permanently reinvest the remaining undistributed earnings from PRC subsidiaries to fund future operations and thus no deferred tax has been recognized for withholding taxes that would be payable on the unremitted earnings that are subject to withholding taxes of the Company’s subsidiaries established in the PRC.As of June 30, 2023 and 2022, the taxable temporary differences for unrecognized deferred tax liabilities related to investments in foreign subsidiaries were $23,459,996 and $23,731,272, respectively. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign subsidiaries is not determined because such a determination is not practicable.

F-42

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 14 – TAXES - continued

(a) | Corporate Income Taxes (“CIT”) (continued)

Uncertain tax positions

The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. It is possible that the amount of unrecognized benefit will further change in the next 12 months; however, an estimate of the range of the possible change cannot be made at this moment. Unrecognized tax benefits were presented in “other non-current liabilities” in the consolidated balance sheets. As of June 30, 2023, 2022 and 2021, the Company had unrecognized tax benefits of $2,442,085, $3,095,554 and $1,333,608, respectively, if ultimately recognized, will impact the effective tax rate. The Company has presented unrecognized tax benefits of $1,924,305, $2,497,005 and $1,750,616 on a net basis with deferred tax assets relating to tax losses carry forward, $21,256, $ 446,490 and $208,109 of which a full valuation allowance would otherwise be recorded as of June 30, 2023, 2022 and 2021. The Company recorded interests of $313,305 and zero penalties related to potential underpaid income tax expenses for the year ended June 30, 2023 and interests of $36,363 and zero penalties for the year ended June 30, 2022, $53,826 interests and zero penalties for the year ended June 30, 2021.

A reconciliation of the beginning and ending amount of unrecognized tax benefit was as follows:

|  | 2023 |  |  | 2022 |  |  | 2021 |
Balance at July 1 |  | $ | 3,095,554 |  |  | $ | 1,333,608 |  |  | $ | 194,939 |
Increase |  |  | 934,563 |  |  |  | 2,132,154 |  |  |  | 1,139,596 |
Decrease |  |  | (1,386,797 | ) |  |  | (267,622 | ) |  |  | (47,149 | )
Foreign currency translation adjustment |  |  | (201,235 | ) |  |  | (102,586 | ) |  |  | 46,222 |
Balance at June 30 |  | $ | 2,442,085 |  |  | $ | 3,095,554 |  |  | $ | 1,333,608 |

As of June 30, 2023, the open tax years for Mainland China ranges from calendar year 2018 to calendar year 2022.

(b) | Tax Payables

The Company’s tax payables consist of the following:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
VAT payable |  | $ | 654,799 |  |  | $ | 693,239 |
Corporate income tax payable |  |  | 417,445 |  |  |  | 462,792 |
Withholding tax payable |  |  | 343,753 |  |  |  | 349,582 |
Disability insurance fund payable |  |  | 1,011,958 |  |  |  | 776,979 |
Other tax payables |  |  | 75,420 |  |  |  | 72,474 |
Total tax payables |  | $ | 2,503,375 |  |  | $ | 2,355,066 |

F-43

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 15 – COMMITMENTS AND CONTINGENCIES

Commitments

As of June 30, 2023, the Company has no outstanding commitments other than the operating lease payments (Note 9).

Contingencies

From time to time, the Company is subject to legal proceedings, investigations, and claims incidental to the conduct of its business. The Company is currently not involved in any legal or administrative proceedings that may have a material adverse impact on the Company’s business, financial position, results of operations or cash flows.

F-44

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 16 – EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Basic earnings per share calculation: |  |  |  |  |  |  |  |  |
Numerator: |  |  |  |  |  |  |  |  |
Net income attributable to common shares |  | $ | 192,529 |  |  | $ | 4,455,428 |  |  | $ | 6,816,572 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Basic earnings per share attributable to common shares |  | $ | 0.01 |  |  | $ | 0.21 |  |  | $ | 0.39 |
Diluted earnings per share calculation: |  |  |  |  |  |  |  |  |  |  |  |
Numerator: |  |  |  |  |  |  |  |  |  |  |  |
Net income attributable to common shares for calculating diluted earnings per share |  | $ | 192,529 |  |  | $ | 4,455,428 |  |  | $ | 6,816,572 |
Denominator: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average common shares outstanding |  |  | 23,153,976 |  |  |  | 20,924,683 |  |  |  | 17,279,443 |
Weighted average common shares equivalents: |  |  |  |  |  |  |  |  |  |  |  |
Effects of dilutive securities |  |  |  |  |  |  |  |  |  |  |  |
Warrants |  |  | - |  |  |  | - |  |  |  | - |
Share options |  |  | - |  |  |  | - |  |  |  | 179,479 |
RSUs |  |  | - |  |  |  | 132,380 |  |  |  | 110,518 |
Shares used in computing diluted earnings per share attributable to common shares |  |  | 23,153,976 |  |  |  | 21,057,063 |  |  |  | 17,569,440 |
Diluted earnings per share attributable to common shares |  | $ | 0.01 |  |  | $ | 0.21 |  |  | $ | 0.39 |

For the years ended June 30, 2022 and 2023, warrants and options were out-of-the-money with no dilutive effect. For the year ended June 30, 2021, warrants were out-of-the-money with no dilutive effect. The effects of the outstanding RSUs were anti-dilutive and excluded from the computation of diluted earnings per share for the year ended June 30, 2023.

F-45

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 17 – WARRANTS

Warrants issued on March 3, 2021

On March 3, 2021, the Company issued 2,666,666 warrants to with certain accredited investors concurrently with the private placement transaction (Note 18). Each warrant to purchase one common share of the Company at $6.0 per share and can be exercised prior to the termination date which is September 3, 2026. During year ended June 30, 2023, no warrants were exercised. As of June 30, 2023 and 2022, 2,666,666 warrants were issued and outstanding.

The warrants are classified as equity contracts and measured at the grant date fair value. The Company used the Black-Scholes option pricing model to estimate the fair value of warrants. The assumptions used to value the Company’s warrants were as follows:

|  | For the year ended June 30, 2021 |
Expected term (in years) |  |  | 5.50 |
Expected volatility |  |  | 41.48 | %
Risk-free interest rate |  |  | 0.83 | %

Expected term was determined with reference to the termination dates stated in the warrant purchase agreements Expected volatilities are based on similar public companies’ volatilities of the similar public companies’ common shares over the respective expected terms of share-based awards. Risk-free interest rate is based on US Treasury zero-coupon issues with maturity terms similar to the expected term on the warrants. The aggregated fair value of the public offering warrants on March 3, 2021 was $3,413,332.

F-46

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 18 – SHARE-BASED PAYMENT

a) | The 2017 Stock Incentive Plan (the “2017 Plan”)

In November 2017, the Company’s shareholders and Board of Directors (“Board”) approved the 2017 Plan. The 2017 Plan provides for discretionary grants of, among others, RSU, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the Plan is to recognize contributions made to the Company by such individuals and to provide them with additional incentive to achieve the objectives of the Company. The Board authorized up to 2,210,000 shares for grants under the terms of the 2017 Plan. The grants under the 2017 Plan generally have a maximum contractual term of ten years from the date of grant. The terms of individual agreements for various grants under the Plan will be determined by the Board (or its Compensation Committee) and may contain both service and performance conditions.

b) | 2019 Equity Incentive Plan (the “2019 Plan”)

In April 2019, the Company’s shareholders and Board approved the 2019 Plan. The 2019 Plan provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the 2019 Plan is to recognize contributions made to the Company by such individuals and to provide them with additional incentive to achieve the objectives of the Company. The Board authorized up to 2,220,000 shares for grants under the terms of the 2019 Plan. No award was granted under the 2019 Plan.

c) | 2021 Equity Incentive Plan (the “2020 Plan”)

In April 2020, the Company’s shareholders and Board approved the 2020 Plan. The 2020 Plan is to cancel the rest of authorized shares not granted under the 2017 and 2019 Plan. The 2020 Plan provides for discretionary grants of, among others, stock options, stock awards and stock unit awards to key employees and directors of the Company. The purpose of the 2020 Plan is to recognize contributions made to the Company by such individuals and to provide them with additional incentive to achieve the objectives of the Company. The Board authorized up to 11,011,663 shares for grants under the 2020 Plan. The grants under the 2020 Plan generally have a maximum contractual term of five years from the date of grant. The terms of individual agreements for various grants under the Plan will be determined by the Board (or its Compensation Committee) and may contain both service and performance conditions.

F-47

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 18 – SHARE-BASED PAYMENT - continued

Stock Options

On November 20, 2018, the Company granted an aggregate of 306,967 stock options to key employees and senior executives under the 2017 Plan. The stock options are valid for a period of 10 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on November 20, 2019 and the second, third and fourth 25% vest on November 20, 2020, 2021 and 2022, respectively.

On November 27, 2019, the Company granted an aggregate of 775,250 stock options to key employees and senior executives under the 2017 Plan. The stock options are valid for a period of 5 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on November 27, 2020 and the second, third and fourth 25% vest on November 27, 2021, 2022 and 2023, respectively.

On November 6, 2020, the Company granted an aggregate of 618,839 stock options to key employees and senior executives under the 2020 plan. The stock options are valid for a period of 5 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on November 6, 2021 and the second, third and fourth 25% vest on November 6, 2022, 2023 and 2024, respectively.

On August 31, 2021, the Company granted an aggregate of 2,790,300 stock options to key employees and senior executives under the 2020 plan. 200,000 stock options granted to the employees contains service condition, and 2,590,300 stock options granted to the employees and directors contains additional performance condition that the share numbers that will be vested is based on the performance appraisal of the grantees for the year 2022. The stock options are valid for a period of 5 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on August 31, 2022 and the second, third and fourth 25% vest on August 31, 2023, 2024 and 2025, respectively.

On January 31, 2022, the Company granted an aggregate of 1,300,000 stock options to key employees and senior executives under the 2020 plan. The stock options are valid for a period of 5 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on January 31, 2023 and the second, third and fourth 25% vest on January 31, 2024, 2025 and 2026, respectively.

On November 14,2022, the Company granted an aggregate of 1,023,531 stock options to key employees and senior executives under the 2020 plan. The stock options are valid for a period of 5 years from the grant date and vest 25% per year in equal annual installments at the end of each anniversary over a four-year period, with the first 25% vesting on November 14,2023, and the second, third and fourth 25% vest on November 14, 2024, 2025 and 2026, respectively.

The options granted to employees are accounted for as equity awards and measured at their grant date fair value using binomial lattice model. The Company recognizes the compensation expenses over the service requisite periods using the accelerated method. Share-based compensation cost of $1,000,105, $1,196,971 and $529,479 were recognized for the years ended June 30, 2023, 2022 and 2021, respectively. The weighted-average grant-date fair value per share of options granted was $0.58 for senior executives and $0.57 for key employees during the year ended June 30, 2023, $1.13 for senior executives and $1.01 for key employees during the year ended June 30, 2022, and $1.06 for senior executives and $1.03 for key employees during the year ended June 30, 2021, respectively.

F-48

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 18 – SHARE-BASED PAYMENT - continued

Stock Options - continued

The assumptions used to value the Company’s stock options grants were as follows:

|  | 2023 |  |  | 2022 |  |  | 2021 |
Expected volatility |  |  | 43 | % |  |  | 40 | % |  |  | 41 | %
Risk-free interest rate |  |  | 4.00 | % |  |  | 0.71~1.62 | % |  |  | 0.36 | %
Exercise multiples |  |  | 2.2~2.8 |  |  |  | 2.2~2.8 |  |  |  | 2.2~2.8 |
Expected dividend yield |  |  | 0 | % |  |  | 0 | % |  |  | 0 | %
Forfeited rates |  |  | 16~23 | % |  |  | 12~19 | % |  |  | 12~19 | %
Fair market value per common share |  | $ | 1.135 |  |  | $ | 1.92~3.15 |  |  | $ | 2.89 |

Expected volatilities are based on historical volatilities of the similar public companies’ common shares over the respective expected term of the share-based awards. Risk-free interest rate is based on US Treasury zero-coupon issues with maturity terms similar to the expected term on the share-based awards. The exercise multiples are the share price multiples upon which the employees are likely to exercise share options. Fair market value per common share are the market value of the Company’s stocks on the grant date.

The following table sets forth the summary of stock options activities:

|  | Number of stock options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Grant- date Fair Value |  |  | Weighted Average Remaining Contractual Life |  | Aggregate Intrinsic Value |
Outstanding as of July 1, 2022 |  |  | 4,685,673 |  |  | $ | 2.52 |  |  | $ | 1.14 |  |  | 4.1 years |  |  | - |
Granted |  |  | 1,023,531 |  |  | $ | 0.80 |  |  | $ | 0.57 |  |  |  |  |  | - |
Exercised |  |  | - |  |  | $ | - |  |  | $ | - |  |  |  |  |  | - |
Forfeited or expired |  |  | (483,842 | ) |  |  | 2.08 |  |  |  | 1.05 |  |  |  |  |  | - |
Outstanding as of June 30, 2023 |  |  | 5,225,362 |  |  | $ | 2.22 |  |  | $ | 1.08 |  |  | 2.8 years |  |  | 356,642 |
Outstanding and exercisable as of June 30, 2023 |  |  | 1,509,746 |  |  | $ | 2.82 |  |  | $ | 1.29 |  |  |  |  |  | - |
Vested and expected to vest as of June 30, 2023 |  |  | 3,727,766 |  |  | $ | 2.38 |  |  | $ | 0.42 |  |  | 2.8 years |  |  | 191,772 |

F-49

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 18 – SHARE-BASED PAYMENT - continued

Stock Options - continued

The aggregate intrinsic value in the table above represents the difference between the closing stock price on the last trading day in fiscal 2023 and the options’ respective exercise price. Total intrinsic value of options exercised for the year ended June 30, 2023,2022 and 2021 was nil, $1,125 and $57,613, respectively. The total fair value of options vested during the years ended June 30, 2023, 2022 and 2021 was $1,152,356, $505,295 and $354,701, respectively.

As of June 30, 2023, there was $682,436 of unrecognized compensation cost, adjusted for estimated forfeitures based on historical data, related to non-vested stock options granted to the Company’s employees and directors. Total unrecognized compensation cost is expected to be recognized over a period of 1.61 years as of June 30, 2023. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

Restricted Share Units

During the year ended June 30, 2020, the Company granted 613,300 RSUs to key employees and directors and 1,119,750 RSUs to key employees under the 2017 Plan and the 2020 Plan, respectively. 18,700 RSUs granted to the employees under the 2017 Plan fully vest in one year after the grant date, and 594,600 RSUs granted to the employees and directors under the 2017 Plan fully vest on the grant date. 1,073,700 RSUs granted to key employees under the 2020 Plan fully vest on the grant date, and 46,050 RSUs to key employees under the 2020 Plan fully vest on specified date within two years.

During the year ended June 30, 2021, the Company granted 1,362,370 RSUs to key employees under the 2020 Plan. The RSUs granted to the employees fully vest on specified date within two years.

During the year ended June 30, 2022, the Company granted 2,519,600 RSUs to key employees under the 2020 Plan. The RSUs granted to the employees fully vest on specified date within four years.

During the year ended June 30, 2023, the Company granted 1,161,000 RSUs to key employees under the 2020 Plan. The RSUs granted to the employees fully vest on granted date.

The weighted-average fair value per share is determined as the closing stock price at the grant date.

The Company recognizes the compensation expenses over the service requisite periods using the accelerated method. Share-based compensation cost of $1,478,190, $5,987,891 and $4,599,217 was recognized for the years ended June 30, 2023, 2022 and 2021, respectively.

F-50

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 18 – SHARE-BASED PAYMENT - continued

Restricted Share Units - continued

The following table sets forth the summary of RSUs activities:

|  | Number of Shares |  |  | Weighted- Average Grant Date Fair Value |
Outstanding as of July 1, 2022 |  |  | 196,200 |  |  | $ | 3.10 |
Granted |  |  | 1,161,000 |  |  | $ | 1.14 |
Vested |  |  | (1,205,300 | ) |  | $ | 1.21 |
Forfeited or expired |  |  | (48,000 | ) |  | $ | 3.15 |
Outstanding as of June 30, 2023 |  |  | 103,900 |  |  | $ | 3.07 |

As of June 30, 2023, there was $128,865 of unrecognized compensation cost, adjusted for estimated forfeitures based on historical data, related to non-vested, service-based RSUs granted to the Company’s employees and directors. The RSUs are expected to be recognized over a weighted-average period of 1.38 years. The total fair value of the restricted share units vested was $3,870,449, $4,617,882 and $5,338,069 during the year ended June 30, 2023, 2022 and 2021, respectively. The weighted-average grant-date fair value per share of RSUs granted was $1.14, $2.52 and $3.34 during the year ended June 30, 2023, 2022 and 2021, respectively.

The following table summarizes the total share-based compensation expense recognized by the Company:

|  | 2023 |  |  | 2022 |  |  | 2021 |
Cost of revenues |  | $ | 16,212 |  |  | $ | 36,906 |  |  | $ | 8,403 |
Selling and marketing expenses |  |  | 129,060 |  |  |  | 165,209 |  |  |  | 122,087 |
General and administrative expenses |  |  | 2,333,023 |  |  |  | 6,982,747 |  |  |  | 4,998,206 |
Total |  | $ | 2,478,295 |  |  | $ | 7,184,862 |  |  | $ | 5,128,696 |

F-51

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 19 – SHAREHOLDERS’ EQUITY

Common shares

On February 23, 2021, the Company entered into an agreement with Maxim Group LLC (“Maxim”) that Maxim will serves as a Placement Agent for the Company in connection with the proposed offering of registered securities of the Company, including shares of the Company’s common stock. On February 28, 2021, the Company entered into a securities purchase agreement (“SPA”) with certain accredited investors. According to the SPA, the Company agreed to sell 2,666,666 shares of the Company's common stock and issue unregistered warrants to purchase up to an additional 2,666,666 shares of common stock in the concurrent private placement transaction (the transaction). On March 3, 2021, the Company issued 2,666,666 common shares at US$6.00 per share to those investors, with a par value of $0.0001 per share, and issued 2,666,666 warrants, generating total gross proceeds of $15,999,996. Net proceeds from the transaction after issuance cost of $1,317,119 were $14,682,877 which was allocated to common shares and warrants issued on their relative fair value basis of $11,131,829 and $3,551,048, respectively.

Dividend

On January 10, 2023 the Company announced a cash dividend of US$ 0.05 per common share with an aggregate amount of US$1.18 million. The recorded date was December 29, 2022 and the dividend was paid in full in January 2023.

No dividend was declared during the years ended June 30, 2022 and 2021.

Statutory reserve and restricted net assets

The Company’s subsidiaries located in mainland China are required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The Company allocated $284,952, $857,801 and $1,410,264 to statutory reserves during the years ended June 30, 2023, 2022 and 2021, respectively in accordance with PRC GAAP.

PRC laws and regulations permit payments of dividends by the Company’s subsidiaries incorporated in the PRC only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the Company’s subsidiaries incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to payment of any dividends, unless the reserve has reached 50% of their respective registered capital. Furthermore, registered share capital and capital reserve accounts are also restricted from distribution. As a result of the restrictions described above and elsewhere under PRC laws and regulations, the Company’s subsidiaries incorporated in the PRC are restricted in their ability to transfer a portion of their net assets to the Company in the form of dividends payments, loans or advances. Amounts of net assets restricted amounted to $23,549,698 and $23,264,745 as of June 30, 2023 and 2022, respectively. Except for the above or disclosed elsewhere, there is no other restriction on the use of proceeds generated by the Company’s subsidiaries to satisfy any obligations of the Company.

F-52

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 19 – SHAREHOLDERS’ EQUITY continued

Accumulated other comprehensive (loss)/income

The components of accumulated other comprehensive income (loss) were as follows:

|  | Foreign currency translation income (loss) |
Balance at June 30, 2021 |  | $ | 1,230,083 |
Other comprehensive loss before reclassification |  |  | (1,828,542 | )
Net current-period other comprehensive income |  |  | (1,828,542 | )
Other comprehensive loss attribute to noncontrolling interests |  |  | 48,211 |
Balance at June 30, 2022 |  |  | (550,248 | )
Other comprehensive income before reclassification |  |  | (3,532,507 | )
Amounts reclassified from accumulated other comprehensive income |  |  | - |
Net current-period other comprehensive income |  |  | (3,532,507 | )
Other comprehensive loss attribute to noncontrolling interests |  |  | 92,161 |
Balance at June 30, 2023 |  | $ | (3,990,594 | )

There was nil tax expense or benefit recognized related to the changes of each component of accumulated other comprehensive income (loss) for the years ended June 30, 2023, 2022 and 2021.

F-53

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 20 – NONCONTROLLING INTERESTS

Prior to December 2019, CLPS Shanghai held a 70% equity interest of CLPS Shenzhen and an 80% equity interest of CLPS Hong Kong, which held the remaining 30% equity interest of CLPS Shenzhen. On December 9, 2019, Qiner acquired the remaining 20% equity interest of CLPS Hong Kong from the noncontrolling shareholder with the consideration of the Company’s 100,000 common shares valued at $278,000, therefore holding 100% of CLPS Hong Kong and CLPS Shenzhen’s equity interest accordingly. On December 3, 2019, the Company issued 100,000 common shares with $0.0001 par value per share to noncontrolling shareholder. The carrying amount of the noncontrolling interests was $(130,992). The transaction was accounted for as an equity transaction and the difference of $131,002 between the purchase consideration and the carrying value of the noncontrolling interest of CLPS Hong Kong and CLPS Shenzhen was recorded in the additional paid-in capital on the consolidated balance sheets.

Prior to December 22, 2020, Qiner held an 80% equity interest in Ridik. On December 22, 2020, CLPS Technology (Singapore) Pte. Ltd., a fully owned subsidiary of Qiner, entered into a share purchase agreement with the noncontrolling shareholders of Ridik to purchase the remaining 20% equity interest in Ridik. The total purchase consideration is $621,619, including a cash consideration of $436,550 and the Company’s 62,622 common shares valued at $185,069 on January 29, 2021, using the closing market price of US$3.41 per share and discounts for lack of marketability. The carrying amount of the noncontrolling interests of Ridik as of January 29, 2021 was $446,636. The transaction was accounted for as an equity transaction and the difference of $10,080 between the purchase consideration and the carrying value of the noncontrolling interest of Ridik was recorded in the additional paid-in capital on the consolidated balance sheets.

Prior to January 2021, JAJI China, a 60% owned subsidiary of CLPS, owned 70% of JAJI HR. In January 2021, JAJI China entered into an agreement with CareerWin to purchase CareerWin’s 30% equity interest in JAJI HR. After the transaction, JAJI China owned 100% of JAJI HR. The purchase consideration was $18,995. The carrying amount of the noncontrolling interests was $12,189. The transaction was accounted for as an equity transaction and the difference of $6,806 between the purchase consideration and the carrying value of the noncontrolling interest of JAJI HR was recorded in the additional paid-in capital on the consolidated balance sheets.

In May 2021, Growth Ring, a wholly owned subsidiary of CLPS, entered into an agreement with MCT to purchase MCT’s 53.33% equity interest in MSCT. The purchase consideration was $205,711. The transaction was accounted for as an asset acquisition and the carrying amount of the noncontrolling interests was $121,807 (Note 3).

JAJI CHINA, a subsidiary of CLPS, formerly held 60% equity interests in Bozhuo. As JAJI CHINA disposed all of the equity interests in Bozhuo during the year ended June 30, 2023, the non-controlling interests of US$6,283 was derecognized at the same time.

F-54

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 21 – SEGMENT INFORMATION

The Company follows ASC Topic 280, Segment Reporting, which requires that companies to disclose segment data based on how management makes decision about allocating resources to each segment and evaluating their performances. The Company has one reporting segment. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. The Company’s revenue and net income are substantially derived from enterprise application services and financial industry IT services.

The Company’s operations are primarily based in China, where the Company derives a substantial portion of their revenues. The following table presents revenues generated in domestic and overseas markets for the years ended June 30, 2023, 2022 and 2021.

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Mainland China |  | $ | 134,185,815 |  |  | $ | 137,915,276 |  |  | $ | 112,511,341 |
Singapore |  |  | 8,733,344 |  |  |  | 9,559,951 |  |  |  | 9,613,026 |
Hong Kong |  |  | 4,311,182 |  |  |  | 3,365,491 |  |  |  | 3,728,039 |
United States |  |  | 2,779,313 |  |  |  | 883,478 |  |  |  | 34,740 |
Japan |  |  | 254,601 |  |  |  | 137,053 |  |  |  | 26,419 |
Malaysia |  |  | 92,284 |  |  |  | 161,132 |  |  |  | 148,128 |
Total |  | $ | 150,356,539 |  |  | $ | 152,022,381 |  |  | $ | 126,061,693 |

The following table presents revenues by the service lines for the years ended June 30, 2023, 2022 and 2021.

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
IT consulting service |  | $ | 144,286,502 |  |  | $ | 144,092,811 |  |  | $ | 122,273,395 |
Customized IT solution service |  |  | 4,554,200 |  |  |  | 6,738,118 |  |  |  | 3,130,646 |
Other |  |  | 1,515,837 |  |  |  | 1,191,452 |  |  |  | 657,652 |
Total |  | $ | 150,356,539 |  |  | $ | 152,022,381 |  |  | $ | 126,061,693 |

Long-lived assets by geographic area are presented as follows:

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
Hong Kong |  | $ | 15,124,060 |  |  | $ | 15,468,306 |
Singapore |  |  | 4,665,463 |  |  |  | 4,586,546 |
Mainland China |  |  | 315,347 |  |  |  | 541,766 |
India |  |  | 6,857 |  |  |  | 3,153 |
Japan |  |  | 578 |  |  |  | 1,327 |
|  | $ | 20,112,305 |  |  | $ | 20,601,098 |

F-55

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 22 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed balance sheets

|  | As of June 30, |
|  | 2023 |  |  | 2022 |
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,044,647 |  |  | $ | 115,901 |
Amounts due from subsidiaries |  |  | 24,717,918 |  |  |  | 22,776,226 |
Prepayments, deposits and other assets, net |  |  | 37,919 |  |  |  | 378,836 |
Total Current Assets |  |  | 25,800,484 |  |  |  | 23,270,963 |
Non-Current assets: |  |  |  |  |  |  |  |
Investments in subsidiaries |  |  | 46,369,097 |  |  |  | 50,416,453 |
Total Assets |  | $ | 72,169,581 |  |  | $ | 73,687,416 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Other payable |  |  | 32 |  |  |  | - |
Amounts due to subsidiaries |  |  | 7,588,546 |  |  |  | 7,134,543 |
Total Current Liabilities |  |  | 7,588,578 |  |  |  | 7,134,543 |
Total Liabilities |  | $ | 7,588,578 |  |  | $ | 7,134,543 |
Shareholders’ Equity |  |  |  |  |  |  |  |
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,650,122 shares issued and outstanding as of June 30, 2023; 22,444,822 shares issued and outstanding as of June 30, 2022* |  |  | 2,365 |  |  |  | 2,244 |
Additional paid-in capital |  |  | 58,183,383 |  |  |  | 55,705,209 |
Accumulated retained earnings |  |  | 10,385,849 |  |  |  | 11,395,668 |
Accumulated other comprehensive loss |  |  | (3,990,594 | ) |  |  | (550,248 | )
Total Shareholders’ Equity |  |  | 64,581,003 |  |  |  | 66,552,873 |
Total Liabilities and Shareholders’ Equity |  | $ | 72,169,581 |  |  | $ | 73,687,416 |

F-56

CLPS INCORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in U.S. dollars (“$”), except for number of shares)

NOTE 22 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION - continued

Condensed statements of comprehensive (loss)/ income

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
General and administrative expenses |  | $ | (3,308,445 | ) |  | $ | (7,640,065 | ) |  | $ | (6,267,334 | )
Share of profit in subsidiaries, net (Note a) |  |  | 3,023,065 |  |  |  | 12,060,619 |  |  |  | 13,202,527 |
Other income |  |  | 477,909 |  |  |  | 34,874 |  |  |  | 6,365 |
Other expenses |  |  | - |  |  |  | - |  |  |  | (124,986 | )
Income before income tax |  |  | 192,529 |  |  |  | 4,455,428 |  |  |  | 6,816,572 |
Provision for income tax |  |  | - |  |  |  | - |  |  |  | - |
Net income |  |  | 192,529 |  |  |  | 4,455,428 |  |  |  | 6,816,572 |
Other comprehensive income |  |  | - |  |  |  | - |  |  |  | - |
Foreign currency translation (loss) gain |  | $ | (3,440,346 | ) |  | $ | (1,780,331 | ) |  | $ | 2,592,748 |
Comprehensive (loss) income |  | $ | (3,247,817 | ) |  | $ | 2,675,097 |  |  | $ | 9,409,320 |

Condensed statements of cash flows

|  | For the years ended June 30, |
|  | 2023 |  |  | 2022 |  |  | 2021 |
Net cash provided by (used in) operating activities |  | $ | 1,412,346 |  |  | $ | (20,091,683 | ) |  | $ | (2,107,118 | )
Net cash (used in) provided by financing activities |  |  | (404,150 | ) |  |  | 7,395,038 |  |  |  | 14,799,107 |
Effect of exchange rate changes on cash |  |  | (79,450 | ) |  |  | (162,861 | ) |  |  | 101,905 |
Net increase (decrease) in cash and cash equivalents |  |  | 928,746 |  |  |  | (12,859,506 | ) |  |  | 12,793,894 |
Cash and cash equivalents, at the beginning of the year |  | $ | 115,901 |  |  | $ | 12,975,407 |  |  | $ | 181,513 |
Cash, cash equivalents at the end of the year |  | $ | 1,044,647 |  |  | $ | 115,901 |  |  | $ | 12,975,407 |

(a) Basis of presentation

In the Company-only financial statements, the Company’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since inception.

The Company records its investment in its subsidiaries under the equity method of accounting as prescribed in ASC 323. Such investments are presented on the balance sheets as “Investments in subsidiaries” and share of the subsidiaries’ profit or loss are shown as “Share of profit in subsidiaries, net” on the statements of comprehensive (loss) income.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted and as such, these Company-only financial statements should be read in conjunction with the Company’s consolidated financial statements.

F-57

ITEM 19. EXHIBITS

The financial statements are filed as part of this Annual Report beginning on page F-1.

Exhibit No. |  | Description
1.1 |  | Form of Underwriting Agreement (2).
2 |  | Description of Securities registered under Section 12 of the Exchange Act (6)
3.1 |  | Memorandum and Articles of Association (1).
4.1 |  | Specimen Share Certificate (1).
10.1 |  | 2017 Equity Incentive Plan (1).
10.2 |  | 2019 Equity Incentive Plan (3).
10.3 |  | 2020 Equity Incentive Plan(4)
10.4 |  | 2023 Equity Incentive Plan(8)
10.5 |  | Form Independent Director Agreement (1).
10.6 |  | Employment Agreement between the Company and Xiao Feng Yang (1).
10.7 |  | Employment Agreement between the Company and Raymond Ming Hui Lin (1).
10.8 |  | Employment Agreement between the Company and Rui Yang (5).
10.9 |  | Employment Agreement between the Company and Li Li (7).
10.10 |  | ANZ Global Services and Operations (Chengdu) Company Limited Agreement (1).
10.11 |  | Master Lease Agreement - Shanghai Pudong Software Park Co., Ltd.
10.12 |  | Master Lease Agreement - Shanghai Pudong Software Park Co., Ltd.
10.13 |  | Master Lease Agreement - Dalian High-Tech Park
10.14 |  | Master Lease Agreement -Guangzhou Fengxing Plaza-A20F
10.15 |  | Master Lease Agreement -Guangzhou Fengxing Plaza-A21F
10.16 |  | Form of Framework Contract for Subcontracting (1).
10.17 |  | Form Warrant Agreement (2).
10.18 |  | Form Lockup Agreement (2).
10.19 |  | Escrow Indemnification Agreement (2).
10.20 |  | Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-22 million
10.21 |  | Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-18 million
10.22 |  | Credit Agreement with Bank of Communications Bank Co., Ltd.-10 million.
10.23 |  | Credit Agreement with China Merchants Bank Co., Ltd.-10 million
12.1 |  | Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
12.2 |  | Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended.
13.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
14.1 |  | Code of Conduct and Ethics (1).
21.1 |  | List of Subsidiaries of the Registrant.
23.1 |  | Consent of Ernst & Young Hua Ming LLP.
99.1 |  | Charter of the Audit Committee (1).
99.2 |  | Charter of the Compensation Committee (1).
99.3 |  | Charter of the Nominating Committee (1).
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 (formatted as Inline XBRL and contained in Exhibit 101).

(1) | Previously filed as part of the registration statement filed with the SEC on March 27, 2018 and incorporated by reference herein.

(2) | Previously filed with the SEC as exhibit to Form F-1/A filed on May 18, 2018 and incorporated by reference herein.

(3) | Previously filed as part of the registration statement filed with the SEC on April 29, 2019 and incorporated by reference herein.

(4) | Previously filed as an exhibit to the registration statement filed with the SEC on April 27, 2020 and incorporated by reference herein.

(5) | Previously filed as an exhibit to Form 6-K filed with the SEC on November 4, 2019 and incorporated by reference herein.
(6) | Previously filed with the SEC on Form 8-A 12B on May 22, 2018 and incorporated by reference herein.

(7) | Previously filed with the SEC as an exhibit to Form 20-F on October 22, 2020 and incorporated by reference herein.

(8) | Previously filed as part of the registration statement filed with the SEC on May 12, 2023 and incorporated by reference herein.

129

SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

| CLPS Incorporation
October 18, 2023 | By: | /s/ Raymond Ming Hui Lin
|  | Name: | Raymond Ming Hui Lin
|  | Title: | Chief Executive Officer (Principal Executive Officer)
October 18, 2023 | By: | /s/ Rui Yang
|  | Name: | Rui Yang
|  | Title: | Chief Financial Officer (Principal Financial and Accounting Officer)

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