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, 2022
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 1102, 11th 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 1102, 11th 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
Common Shares, par value $0.0001
Trading Symbol(s)
CLPS
Name of each exchange on which registered
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, 2022, the issuer had 22,446,822 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. ☐
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 ☒
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 4A.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 8.
ITEM 9.
ITEM 10.
ITEM 11.
ITEM 12.
PART II
ITEM 13.
ITEM 14.
ITEM 15.
ITEM 16.
ITEM 16A.
ITEM 16B.
ITEM 16C.
ITEM 16D.
ITEM 16E.
ITEM 16F.
ITEM 16G.
ITEM 16I.
PART III
ITEM 17.
ITEM 18.
ITEM 19.
TABLE OF CONTENTS
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
INFORMATION ON THE COMPANY
UNRESOLVED STAFF COMMENTS
OPERATING AND FINANCIAL REVIEW AND PROSPECT
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
FINANCIAL INFORMATION
THE OFFER AND LISTING
ADDITIONAL INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
CONTROLS AND PROCEDURES
RESERVED
AUDIT COMMITTEE FINANCIAL EXPERT.
CODE OF ETHICS.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT.
CORPORATE GOVERNANCE
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
EXHIBITS
i
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1
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1
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44
72
72
98
109
113
114
114
121
121
122
122
122
122
123
123
123
123
123
123
123
123
123
124
124
124
125
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 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;
● “CLPS-Ridik AU” refers to 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 (HK) 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.
● 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
6.6981 to USD1.00, the noon buying rate on June 30, 2022, 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
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not required.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
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, 2022, 2021 and 2020 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, 2022,
2021 and 2020, respectively.
Selected Consolidated Statement of Comprehensive Income
Revenues
Less: Cost of revenues
Gross profit
Operating income (expenses):
Selling and marketing expenses
Research and development (R&D) expenses
General and administrative expenses
Subsidies and other operating income
Total operating expenses
Income from operations
Other income
Other expenses
Income before income tax and share of income in equity investees
Provision for income taxes
Income before share of income in equity investees
Share of (loss) income in equity investees, net of tax
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to CLPS Incorporation’s shareholders
Other comprehensive (loss) income
Foreign currency translation (loss) income
Less: Foreign currency translation (loss) income attributable to noncontrolling interest
Other comprehensive (loss) income attributable to CLPS Incorporation’s shareholders
Comprehensive income attributable to CLPS Incorporation shareholders
Comprehensive income attributable to noncontrolling interests
Comprehensive income
Basic earnings per common share
Weighted average number of share outstanding – basic
Diluted earnings per common share
Weighted average number of share outstanding – diluted
Supplemental information:
Non-GAAP income before income tax and share of income of equity investees
Non-GAAP net income
Non-GAAP net income attributable to CLPS Incorporation’s shareholders
Non-GAAP basic earnings per common share
Weighted average number of share outstanding – basic
Non-GAAP diluted earnings per common share
Weighted average number of share outstanding – diluted
1
For the years ended June 30,
2021
2022
2020
$ 152,022,381 $ 126,061,693 $
(85,890,757)
40,170,936
(111,033,345)
40,989,036
89,415,798
(58,296,097)
31,119,701
(4,103,066)
(7,971,145)
(23,045,664)
1,536,394
(33,583,481)
7,405,555
854,250
(575,605)
(3,753,236)
(13,337,913)
(16,784,688)
2,080,087
(31,795,750)
8,375,186
296,319
(351,045)
(3,059,877)
(10,436,975)
(16,343,936)
1,927,230
(27,913,558)
3,206,143
608,638
(107,322)
7,684,200
3,045,992
4,638,208
(50,297)
4,587,911
132,483
4,455,428 $
8,320,460
1,257,124
7,063,336
(44,121)
7,019,215
202,643
6,816,572 $
(1,828,542) $
(48,211)
(1,780,331) $
2,675,097 $
84,272
2,759,369 $
2,695,223 $
102,475
2,592,748 $
9,409,320 $
305,118
9,714,438 $
3,707,459
835,444
2,872,015
207,363
3,079,378
141,139
2,938,239
(571,943)
(22,928)
(549,015)
2,389,224
118,211
2,507,435
0.21
20,924,683
0.21
21,057,063
0.39
17,279,443
0.39
17,569,440
0.20
14,689,224
0.20
14,692,299
14,869,062
11,772,773
11,640,290
0.56
20,924,683
0.55
21,057,063
13,449,156
12,147,911
11,945,268
0.69
17,279,443
0.68
17,569,440
7,711,539
7,083,458
6,942,319
0.47
14,689,224
0.47
14,692,299
$
$
$
$
$
The following table presents our consolidated balance sheet data as of June 30, 2022 and 2021, respectively.
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Prepayments, deposits and other assets, net
Amounts due from related parties
Total Current Assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Goodwill
Long-term investments
Prepayments, deposits and other assets, net
Deferred tax assets, net
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank loans
Accounts payable
Accrued expenses and other current liabilities
Tax payables
Contract liabilities
Salaries and benefits payable
Amounts due to related party
Total current liabilities
Non-current liabilities:
Bank loans
Deferred tax liabilities
Other non-current liabilities
Total Liabilities
Commitments and Contingencies
Shareholders’ Equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized; 22,444,822 shares issued and outstanding as of
June 30, 2022; 20,293,552 shares issued and outstanding as of June 30, 2021
Additional paid-in capital
Statutory reserves
Retained earnings
Accumulated other comprehensive (loss) income
Total CLPS Incorporation’s Shareholders’ Equity
Noncontrolling interests
Total Shareholders’ Equity
As of June 30,
2022
2021
$
$
18,396,987 $
-
53,769,887
4,215,414
377,642
76,759,930 $
24,739,382
4,158,535
44,138,997
2,530,458
546,128
76,113,500
20,601,098
970,044
2,363,841
610,386
248,456
327,040
$ 101,880,795 $
600,791
1,050,499
2,444,950
1,014,784
896,145
607,773
82,728,442
$
$
$
14,474,363 $
343,597
352,402
2,355,066
587,140
12,203,933
66,884
30,383,385 $
7,536,839
559,450
245,408
1,715,009
326,912
12,466,921
183,148
23,033,687
-
150,547
3,546,263
34,080,195 $
9,644
155,033
1,799,383
24,997,747
2,244
55,705,209
5,071,876
6,323,792
(550,248)
66,552,873
2,029
48,516,695
4,214,075
2,726,165
1,230,083
56,689,047
1,247,727
1,041,648
67,800,600
57,730,695
Total Liabilities and Shareholders’ Equity
$ 101,880,795 $
82,728,442
2
The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. On
September 30, 2022, the buying rate announced by the Federal Reserve Statistical Release was RMB 7.1135 to $1.00.
Period
2019
2020
2021
2022
January
February
March
April
May
June
July
August
September
Spot Exchange Rate
Period
Ended
Average (1)
Low
High
(RMB per US$1.00)
6.9618
6.5250
6.3726
6.3610
6.3084
6.3393
6.6080
6.6715
6.6981
6.7433
6.8890
7.1135
6.9081
6.9043
6.4382
6.3556
6.3436
6.3446
6.4310
6.6990
6.6952
6.7352
6.8007
7.0195
6.6822
6.5208
6.3640
6.3206
6.3084
6.3116
6.3590
6.6079
6.6534
6.6945
6.7230
6.8985
7.1786
7.1681
6.5518
6.3822
6.3660
6.3720
6.6243
6.7880
6.7530
6.7655
6.9100
7.1990
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.
3
C.
Reasons for the Offer and Use of Proceeds
Not required.
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.
We have significantly grown and expanded our business recently. Our revenues grew from $89.4 million in fiscal 2020 to $126.1 million in fiscal
2021 and to $152.0 million in fiscal 2022. We maintain nineteen delivery and/or R&D centers, of which ten are located in Mainland China (Shanghai,
Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and nine are located globally (Hong Kong SAR, the United
States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, and Vietnam), to serve different customers in various geographic locations.
The number of our total employees grew from 2,746 in fiscal 2020 to 3,352 in fiscal 2021. As of June 30, 2022 we had 3,824 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.
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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 16.6% and 15% in fiscal 2020 and fiscal 2021, respectively; in fiscal 2022, this rate was
15.4%. 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.
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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, 2022, 2021 and 2020, Citibank and its affiliates accounted for 20.6%, 19.1% and 21.5% of the Company’s total revenues,
respectively. For fiscal 2022 and 2021, 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, 2022 and 2021, our accounts receivable balance, net of allowance, amounted to approximately $53.8 million and $44.1 million, respectively. As of the
years ended June 30, 2022 and 2021, Citibank accounted for 30.2% and 23.1% 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.
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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;
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● unforeseen or undisclosed liabilities;
● generating sufficient revenue and net income to offset acquisition costs;
● potential loss of, or harm to, employee or client relationships;
● 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;
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● preserving our competitive position in the IT services industry in China;
● offering consistent and high-quality services to retain and attract clients;
● 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.
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A significant 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 significant 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.
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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.
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.
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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 2022 financial statements and may
continue to slow down our growth for fiscal 2023 and beyond.
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, Hong Kong dollar, Australian dollar, Indian rupee, Malaysian ringgit and Japanese yen 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.
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.
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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. Our
management concluded that our internal control over financial reporting is effective as of June 30, 2022. In addition, once we cease to be an “emerging
growth company” on June 30, 2023 as such term is defined in the JOBS Act, we need to assess whether we are an accelerated filer. If we meet the
definition of an accelerated filer, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control
over financial reporting. If we are a non-accelerated filer, we will be 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.
We will likely not pay dividends in the foreseeable future.
Risks Relating to Our Corporate Structure
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. There is no assurance that our Board of Directors will 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 December 24, 2021, the CSRC published the draft Regulations of the State Council on the Administration of Overseas Issuance and Listing of
Securities by Domestic Companies (Draft for Comments) (the “Administrative Provisions”) and the draft Measures for the Record-Filing of Overseas
Issuance and Listing of Securities by Domestic Companies (Draft for Comments) (the “Filing Measures”) for public comments till January 23, 2022.
Pursuant to these drafts, a filing-based regulatory system will be 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. As of the date of this Form 20-F,
it remains uncertain when the final Administrative Provisions and Filing Measures will be adopted and whether they will be adopted in the current draft
form. If the Administrative Provisions and Filing Measures are adopted in the current form, we may be 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 future offshore securities offering. Failure to complete the filing under the Administrative
Provisions and Filing 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 Administrative Provisions, the PRC domestic company may be ordered to discontinue the related business or suspend its operations
for rectification, and its permits or business licenses may be revoked.
Furthermore, on April 2, 2022, the CSRC published the draft Provisions on Strengthening the Confidentiality and Archives Management Related
to Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments), or the Draft Confidentiality and Archives Management
Provisions, for public comments. Pursuant to the Draft 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 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 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 shall not provide accounting files to an overseas
accounting firm unless such firm comply with the corresponding procedures. As of the date of this Form 20-F, the Draft Confidentiality and Archives
Management Provisions were released for public comments only and the final version and effective date of such regulations are subject to change with
substantial uncertainty.
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If the CSRC or other PRC regulatory authorities subsequently determine that we need to obtain their approval or complete the required filing or
other administrative procedures for any future offshore securities offering or other financing activities, 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.
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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.
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.
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.
23
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, the interpretations of many laws,
regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections
available to us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other
government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some
circumstances impossible. For example, 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 PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual
terms, it may be more difficult to predict the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more
developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our business partners, clients and
suppliers. In addition, such uncertainties, including any inability to enforce our contracts, together with any development or interpretation of PRC law that
is adverse to us, could materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality protections
in China may not be as effective as in the United States or other more developed countries. 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, or the preemption of local
regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you. In addition, any
litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations
as the government deems appropriate to further regulatory, political and societal goals. 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.
24
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.
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.
25
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.
26
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.
27
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.
28
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.
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%.
29
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.
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.
30
The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board, and
as such, you are deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit report included in this annual report, as auditors of companies that are
traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of
the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.
Since our auditors are located in China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese
authorities, our auditors are not currently inspected by the PCAOB. On December 7, 2018, the SEC and the PCAOB issued a joint statement highlighting
continued challenges faced by the U.S. regulators in their oversight of financial statement audits of U.S.-listed companies with significant operations in
China. The joint statement reflects a heightened interest in an issue that has vexed U.S. regulators in recent years. However, it remains unclear what further
actions the SEC and PCAOB will take to address the problem.
Inspections of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and
quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in
China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the
benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit
procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in
our reported financial information and procedures and the quality of our financial statements.
As part of a continued regulatory focus in the United States on access to audit and other information currently restricted by China’s own law, in
June 2019 a bipartisan group of lawmakers introduced bills in both houses of the U.S. Congress, which if passed, would require the SEC to maintain a list
of issuers for which PCAOB is not able to inspect or investigate an auditor report issued by a foreign public accounting firm. The proposed Ensuring
Quality Information and Transparency for Abroad-Based Listings on our Exchanges (EQUITABLE) Act prescribes increased disclosure requirements for
these issuers and, beginning in 2025, the delisting from U.S. national securities exchanges such as the NYSE of issuers included on the SEC’s list for three
consecutive years. Enactment of this legislation or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for
affected issuers, including us, and the market price of our shares could be adversely affected. It is unclear if this proposed legislation would be enacted.
Furthermore, there has been recent media reports on deliberations within the U.S. government regarding potentially limiting or restricting China-based
companies from accessing U.S. capital markets. If any such deliberations should materialize, the resulting legislation may have material and adverse impact
on the stock performance of China-based issuers listed in the United States including us.
On April 21, 2020, the SEC and the PCAOB issued another joint statement reiterating the greater risk that disclosures will be insufficient in many
emerging markets, including China, compared to those made by U.S. domestic companies. In discussing the specific issues related to the greater risk, the
statement again highlights the PCAOB’s inability to inspect audit work and practices of accounting firms in China with respect to their audit work of U.S.
reporting companies. Inspections of other accounting firms that the PCAOB has conducted have identified deficiencies in those firms’ audit procedures and
quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of
audit work undertaken in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors
of our ordinary shares do not derive the benefits of PCAOB inspections, and may lose confidence in our reported financial information and procedures and
the quality of our financial statements.
31
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.
In light of an independent auditor’s settlement with the SEC on September 29, 2022 for allegedly asking its clients to select their own samples for
testing and to prepare audit documentation to show that the independent auditor itself had gotten and evaluated the supporting evidence for certain clients’
accounting entries, our independent auditor has never asked us to select our own samples for testing or to prepare audit documentation to show that our
independent auditor itself had gotten and evaluated the supporting evidence for our accounting entries.
When the PCAOB reassesses its determinations by the end of 2022, it could determine that it is still unable to inspect and investigate completely
audit firms based in Mainland China and Hong Kong; as a result, we may be delisted by Nasdaq in accordance with HFCAA.
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.
The inability of the PCAOB to conduct unfettered inspections of public accounting firms in Mainland China and Hong Kong SAR, including our
Auditor, prevents the PCAOB from fully evaluating audits and quality control procedures of our Auditor. This lack of full audit and inspection effectively
deprives investors in our Common Stock of the benefits of PCAOB oversight and inspections. The inability of the PCAOB to conduct inspections of
auditors in Mainland China and Hong Kong SAR makes 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 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 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 determines that it cannot inspect or investigate completely our Auditor, and that as a result, Nasdaq may determine to delist our securities.
33
Under the current version of HFCAA, an SEC ban on trading shares of Common Stock in the U.S. could take place in early 2024 if we have a Listed
Auditor (a public auditor that cannot be completely audited and investigated by the PCAOB for three consecutive fiscal years (being 2021, 2022 and
2023)). 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. Additionally, whether the PCAOB will be able to conduct inspections of our
Auditor before the issuance of our financial statements to be included in our Form 20-F for the fiscal year 2023 or at all, is subject to substantial uncertainty
and depends on factors out of our control and our Auditor’s control. If our Auditor is unable to be inspected in time, and we do not engage a public auditor
who is not a Listed Auditor prior to the 2023 annual audit, we could be delisted from the Nasdaq Capital Market in 2024 and not eligible for trading on
other tiers of the over the counter markets. 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.
While the Company intends to engage an auditor who is audited and investigated completely by the PCAOB in prior to fiscal year 2023, the
Company has not engaged such an auditor as of the date of this annual report. The Company, as a smaller reporting company, may experience delays or
difficulties in engaging a public auditor who can be audited and investigated completely by the PCAOB and also audit our operations, which operations are
located in Mainland China and Hong Kong SAR.
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 potential enactment of the
Accelerating Holding Foreign Companies Accountable Act, if it is enacted into law in the U.S., would decrease 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.
If this bill were enacted as proposed, and we have a Listed Auditor for fiscal years 2021 and 2022, our shares may be banned from trading in the U.S.
in early 2023, not early 2024.
On June 22, 2021, the U.S. Senate passed a bill known as the Accelerating Holding Foreign Companies Accountable Act, to amend Section 104(i)
of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)) (“Proposed Law”) to prohibit securities of any registrant from being listed on any of the U.S.
securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB investigation and inspection
completely for two consecutive years, instead of three consecutive years as currently provided in the HFCAA.
34
On February 4, 2022, the U.S. House of Representatives passed the America Competes Act of 2022 which includes the same amendments as the
bill passed by the Senate. The America Competes Act, however, includes a broader range of legislation not related to the HFCAA in response to the U.S.
Innovation and Competition Act passed by the Senate in 2021. The U.S. House of Representatives and U.S. Senate will need to agree on amendments to
these respective bills to align the legislation and pass their amended bills before the U.S. President can sign into law. It is unclear when the U.S. Senate and
U.S. House of Representatives will resolve the differences in the U.S. Innovation and Competition Act and the America Competes Act of 2022 bills
currently passed, or when the U.S. President will sign the bill to make the amendment into law, if at all. In the case that the bill becomes the law, it may
reduce the time period before our shares could be prohibited from trading in the U.S. from 2024 to 2023. Company is not certain as of the date of this
annual report of when and if the Proposed Law will become law and applicable to public companies like our company.
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.
35
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 inconsistencies and uncertainties.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and
administrative authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict
the outcome of a judicial or administrative proceeding than in more developed legal systems. Furthermore, the PRC legal system is based, in part, on
government policies and internal rules, some of which are not published in a timely manner, or at all, but which may have retroactive effect. As a result, we
may not always be aware of any potential violation of these policies and rules. These uncertainties may impede our contractual, property and procedural
rights, which could adversely affect our business, financial condition and results of operations.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene with or influence our operations
as the government deems appropriate to further regulatory, political and societal goals. 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.
36
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 December 24, 2021, the CSRC published the draft Regulations of the State Council on the Administration of Overseas Issuance and Listing of
Securities by Domestic Companies (Draft for Comments) (the “Administrative Provisions”) and the draft Measures for the Record-Filing of Overseas
Issuance and Listing of Securities by Domestic Companies (Draft for Comments) (the “Filing Measures”) for public comments till January 23, 2022.
Pursuant to these drafts, a filing-based regulatory system will be 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. As of the date of this annual
report, it remains uncertain when the final Administrative Provisions and Filing Measures will be adopted and whether they will be adopted in the current
draft form. If the Administrative Provisions and Filing Measures are adopted in the current form, we may be 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 future offshore securities offering. Failure to complete the filing under the
Administrative Provisions and Filing 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 Administrative Provisions, the PRC domestic company may be ordered to discontinue the related business or suspend its
operations for rectification, and its permits or business licenses may be revoked.
37
Furthermore, on April 2, 2022, the CSRC published the draft Provisions on Strengthening the Confidentiality and Archives Management Related
to Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments), or the Draft Confidentiality and Archives Management
Provisions, for public comments. Pursuant to the Draft 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 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 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 shall not provide accounting files to an overseas
accounting firm unless such firm comply with the corresponding procedures. As of the date of this annual report, the Draft Confidentiality and Archives
Management Provisions were released for public comments only and the final version and effective date of such regulations are subject to change with
substantial uncertainty.
If the CSRC or other PRC regulatory authorities subsequently determine that we need to obtain their approval or complete the required filing or
other administrative procedures for any future offshore securities offering or other financing activities, 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.
38
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 year 2020, 2021, 2022, 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$7.1 million, US$7.6 million, and US$22.8 million. as of
June 30 for fiscal 2020, 2021 and 2022, respectively. The subsidiaries provide cash support to the Company according its business development plan. The
balances due to subsidiaries from the Company were Nil, Nil and US$7.1 million. as of June 30 for fiscal 2020, 2021 and 2022, respectively. The balances
were reflected in the section “PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION” in our financial statements for fiscal 2020,
2021, and 2022, 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 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.
39
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.
40
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.
41
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, 2022. 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.
As an “emerging growth company” under the Jumpstart Our Business Startups Act, or JOBS Act, we are permitted to, and intend to, rely on
exemptions from certain disclosure requirements.
As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure
requirements. We are an emerging growth company until the earliest of:
● the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more;
● the last day of the fiscal year following the fifth anniversary of our IPO;
● the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt; or
● the date on which we are deemed a “large accelerated issuer” as defined under the federal securities laws.
For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that
are applicable to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor
attestation requirements of section 404 of the Sarbanes-Oxley Act for up to five fiscal years after the date of the IPO. 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.
42
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 to global institutions in
banking, insurance and financial sectors, both in China and globally. For more than ten years, we have served as an IT solutions provider to a growing
network of clients in the global financial industry, including large financial institutions in the US, Europe, Australia, Southeast Asia, and Hong Kong and
their PRC-based IT centers.
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 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 maintain nineteen delivery and/or R&D centers, of which ten are located in Mainland China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu,
Guangzhou, Shenzhen, Hangzhou, and Hainan) and nine are located globally (Hong Kong SAR, the United States of America, Japan, Singapore, Malaysia,
Australia, Malaysia, and India, the Philippines, and Vietnam), to serve different customers in various geographic locations. By combining onsite (when we
send our team to our client) or onshore (when we send our team to client’s overseas location) support and consulting with scalable and high-efficiency
offsite (when we send our team to a location other than client’s location) or offshore (when we send our team to a location that is other than a client’s
location overseas) 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, industry expertise and
technological know-how to attract new business and remain cost competitive.
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.
44
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
Xiao Feng Yang
Raymond Ming Hui Lin
Shanghai Qinyao Investment Partnership (LLP)
Shanghai Qinzhi Investment Partnership (LLP)
Shanghai Qinshang Software Technology Counsel Partnership (LLP)
Total:
PLACE OF REGISTRATION
PRC
Hong Kong
PRC
PRC
PRC
SHARES
15,000,000
15,000,000
1,700,000
1,270,000
900,000
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.
45
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
Shanghai Qincheng Information Technology Co., Ltd.
Qiner Co., Limited
Total:
PLACE OF REGISTRATION
PRC
Hong Kong
SHARES
27,651,699
22,348,301
50,000,000
As of the date of this Annual Report, CLPS Shanghai has three wholly-owned subsidiaries: CLPS RC, Huanyu, and CLPS Hangzhou. Besides the
three 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 Shenzhen — CLPS Shanghai holds 70% of equity interest in CLPS Shenzhen, 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.
● CLPS Shenzhen Robotics — CLPS Shanghai holds 10% of equity interest in CLPS Shenzhen Robotics, 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 RC provides consulting services. CLPS RC focuses on small and medium domestic financial institutions.
● CLPS Beijing provides both consulting and solution services. CLPS Beijing services clients in China’s central east region, including Beijing
and Tianjin.
● CLPS-Ridik AU currently only provides consulting services. CLPS-Ridik AU services clients in Australia.
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● 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.
● 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 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 Shanghai holds 100% of equity interest in Huanyu which was incorporated in September 2017 for the purposes of providing Internet
technology services and products to clients. CLPS Shanghai, CLPS Dalian, CLPS Guangzhou, CLPS Beijing, JAJI China, Ridik Pte., and
CLPS HK all contribute material amounts of the Company’s total revenues.
Corporate Information
Our principal executive office is located at Unit 1102, 11th 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 to global institutions in
banking, insurance and financial sectors, both in China and globally. For more than ten years, we have served as an IT solutions provider to a growing
network of clients in the global financial industry, including large financial institutions from the US, Europe, Australia, Southeast Asia and Hong Kong, and
their PRC-based IT centers. We have created and developed a particular market niche by providing turn-key financial solution. Since our inception, we
have aimed to build one of the largest sales and service delivery platforms for IT services and solutions in China. 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 maintain nineteen delivery and/or R&D centers, of which
ten are located in China (Shanghai, Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and nine are located globally
(Hong Kong SAR, the United States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, and Vietnam), to serve different customers
in 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. We believe that maintaining our
Company as a proven, reliable partner to our financial industry 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 2021 annual report of China Banking and Insurance Regulatory Commission (CBIRC), China’s banking financial institutions had
total assets of RMB 337.7 trillion (USD 53.0 trillion) at the end of 2021, a year-on-year increase of RMB 25.0 trillion (USD 3.9 trillion), or 8.0%. Total
liabilities were RMB 308.4 trillion (USD 48.4 trillion), a year-on-year increase of RMB 22.1 trillion (USD 3.5 trillion), or 7.7%. The total assets of banking
financial institutions were RMB 94.3 trillion (USD 14.8 trillion) in 2010. Over the past 10 years, the total assets of China’s banking financial institutions
grew at a compound annual growth rate of more than 10%. However, the banking industry has faced 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 May 2022, foreign banks had set up 41 foreign legal entities, 116 branches
of foreign banks and 134 representative offices in China, with a total of 919 business institutions.
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Software and Information Technology Service Industry in China
According to the 2021 Economic Performance of the Software Industry report of Ministry of Industry and Information Technology (MIIT),
China’s software and information technology service industry has maintained a good performance, with robust revenue growth in software business,
sustained profitability improvement, growth in software export, and increase in number of employees.
China’s software and information technology services industry has rapidly developed and grown in recent years. The MIIT data showed that the
industry’s revenue reached RMB 9.5 trillion (USD 1.5 trillion) in 2021, an increase of 17.7% compared to 2020, a CAGR of 15.5% over the two-year
period. There has been a sustained improvement in profitability. In 2021, the industry achieved a total profit of RMB 1.2 trillion (USD 0.2 trillion), an
increase of 7.6% over the previous year. Software export continued to grow. In 2021, the software-related exports were USD 52.1 billion, an increase of
8.8% over the previous year. Of which, the export of software outsourcing services was USD 14.9 billion, an increase of 8.6% 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 2021, the industry’s revenue from software products reached RMB 2.44 trillion (USD 0.4 trillion), an increase of
12.3% over the previous year, accounting for 25.7% of the industry’s revenue. Of which, the revenues from industrial software products
increased by 24.8% to RMB 241.4 billion (USD 37.9 billion). The growth rate was 7.1% higher than the industry average.
● Information technology services —In 2021, the industry’s revenue from information technology services increased by 20.0% to RMB 6.0
trillion (USD 0.9 trillion). The growth rate was 2.3% higher than the industry average. It accounted for 63.5% of the industry’s total revenue.
Of which, the aggregate revenues from cloud and big data services were RMB 776.8 billion (USD 121.9 billion), up by 21.2% year-on-year. It
accounted for 12.9% of the information technology services total revenue. Integrated circuit design services revenues reached RMB 217.4
billion (USD 34.1 billion), an increase of 21.3% over the previous year. E-commerce platform technical services revenues reached RMB 1.0
trillion (USD 0.2 trillion), an increase of 33.0% over the previous year.
● Information security products and services – In 2021, the revenue of information security products and services reached RMB 182.5 billion
(USD 28.6 billion), an increase of 13.0% over the previous year.
● Embedded system software – In 2021, the revenue of embedded system software reached RMB 842.5 billion (USD 132.2 billion), an increase
of 19.0% over the previous year.
● Development on regional level — The eastern region maintained its rapid growth, while the central and western regions showed remarkable
growth. In 2021, revenues from software business completed in eastern, central, western and northeastern regions were RMB 7.6 trillion
(USD 1.2 trillion), RMB 461.8 billion (USD 72.5 billion), RMB 1.1 trillion (USD 0.2 trillion) and RMB 262.7 billion (USD 41.2 billion),
respectively. The growth rates were 17.6%, 18.9%, 19.4% and 12.1% year-on-year, respectively, accounted for 80.2%,4.9%, 12.2% and 2.8%
of the national software industry, respectively. Central and western regions achieved higher growth rates compared to the national average, at
1.2% and 1.7%, respectively.
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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 2011 are shown as below:
Data Source: IDC data
According to IDC’s 2021 China Banking IT Solution Market Share report, as the pandemic normalized, interest rate liberalization reform
advanced, relevant policies were implemented, innovation of IT technology application increased, and the commercial scale expanded, banks continued to
invest in fintech, the market demand for bank IT solutions expanded, and the market size maintained a sustained growth trend, showing characteristics of
accelerated competition and differentiation.
In 2021, the overall market size of China’s banking IT solution market reached RMB 58.93 billion (USD 9.2 billion), an increase of 17.3% over
2020. IDC predicts that by 2026, the IT solution market for China’s banking industry will reach RMB 131.29 billion (USD 20.6 billion).
IDC research found that the overall banking IT solution market presents the following characteristics:
● Continued to strengthen the promotion of digital transformation and improved the level of digital operation. In 2021, due to the impact
of the pandemic and the downward pressure of the economy, the digital transformation of banks entered a stage of in-depth integration of
business and technology, scenarios and services. Banking institutions supported the mainstream of business innovation and transformation
through technological innovation and digital capability building. Banking institutions have significantly increased their investment in digital
infrastructure, digital business development and digital channel development.
● Continued to strengthen the independent innovation of emerging technologies and deepened scenario application. In 2021, the
financial institutions and fintech service providers remained focus on technologies such as distributed core system, cloud native, AI,
blockchain, and cloud architecture featuring high performance, distributed, and agile delivery. They continued to strengthen their R&D
investment and application tests in emerging technologies, as well as in data migration to cloud or blockchain platforms to achieve automation
and intelligent upgrade to their business and enhance their operation capability and service efficiency.
● With an accelerated development of credit services, banks achieved remarkable results in inclusive finance. In 2021, China’s banking
sector continued to increase credit support for key areas and weak links. The People’s Bank of China and other government agencies
emphasized the “increased quantity, reduced price, improved quality and broader in scope” for small and micro credit services. In addition,
they issued policies reducing service fees for small and micro businesses, as well as continuing the implementation of market-oriented loan
interest rate mechanism. During this period, many commercial banks expanded credit services distribution and developed inclusive finance to
further support and serve the real economy, and stabilize economic growth.
● Outstanding benefit of data elements and evident market demand for data management. In 2021, the marketization of data elements
became a hot trend. With the development of digital business in the banking industry, data elements are becoming more important. Many
banks built data infrastructures, such as data lakes, data warehouses, and data middle platform in order to solve the problems in data quality
and supply.
● A greater emphasis on financial security and a continued focus on risk management and regulatory compliance. In 2021, while the
pandemic persisted, banks accelerated their digital transformation initiative. The People’s Bank of China, China Banking and Insurance
Regulatory Commission and other regulatory agencies placed a lot of emphasis on bank financial security and put forth a number of clear and
specific regulatory requirements. As such, financial security became more important to banks. By leveraging digital technology, banks have
strengthened the level of digital and intelligent risk management, regulatory compliance and regulatory reporting, which resulted in a
significant growth in the related solution market.
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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 $67.7 million, $60.0 million, and $44.5 million for the years ended June 30, 2022, 2021, and
2020, respectively. Revenues from our banking area accounted for 44.5%, 47.6%, and 49.8% of our total revenues in fiscal years 2022, 2021, and 2020,
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 $6.6 million, $11.2 million, and $9.5 million for the years ended June 30, 2022, 2021, and
2020, respectively. Revenues from our credit card area accounted for 9.7%, 18.7%, and 21.3% of our banking revenues in fiscal years 2022, 2021, and
2020, 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 $61.1 million, $48.8 million, and $35.0 million for the years ended June 30, 2022, 2021,
and 2020, 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 $32.1 million, $25.2 million, and $19.2 million for the years ended June 30,
2022, 2021, and 2020, respectively. Revenues from our wealth management area accounted for 21.1%, 20.0%, 21.5% of our total revenues in fiscal years
2022,2021, and 2020, 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.
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Revenues from our e-Commerce area were approximately $29.4 million, $19.2 million, and $11.1 million for the years ended June 30, 2022, 2021,
and 2020, respectively. Revenues from our e-Commerce area accounted for 19.4%, 15.2%, 12.4% of our total revenues in fiscal years 2022, 2021, and
2020, respectively.
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 $10.4 million, $8.5 million, and $3.6 million for the years ended June 30, 2022, 2021, and
2020, respectively. Revenues from our automotive area accounted for 6.8%, 6.7%, and 4.1% of our total revenues in fiscal 2022, 2021, and 2020,
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 $144.1 million, $122.3 million, $87.1 million, respectively. Revenues from our IT
consulting services accounted for 94.8%, 97.0%, and 97.5% of our total revenues in fiscal years 2022, 2021, and 2020 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.
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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.
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 $6.7 million, $3.1 million, and $1.8 million, respectively. Revenues from
our customized IT solution services accounted for 4.4%, 2.5%, and 2.1% of our total revenues in fiscal years 2022, 2021, and 2020 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.
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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 2022, 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.
We launched the commercial edition of our new generation credit card system product, CAKU. 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.
● 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 2022, we trained 250 interns who have successfully worked for our clients. 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.
● 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.
55
CLPS, through its majority-owned subsidiary, JAJI (Shanghai) Co., Ltd. (“JAJI”), has entered into a strategic cooperation agreement (the
“Agreement”) with Beijing Yusys Technologies Co., Ltd. (“Yusys Technologies”, 300674.SZ). Both parties will jointly conduct fintech-based
initiatives including product promotion, project delivery and IT personnel training. Headquartered in Beijing, Yusys Technologies is an A-
share company listed on the Shenzhen Stock Exchange. It provides fintech services and products such as IT consulting and planning, software
products, solutions and implementation, operation, maintenance and testing, system integration and business operation for financial
institutions.
The Capital Increase Agreement (the “Agreement”) transaction with Minshang Creative Technology Holdings Limited (“MCT”, 01632.HK)
has been completed. CLPS, through its wholly-owned subsidiary, Growth Ring Ltd., and MCT now hold 53.33% and 46.67% in MSCT
Investment Holdings Limited (“MSCT”), respectively. Through the Agreement, both parties have agreed to develop a next-generation loan
trading software, a software as a service (SaaS) solution, and to explore financial technology services market in a global scale.
CLPS signed a definitive agreement with Beijing UniDev Software Co., Ltd. (“UniDev”), a Beijing-based IT services and solutions provider.
CLPS, through its wholly owned subsidiary, ChinaLink Professional Services Co. Ltd., holds 15% ownership stake in UniDev. UniDev is
focused on providing customized digital transformation solutions to companies and banks in Mainland China. It leverages its extensive
experience to develop applications including intelligent emergency response system, safety production monitoring system, and intelligent
finance solutions, among others. UniDev also explores the utilization and integration of artificial intelligence and big data applications into its
solutions.
● 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 established CLPS Technology (Philippines) Corp. (“CLPS Philippines”) in Metro Manila. The formation of the Philippine subsidiary is
in line with the Company’s global expansion strategy, particularly to extend its operation in Southeast Asia. CLPS Philippines has completed
the initial phase of its business and started to be operational.
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 ten 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
2022, we trained 250 interns who have successfully worked for our clients. 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.
56
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 2022, CLPS maintained more than 3,824 employees, of which, more than 3,420 IT talents serve our customers. Among them,
more than 96% work full-time for customers and the rest of the 4% 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, Standard Chartered Bank (China) Ltd., ANZ Bank, and Bank of Communications.
● Wealth Management — AIA, China Life Insurance, First Data, Haitong Securities, and Orient Securities.
● E-Commerce — eBay, PayPal, Greendot Shanghai, Stubhub, and Gumtree.
● Automotive and Technology — SAIC Motors, Sony, Cisco, CRIF Information Technology, Experian, 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, 2022, our business development teams consisted of 36 full-
time sales and marketing personnel, including 33 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.
57
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, launch of the
commercial edition of its new generation credit card system product, CAKU. 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.
58
Many enterprises have seen growing online customer activity and engagements as a result of the COVID-19 pandemic, creating a sense of urgency
for digital transformation. Moving forward, enterprises are accelerating digital marketing as a strategy to address the requirements of the expected trends
including digital touchpoint, customer acquisition across digital platform, and customized value proposition. CLPS’s “technology+data” digital marketing
solution which covers operation services through the utilization of marketing accounts, private online traffic, and media coverage, among others, serve as
the major selling point for industry verticals such as in banking, wealth management, e-commerce, and automotive. By leveraging a user’s data activity, it
enables enterprises to reduce marketing costs while gaining more customers. It also improves a user’s engagement and loyalty, which will contribute to
sustainable sales growth. The latest digital marketing solution upgrade intends to provide CLPS’s existing and potential client base across industries with
diversified service portfolio.
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 has grown to 3,824 employees as of June 30, 2022 from 3,352
employees in June 30, 2021. Approximately 70% 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.
59
We have registered for the following trademarks:
Mark
Country of
Registration
China
Application
Number
19288958
China
19289112
China
19289503
China
19289341
China
19289214
Hong Kong,
47628610
China
Hong Kong,
47629542
China
Class/Description
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
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
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
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
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
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
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
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
60
Current
Owner
ChinaLink
Professional Services
Co., Ltd.
Status
Registered
ChinaLink
Professional Services
Co., Ltd.
Registered
ChinaLink
Professional Services
Co., Ltd.
Registered
ChinaLink
Professional Services
Co., Ltd.
Registered
ChinaLink
Professional Services
Co., Ltd.
Registered
CLPS Technology
Registered
(HONG KONG) Co.,
Ltd.
CLPS Technology
Registered
(HONG KONG) Co.,
Ltd.
JAJI (Shanghai) Co.,
Ltd.
Registered
The following is a list of the Company’s copyrights:
Software Name
CLPS HR Management Platform Software V1.0
Country of
Registration
China
CLPS Food and Beverage Report Analysis and
Management Platform Software V1.0
CLPS Apparel Industry POS Management Platform
Software V1.0
CLPS Express Information Interactive Platform
Software V1.0
CLPS Chain Store Information Interactive Platform
Software V1.0
CLPS Project Analysis and Management Platform
Software V1.0
CLPS Payroll Accounting System Platform Software
V1.0
CLPS Fast Moving Consumer Goods Frontline Staff
Management Platform Software V1.0
China
China
China
China
China
China
China
CLPS Staff Management Platform Software V1.0
China
CLPS Coal Mining Enterprise Information System
Management Platform Software V1.0
CLPS Campus Expense Card Web Service System
Platform Software V1.0
CLPS Campus Expense Card Bathroom Management
Service Software V1.0
CLPS Machinery Industry ERP Management Platform
Software V1.0
CLPS Assignment and Task Management Platform
Software (short name: Assignment and Task
Management System) V1.0
CLPS Marketing Assistant System Platform Software
V1.0
CLPS Outsourcing Service Staff Management System
Platform Software V1.0
China
China
China
China
China
China
China
Registration
Number
Current
Owner
2009SR015975 ChinaLink
Professional
Services Co.,
Ltd.
2009SR060110 ChinaLink
Professional
Services Co.,
Ltd.
2009SR060102 ChinaLink
Professional
Services Co.,
Ltd.
2009SR060112 ChinaLink
Professional
Services Co.,
Ltd.
2009SR060108 ChinaLink
Professional
Services Co.,
Ltd.
2009SR060169 ChinaLink
Professional
Services Co.,
Ltd.
2010SR043564 ChinaLink
Professional
Services Co.,
Ltd.
2010SR043561 ChinaLink
Professional
Services Co.,
Ltd.
2010SR043562 ChinaLink
Professional
Services Co.,
Ltd.
2010SR045449 ChinaLink
Professional
Services Co.,
Ltd.
2010SR045441 ChinaLink
Professional
Services Co.,
Ltd.
2010SR045444 ChinaLink
Professional
Services Co.,
Ltd.
2010SR045802 ChinaLink
Professional
Services Co.,
Ltd.
2011SR076863 ChinaLink
Professional
Services Co.,
Ltd.
2012SR096727 ChinaLink
Professional
Services Co.,
Ltd.
2012SR096666 ChinaLink
Professional
Services Co.,
Ltd.
61
Approval Date
29th April 2009
Status
Registered
28th December 2009
Registered
28th December 2009
Registered
28th December 2009
Registered
28th December 2009
Registered
28th December 2009
Registered
25th August 2010
Registered
25th August 2010
Registered
25th August 2010
Registered
1st September 2010
Registered
1st September 2010
Registered
1st September 2010
Registered
2nd September 2010
Registered
25th October 2011
Registered
15th October 2012
Registered
15th October 2012
Registered
Software Name
CLPS Outsourcing Service Staff System Background
Management Software V1.0
Country of
Registration
China
CLPS Logistics Terminal Distribution Platform
Software V1.0
CLPS HR Background Support Management System
V1.0
CLPS HR Management System Platform Software
(short name: HR Management System) V1.0
CLPS Outsourcing Service Staff Resume Entry
System Platform Software V1.0
CLPS Bank Document Business Management
Software (short name: Document Management) V1.0
CLPS Bank Monetary Transaction Management
Software (short name: Monetary Transaction
Management) V1.0
China
China
China
China
China
China
CLPS Bank Expense Management Software V1.0
China
CLPS Bank Repayment Process Software V1.0
China
CLPS Bank Point Accumulative Management
Software V1.0
China
CLPS Bank Interest Process Software V1.0
China
CLPS Bank Credit Application Software V1.0
China
CLPS Mortgage Loan Plan Spreadsheet Tool Software
(short name: Loan Spreadsheet) V1.0
China
Registration
Number
Current
Owner
2012SR096731 ChinaLink
Professional
Services Co.,
Ltd.
2012SR096668 ChinaLink
Professional
Services Co.,
Ltd.
2012SR098440 ChinaLink
Professional
Services Co.,
Ltd.
2012SR098429 ChinaLink
Professional
Services Co.,
Ltd.
2012SR098687 ChinaLink
Professional
Services Co.,
Ltd.
2013SR054800 ChinaLink
Professional
Services Co.,
Ltd.
2013SR054796 ChinaLink
Professional
Services Co.,
Ltd.
2014SR168125 ChinaLink
Professional
Services Co.,
Ltd.
2014SR168130 ChinaLink
Professional
Services Co.,
Ltd.
2014SR168132 ChinaLink
Professional
Services Co.,
Ltd.
2014SR168136 ChinaLink
Professional
Services Co.,
Ltd.
2014SR168138 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198772 ChinaLink
Professional
Services Co.,
Ltd.
62
Approval Date
15th October 2012
Status
Registered
19th October 2012
Registered
19th October 2012
Registered
19th October 2012
Registered
19th October 2012
Registered
5th June 2013
Registered
5th June 2013
Registered
4th November 2014
Registered
4th November 2014
Registered
4th November 2014
Registered
4th November 2014
Registered
4th November 2014
Registered
16th October 2015
Registered
Software Name
CLPS Bank Product Management Software V1.0
Country of
Registration
China
CLPS Bank Deposit and Withdrawal Services
Management Software V1.0
CLPS Bank Loan Application Management Software
V1.0
China
China
CLPS Bank Repayment Management Software V1.0
China
CLPS Bank Exchange Rate Management Software
V1.0
China
CLPS Bank Interest Settlement Software V1.0
China
CLPS Bank Foreign Exchange Transaction Software
V1.0
CLPS Bank Investment Management Securities
Business Software V1.0
CLPS Bank Big Data Decision-making Platform
Customer Portrayal Software V1.0
CLPS Internet Financial Cloud Mobile Banking
Software V2.0
CLPS Wantong Calculus Mall Software V2.0
CLPS RC Rules Engine Software
CLPS Internet Financing Collection Management
Software V2.0
CLPS Points Management Platform Software
CLPS Full-web Order Receiving Unified Platform
Management Software V2.0
CLPS Quanxi Intelligent Marketing Platform Clients
Growth Center Software V2.0
CLPS Enterprise Recruitment Intelligent Cooperation
Platform Software V2.0
CLPS Intelligent Online Training Test Instructional
Management Software V1.0
China
China
China
China
China
China
China
China
China
China
China
China
Registration
Number
Current
Owner
2015SR198610 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198176 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198654 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198649 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198774 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198246 ChinaLink
Professional
Services Co.,
Ltd.
2015SR198240 ChinaLink
Professional
Services Co.,
Ltd.
2016SR376924 ChinaLink
Professional
Services Co.,
Ltd.
2016SR382920 ChinaLink
Professional
Services Ca,
Ltd.
2016SR398821 ChinaLink
Professional
Services Co.,
Ltd.
2017SR169307
2017SR119266
2017SR118507 CLPS Beijing
Hengtong Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
2017SR119078
2017SR202535
2017SR565576 ChinaLink
Professional
Services Co.,
Ltd.
2017SR646712 ChinaLink
Professional
Services Co.,
Ltd.
2017SR646507 ChinaLink
Professional
Services Co.,
Ltd.
63
Approval Date
16th October 2015
Status
Registered
16th October 2015
Registered
16th October 2015
Registered
16th October 2015
Registered
16th October 2015
Registered
16th October 2015
Registered
16th October 2015
Registered
16th December 2016
Registered
20th December 2016
Registered
27th December 2016
Registered
17th April 2017
Registered
9th May 2017
Registered
17th April 2017
Registered
17th April 2017
Registered
24th May 2017
Registered
13th October 2017
Registered
24th November 2017
Registered
24th November 2017
Registered
Software Name
CLPS Enterprise Internet Qinqin Loan Background
Management Software V1.0
Country of
Registration
China
CLPS Blockchain Based Virtual Credits Background
Management Software V2.0
CLPS Enterprise Talent Information Intelligent
Management Software V2.0
CLPS Enterprise Recruitment Intelligent Cooperation
Platform Software V2.0
CLPS General Points Platform and Business Center
Software V1.0
China
China
China
China
CLPS Online Financial Microloan Software V1.0
China
CLPS Bank Customer Management Software V1.0
China
CLPS Online Financial Management Software V1.0
China
CLPS Talent Training One-Stop Platform Software
V1.0
China
CLPS Project Management Software [PMS]V2.0
China
CLPS Online Financial Management Software V2.0
China
CLPS Online Financial Microloan Software V3.0
China
CLPS Bank Customer Management Software V3.0
China
CLPS Online Financial Accounting Management
Software V1.0
China
Registration
Number
Current
Owner
2017SR647634 ChinaLink
Professional
Services Co.,
Ltd.
2017SR645676 ChinaLink
Professional
Services Co.,
Ltd.
2017SR645650 ChinaLink
Professional
Services Co.,
Ltd.
2017SR647190 ChinaLink
Professional
Services Co.,
Ltd.
2019SR0004653 ChinaLink
Professional
Services Co.,
Ltd.
2019SR0004669 ChinaLink
Professional
Services Co.,
Ltd.
2019SR0004663 ChinaLink
Professional
Services Co.,
Ltd.
2019SR0140935 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0094641 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0095716 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0095716 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0094745 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0095318 ChinaLink
Professional
Services Co.,
Ltd.
2020SR0095725 ChinaLink
Professional
Services Co.,
Ltd.
64
Approval Date
24th November 2017
Status
Registered
24th November 2017
Registered
24th November 2017
Registered
24th November 2017
Registered
2nd January 2019
Registered
2nd January 2019
Registered
2nd January 2019
Registered
14th February 2019
Registered
19th January 2020
Registered
19th January 2020
Registered
19th January 2020
Registered
19th January 2020
Registered
19th January 2020
Registered
19th January 2020
Registered
Software Name
CLPS Blockchain Based Virtual Credits Background
Management Software V3.0
CLPS Enterprise Recruitment Intelligent Cooperation
Platform Software V3.0
CLPS Enterprise Talent Information Intelligent
Management Software (“ERP System”) V3.0
CLPS Ruicheng ERP-TRMS Software (“ERP-
TRMS”) V1.0
CLPS Ruicheng BPM Organizational Structure and
Process Approval Software (“BPM”) V1.0
CLPS Ruicheng Timesheet CLPS Management
Software(“Timesheet”) V2.0
CLPS Ruicheng WeChat Based Timesheet
Management Software (“Timesheet”) V1.0
JAJI China EKYC Based Mobile Banking
Software(“Mobile Banking”) V1.0
Country of
Registration
China
China
China
China
China
China
China
China
CLPS Project Management Software(“PMS”) V3.0
China
CLPS Credit Card Comprehensive Information
Platform Software(“ChinaLinkV”) V2.1.1
CLPS Meeting Room Reservation Management
Software(“Meeting”) V1,0
CLPS BPM Organizational Structure and Process
Approval Software(“BPM”) V2.0
CLPS EKYC Based Mobile Banking Software
(“Mobile Banking”) V2.0
Hainan Qincheng BPM Organization Structure and
Process Approval Software(“BPM”) V2.0
Hainan Qincheng ERP-TRMS Software(“ERP-
TRMS”) V2.0
Hainan Qincheng Timesheet Management
Software(“Timesheet”) V3.0
China
China
China
China
China
China
China
Approval Date
9th March 2020
Status
Registered
9th March 2020
Registered
9th March 2020
Registered
30th November 2020 Registered
30th November 2020 Registered
30th November 2020 Registered
30th November 2020 Registered
30th November 2020 Registered
21st January 2021
Registered
21st January 2021
Registered
21st January 2021
Registered
7th February 2021
Registered
7th February 2021
Registered
27th May 2021
Registered
27th May 2021
Registered
27th May 2021
Registered
2020SR1691823
2020SR0224616
2020SR1691822
2020SR0224243
Registration
Number
2020SR0224622
Current
Owner
CLPS
Guangzhou
Co., Ltd.
CLPS
Guangzhou
Co., Ltd.
CLPS
Guangzhou
Co., Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
CLPS
Ruicheng Co.,
Ltd.
JAJI
(Shanghai)
Co., Ltd.
2021SR0113240 ChinaLink
Professional
Services Co.,
Ltd.
2020SR1691802
2020SR1692693
2020SR1691884
2021SR0113286 ChinaLink
Professional
Services Co.,
Ltd.
2021SR0113234 ChinaLink
Professional
Services Co.,
Ltd.
2021SR0216840 ChinaLink
Professional
Services Co.,
Ltd.
2021SR783928
2021SR0216890 ChinaLink
Professional
Services Co.,
Ltd.
Hainan
Qincheng
Software
Technology
Co., Ltd.
Hainan
Qincheng
Software
Technology
Co., Ltd.
Hainan
Qincheng
Software
Technology
Co., Ltd.
2021SR0783904
2021SR0783929
65
Software Name
Hainan Qincheng WeChat Based Timesheet
Management Software (“Timesheet”) V2.0
Country of
Registration
China
JAJI Project Management Software V4.0
CLPS Meeting Room Reservation Management
Software V2.0
JAJI One-Stop Platform for Talent Cultivation Based
on Internationalization V2.0
JAJI Project Lifeline Tracking Management System
V1.0
JAJI Salary Query Software V1.2
JAJI Internet Financial Accounting Management
Software V2.0
JAJI Bank Clients Management Software Based on
Distributed Architecture V1.0
JAJI Talent Recommendation and Recruitment Mobile
Platform Software V1.0
JAJI BPM BPM Organizational Structure and Process
Approval Software V4.0
JAJI Online Finance Management Software Based on
Distributed Architecture V1.0
JAJI Enterprise Talent Information Analysis and
Management Software Based on Distributed
Architecture V2.0
JAJI Mobile Banking System Based on Intelligent
Face Recognition V1.0
JAJI Talent Resume Management DB Database
Software V1.5
JAJI Business Points Mall WeChat Platform Software
V1.0
CLPS EKYC Based Mobile Banking Software
(“Mobile Banking”) V3.0
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
2021SR2008521
2021SR1952575
2021SR1775007
2021SR1952576
2021SR1775321
Registration
Number
2021SR0783905
Current
Owner
Hainan
Qincheng
Software
Technology
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
2021SR1628925 ChinaLink
Professional
Services Co.,
Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
JAJI
(Shanghai)
Co., Ltd.
2021SR1617316 ChinaLink
Professional
Services Co.,
Ltd.
2021SR1952673
2021SR1952574
2021SR1969085
2021SR1901457
2021SR2008522
2021SR1880802
2021SR1969086
2021SR2085396
66
Approval Date
27th May 2021
Status
Registered
30th June 2021
Registered
31st July 2021
Registered
28th September 2021
Registered
30th September 2021
Registered
13th October 2021
Registered
14th October 2021
Registered
14th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
17th October 2021
Registered
2nd November 2021
Registered
Software Name
CLPS Credit Card Comprehensive Information
Platform Software(“ChinaLinkV”) V3.0
Country of
Registration
China
CLPS Credit Card Big Data Integrated Management
Background Software V2.0
China
CLPS Credit Card Clearing Management Software
V1.0
China
CLPS Credit Card Risk Management Software V1.0
China
CLPS Credit Card Account Establishment and Card
Making Software V1.0
China
CLPS Credit Card Authorization Management
Software V1.0
China
CLPS Credit Card Customer Service Management
Software V1.0
China
CLPS Credit Card Merchant Consumption Integrated
Comprehensive Management Software V1.0
China
CLPS Internet Financing Collection Software V1.5
China
CLPS Online Learning Platform Software V1.5
China
JAJI Dual Recording Platform Software V1.0
China
Registration
Number
Current
Owner
2021SR1619652
2021SR1619639
2021SR1619641
2021SR1619640
2021SR1617317 ChinaLink
Professional
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
Shanghai
Chenqin
Information
Technology
Services Co.,
Ltd.
2021SR1619651
2021SR1619642
2021SR1619643
2021SR1666790 ChinaLink
Professional
Services Co.,
Ltd.
2021SR1666804 ChinaLink
Professional
Services Co.,
Ltd.
JAJI
(Shanghai)
Co., Ltd.
2021SR2116913
67
Approval Date
2nd November 2021
Status
Registered
3rd November 2021
Registered
3rd November 2021
Registered
3rd November 2021
Registered
3rd November 2021
Registered
3rd November 2021
Registered
3rd November 2021
Registered
3rd November 2021
Registered
8th November 2021
Registered
8th November 2021
Registered
17th November 2021
Registered
Properties
Our principal executive office is 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, which has been and will continue to be used as the
Company’s principal executive office. 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.
On September 24, 2021, CLPS, through its wholly-owned subsidiary, Arabian Jasmine, entered into a purchase agreement to acquire commercial
real estate located at Unit 1-2, 10th Floor, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong SAR for a consideration of
US$11,286,971. The consideration was fully paid on December 8, 2021.
In addition, the Company manages and operates several other facilities. We rent office space in Shanghai, Tianjin, Shenzhen, Guangzhou, Dalian,
Xi’an, Chengdu, Beijing, Baoding, Hainan, Singapore, Hong Kong, Japan, India, the U.S., and the Philippines. Rent expenses amounted to $1,085,888,
$942,606, and $944,645 for the years ended June 30, 2022, 2021 and 2020, respectively. We believe our facilities are adequate for our current needs.
Facility
Shanghai Office
Shanghai Office
Dalian Office
Address
2nd Floor, Building 18, Shanghai Pudong Software Park, 498 Guoshoujing Road, Pudong District,
Shanghai, PRC
1st Floor, Building 18, Shanghai Pudong Software Park, 498 Guoshoujing Road, Pudong District,
Shanghai, PRC
Room 501-503/504-506/507, 5/F, No. 30, Cuitao Street, High Tech Park, Ganjingzi District,
Dalian, Liaoning Province, PRC
Tianjin Office
Room 5601-8, F6, Building No.5, Xinhuan West Road, TEDA, Tianjin, PRC
Shenzhen Office
Room 2804, Ludan Building, Guiyuan Street, Luohu District, Shenzhen, PRC
Guangzhou Office
Xi’an Office
Room 409-411, Tower B, China Shine Plaza, No. 9 Linhe Xi Road, Tianhe District, Guangzhou,
Guangdong, PRC
Room 1901,Tower C2 of Yunhuigu Software Park, Yunshui 1st Road, Xi ‘an High-Tech Zone,
Xian, PRC
Chengdu Office
Unit 04,05, 12/Floor, Tower 2, 88 Jitai 5th Road, Gaoxin District, Chengdu, Sichuan District, PRC
Beijing Office
Room 1329-1332, 13th Floor, Building 2, Yard 26, Chengtong Road, Shijingshan District, Beijing,
PRC
Singapore Office
10 UBI Crescent, #03-29, UBI Techpark, Singapore, 408564
Singapore Office
141 Cecil Street, #06-07, Tung Ann Association Building, Singapore, 069541
Hong Kong Office
Unit 1102, Level 11, Millennium City III, 370 Kwun Tong Road, Kwun Tong, Kowloon, Hong
Kong
Japan Office
India Office
4F 1-36-3 Nihonbashi-Kakigara-cho,Chuo-ku,Tokyo, Japan, 103-0014
Unit No. 222, DLF Cybercity, Idco Info Park, Technology Corridor, Chandaka Industrial Estate,
Bhubaneswar, Odisha, India, 751024
US Office
1460 Mission Street, San Francisco, CA 94103
Hainan Office
Room B1013, Binhai Avenue, 109-9 Haihang Plaza, Hainan, PRC
Hangzhou Office
Room 308, Building 4, 970-1 Gaojiao Road, Yuhang District, Hangzhou , Zhejiang, PRC
Hong Kong Office
10/F, Level 10 Millennium City 3, 378 Kwun Tong Road, Kwun Tong, Kowloon, Hong Kong
Philippines Office
Vietnam Office
20th Floor, Picadilly Star Building, 4th Avenue Corner 27th Street, Bonifacio Global City, Fort
Bonifacio, Taguig City, Metro Manila, Philippines
12th Floor, Viettel Complex Building, No. 285 Cach Mang Thang Tam Street, Ward 12, District 10,
Ho Chi Minh City, Vietnam
Singapore Office
60 Paya Lebar Road #05-29-30, Paya Lebar Square, Singapore, 409051
68
Space (m2)
1,259.94
914.62
1,388.45
56.07
299.00
331.16
1,989.32
120.00
222.88
84
27.87
210.15
40.17
113.85
6
63.62
106.8
756.23
10
10
270
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
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.
69
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.
70
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.
71
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 to global institutions in
banking, insurance and financial sectors, both in China and globally.
For more than ten years, we have served as an IT solutions provider to a growing network of clients in the global financial industry, including
large financial institutions from the US, Europe, Australia, Southeast Asia. and Hong Kong, 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. 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 maintain nineteen delivery and/or R&D centers, of which ten are located in Mainland China (Shanghai,
Beijing, Dalian, Tianjin, Xi’an, Chengdu, Guangzhou, Shenzhen, Hangzhou, and Hainan) and nine are located globally (Hong Kong SAR, the United
States of America, Japan, Singapore, Australia, Malaysia, India, the Philippines, and Vietnam), to serve different customers in 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. We believe that maintaining our Company as a proven, reliable
partner to our financial industry 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.
72
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 CLPS-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 CLPS-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.
73
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.
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.
74
On January 20, 2021, the Company incorporated Hainan Qincheng Software Technology Co., Ltd. (“CLPS Hainan”) in Hainan to develop
business in related areas.
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.
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.
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, 2022,
2021 and 2020, our revenues were $152.0 million, $126.1 million, and $89.4 million, respectively. Revenues generated outside of mainland China were
approximately $14.1 million, $13.6 million and $10.6 million for fiscal 2022, 2021 and 2020, respectively. We had a net income of $4.6 million in fiscal
2022, a net income of $7.0 million in fiscal 2021, and a net income of $3.1 million in fiscal 2020, respectively. We had a non-GAAP net income of $11.8
million in fiscal 2022. Our total assets as of June 30, 2022 were $101.9 million of which cash and cash equivalent amounted to $18.4 million. Our total
liabilities as of June 30, 2022 were $34.1 million.
75
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 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. During fiscal 2021, our revenue derived from our
IT consulting services increased by 40.3% or $35.2 million from fiscal 2020, mainly attributable to revenue growth from our existing clients.
IT consulting services revenue from new clients amounted to approximately $8.4 million in fiscal 2021.
● 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:
Cash acquired
Accounts receivable, net
Prepayments, deposits and other assets, net
Property and equipment, net
Intangible assets, net
Salaries and benefits payable
Tax payables
Accounts payable and other current liabilities
Deferred tax liabilities
Noncontrolling interests
Goodwill
Total consideration
76
Amounts
268,014
325,888
67,570
1,875
339,883
(86,483)
(16,147)
(259,361)
(65,264)
(290,994)
195,080
480,061
$
$
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 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:
Cash acquired
Accounts receivable, net
Prepayments, deposits and other assets, net
Accounts payable and other current liabilities
Goodwill
Previous held equity interests
Cash consideration
Total consideration
Amounts
79,156
87,674
7,707
(5,310)
50,045
152,312
66,960
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.
77
Acquisition 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:
Cash acquired
Accounts receivable
Prepayment and other receivable
Property and equipment, net
Intangible assets, net
Other payable and other current liabilities
Deferred tax liabilities
Noncontrolling interests
Goodwill
Total consideration
Amounts
6,843
458,943
14,454
1,190
337,685
(504,235)
(57,406)
(64,879)
227,506
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).
78
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:
Cash acquired
Accounts receivable, net
Prepayments, deposits and other assets, net
Property and equipment, net
Customer relationship
Short-term bank loans and long-term bank loans, current portion
Accounts payable and other current liabilities
Tax payables
Salaries and benefits payable
Long-term bank loans
Deferred tax liabilities
Noncontrolling interests
Goodwill
Total consideration
Amounts
474,323
618,144
103,697
1,493
904,748
(48,103)
(128,688)
(102,978)
(431,548)
(44,201)
(162,855)
(411,351)
1,689,899
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.
79
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 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.
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
(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.
80
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:
Cash acquired
Accounts receivable
Property and equipment, net
Customer contracts
Other payable and other current liabilities
Wages payable
Tax payables
Deferred tax liabilities
Goodwill
Total consideration
Amounts
4,037
24,811
2,117
126,680
(71,488)
(5,099)
(2,576)
(25,336)
236,834
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.
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).
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:
Cash acquired
Technology
Other payable and other current liabilities
Deferred tax liabilities
Noncontrolling interests
Total consideration
Amounts
205,711
151,168
(5,390)
(23,971)
(121,807)
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.
81
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.
Revenues
Less: Cost of revenues
Gross profit
Operating incomes (expenses):
Selling and marketing expenses
Research and development expenses
General and administrative expenses
Subsidies and other operating income
Total operating expenses
Income from operation
Other income
Other expenses
Income before income tax and share of income in equity investees
Provision for income taxes
Income before share of income in equity investees
Share of (loss) income in equity investees, net of tax
Net income
Less: Net income attributable to noncontrolling interests
Net income attributable to CLPS Incorporation’s shareholders
Basic earnings per common share
Weighted average number of share outstanding – basic
Diluted earnings per common share
Weighted average number of share outstanding – diluted
Supplemental information:
Non-GAAP income before income tax and share of income of equity investees
Non-GAAP net income
Non-GAAP net income attributable to CLPS Incorporation’s shareholders
Non-GAAP basic earnings per common share
Weighted average number of share outstanding – basic
Non-GAAP diluted earnings per common share
Weighted average number of share outstanding – diluted
Use of Non-GAAP Financial Measures
For the years ended
June 30,
2021
2022
2020
$ 152,022,381 $ 126,061,693 $
(85,890,757)
40,170,936
(111,033,345)
40,989,036
89,415,798
(58,296,097)
31,119,701
(4,103,066)
(7,971,145)
(23,045,664)
1,536,394
(33,583,481)
7,405,555
854,250
(575,605)
(3,753,236)
(13,337,913)
(16,784,688)
2,080,087
(31,795,750)
8,375,186
296,319
(351,045)
(3,059,877)
(10,436,975)
(16,343,936)
1,927,230
(27,913,558)
3,206,143
608,638
(107,322)
7,684,200
3,045,992
4,638,208
(50,297)
4,587,911
132,483
4,455,428 $
8,320,460
1,257,124
7,063,336
(44,121)
7,019,215
202,643
6,816,572 $
3,707,459
835,444
2,872,015
207,363
3,079,378
141,139
2,938,239
$
0.21
20,924,683
0.21
21,057,063
0.39
17,279,443
0.39
17,569,440
0.20
14,689,224
0.20
14,692,299
14,869,062
11,772,773
11,640,290
0.56
20,924,683
0.55
21,057,063
13,449,156
12,147,911
11,945,268
0.69
17,279,443
0.68
17,569,440
7,711,539
7,083,458
6,942,319
0.47
14,689,224
0.47
14,692,299
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. Non-GAAP net income is net income excluding share-based compensation
expenses. Non-GAAP net income attributable to CLPS Incorporation’s shareholders is net income attributable to CLPS Incorporation’s shareholders
excluding share-based compensation expenses. 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 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, 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.
82
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:
Cost of revenues
Less: share-based compensation expenses
Non-GAAP cost of revenues
Selling and marketing expenses
Less: share-based compensation expenses
Non-GAAP selling and marketing expenses
General and administrative expenses
Less: share-based compensation expenses
Non-GAAP general and administrative expenses
Income before income tax and share of income in equity investees
Add: share-based compensation expenses
Non-GAAP income before income tax and share of loss of equity investees
Net income
Add: share-based compensation expenses
Non-GAAP net income
Net income attributable to CLPS Incorporation’s shareholders
Add: share-based compensation expenses
Non-GAAP net income attributable to CLPS Incorporation’s shareholders
Weighted average number of share outstanding used in computing GAAP and non-GAAP basic earnings
GAAP basic earnings per common share
Add: share-based compensation expenses
Non-GAAP basic earnings per common share
Weighted average number of share outstanding used in computing GAAP diluted earnings
Weighted average number of share outstanding used in computing non-GAAP diluted earnings
GAAP diluted earnings per common share
Add: share-based compensation expenses
Non-GAAP diluted earnings per common share
83
For the year
ended
June 30,
2022
(111,033,345)
(36,906)
(110,996,439)
(4,103,066)
(165,209)
(3,937,857)
(23,045,664)
(6,982,747)
(16,062,917)
7,684,200
7,184,862
14,869,062
4,587,911
7,184,862
11,772,773
4,455,428
7,184,862
11,640,290
20,924,683
0.21
0.35
0.56
21,057,063
21,057,063
0.21
0.34
0.55
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.
2022
Revenue
% of total
Revenue
For the Year ended June 30,
2021
Revenue
% of total
Revenue
Variance
Variance
%
IT consulting services
Customized IT solution services
Other
Total
$ 144,092,811
6,738,118
1,191,452
152,022,381
94.8% $ 122,273,395
3,130,646
4.4%
657,652
0.8%
100.0% 126,061,693
97.0%
2.5%
0.5%
100.0%
21,819,416
3,607,472
533,800
25,960,688
17.8%
115.2%
81.2%
20.6%
84
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.
85
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.
86
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.
For the Years Ended June 30, 2021 and 2020
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.
2021
Revenue
% of total
Revenue
For the Year ended June 30,
2020
Revenue
% of total
Revenue
Variance
Variance
%
IT consulting services
Customized IT solution services
Other
Total
$ 122,273,395
3,130,646
657,652
126,061,693
97.0% $
2.5%
0.5%
100.0% $
87,136,754
1,844,891
434,153
89,415,798
97.5%
2.1%
0.5%
100.0%
35,136,641
1,285,755
223,499
36,645,895
40.3%
69.7%
51.5%
41.0%
Our total revenues increased by approximately $36.7 million, or 41.0%, to approximately $126.1 million for the fiscal year ended June 30, 2021
from approximately $89.4 million for the fiscal year ended June 30, 2020. 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, 2021, revenue derived from our IT consulting services increased by 40.3% to $122.3 million from $87.1 million in
fiscal 2020, primarily reflecting the increasing demands for our IT consulting services from banks and other financial institutions. For fiscal 2021 and 2020,
40.1% and 40.0% of our IT consulting services revenue were from international banks, respectively. In fiscal 2021, 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 $1.3 million, or 69.7%, to $3.1 million for the year ended June 30, 2020, from $1.8
million in the same period of the previous year. The increase was primarily due to increasing demand from existing clients.
87
Revenue from other services increased by $0.3 million, or 51.5%, to $0.7 million for the year ended June 30, 2021, from $0.4 million in the prior
year period.
The number of clients increased by 24, or 10.6%, to 251 for the year ended June 30, 2021 from 227 in the prior year period. Revenues from top
five clients accounted for 45.7% and 47.3% of the Company’s total revenues for fiscal 2021 and 2020, respectively, which reflects decreased in revenue
dependence from major clients.
Revenue generated outside of mainland China for the year ended June 30, 2021 accounted for 10.7% of total revenue compared to 11.8% 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 $27.6 million or 47.3% to approximately $85.9 million in fiscal 2021 from approximately $58.3 million in fiscal 2020 primarily as a
result of increased revenue, therefore resulting in increased headcount, expanded office facilities to enable and match the growth of our business revenue.
As a percentage of revenues, our cost of revenues was 68.1% and 65.2% for fiscal 2021 and 2020, respectively.
Gross profit and gross margin
Our gross profit increased by $9.1 million, or 29.1%, to approximately $40.2 million in fiscal 2021 from approximately $31.1 million in fiscal
2020. The higher gross profit in fiscal 2021 was primarily attributable to the increase in our billing rates of both IT consulting services and customized IT
solution services. Also, customized IT solution services contribute favorably to our client retention and understanding of our clients’ businesses and
provide opportunities to cross-sell our other services. Gross margin decreased to 31.9% in fiscal 2021 from 34.8% 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 $0.7 million or 22.7% to $3.8 million in fiscal 2021 from $3.1 million in fiscal 2020. Accordingly, as
a percentage of sales, our selling expenses were 3.0% of revenues in fiscal 2021 compared to 3.4% in fiscal 2020. 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.
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 $13.3 million in fiscal 2021, which increased by $2.9 million or
27.8% compared to $10.4 million in fiscal 2020, representing 10.6% and 11.7% of our total revenues for fiscal 2021 and 2020, respectively. We expect to
keep our investment in research and development relatively stable to enhance our industry knowledge, improve our competitiveness and enable us to
identify attractive market opportunities for new and enhanced services and solutions.
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 $0.5 million, or 2.7%, to $16.8 million in fiscal 2021 from $16.3 million in the prior year. After
the deduction of $5.1 million non-cash share-based compensation expenses related to the grants under the 2017 Incentive Compensation Plan, non-GAAP
general and administrative expenses decreased by $0.8 million, or 6.2%, to $11.8 million in fiscal 2021 from $12.6 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 $2.1 million and
$1.9 million in fiscal 2021 and 2020, respectively.
88
Income before income taxes and share of (loss) income in equity investees
Income before income taxes and share of (loss) income in equity investees increased by $4.6 million to a $8.3 million income in fiscal 2021 from
an income of $3.7 million in fiscal 2020. After the deduction of non-cash share-based compensation expenses, non-GAAP income before income taxes and
share of (loss) income in equity investees increased by $5.7 million, or 74.4%, to $13.4 million in fiscal 2021 from $7.7 million in the same period of the
previous year.
Provision for income taxes
Our provision for income taxes in fiscal 2021 increased by $0.5 million to $1.3 million from $0.8 million provision for income taxes in fiscal
2020, mainly due to recognition of withholding tax related to the dividend of the Company’s subsidiary.
Share of (loss) income in equity investees, net of tax
The share of loss in equity investees, net of tax in fiscal 2021 was net equity investment loss of SSIT and EMIT. The share of income in equity
investees, net of tax in fiscal 2020 was net equity investment income of Lihong and EMIT.
Net income
Net income increased by $3.9 million or 127.9% to $7.0 million in fiscal 2021 from a net income of $3.1 million in fiscal 2020. After the
deduction of $5.1 million non-cash share-based compensation expenses, non-GAAP net income increased by $5.0 million, or 71.5%, to $12.1 million in
fiscal 2021 from $7.1 million in the previous year.
Other comprehensive income (loss)
Foreign currency translation adjustments amounted to income of $2.6 and loss of $0.5 million for the years ended June 30, 2021 and 2020,
respectively. The balance sheet amounts with the exception of equity as of June 30, 2021 were translated at 6.4566 RMB to 1.00 USD as compared to
7.0651 RMB to 1.00 USD as of June 30, 2020. 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, 2021 and 2020 were 6.6212 RMB to 1.00 USD and 7.0309 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 year 2020, 2021, 2022, 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$7.1 million, US$7.6 million, and US$22.8 million as of June 30 for fiscal 2020, 2021 and 2022,
respectively. The subsidiaries provide cash support to the Company according its business development plan. The balances due to subsidiaries from the
Company were Nil, Nil and US$7.1 million. as of June 30 for fiscal 2020, 2021 and 2022, respectively. The balances were reflected in the section
“PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION” in our financial statements for fiscal 2020, 2021, and 2022, respectively.
For the years ended June 30, 2020, 2021 and 2022, cash and cash equivalents of PRC companies were RMB 77.91 million (US$11.03 million), 62.66
million (US$9.71 million), and 99.0 million (US$14.8 million).
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, 2022, we had cash and cash equivalents of approximately $18.4 million. Our current assets were approximately $76.8 million, and
our current liabilities were approximately $30.4 million. Total shareholders’ equity as of June 30, 2022 was approximately $67.8 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, 2022, cash and cash equivalents of approximately
RMB99.0 million ($14.8 million), SGD2.8 million ($2.0 million), AUD0.01 million ($0.007 million), HKD9.4 million ($1.2 million), INR0.3 million
($0.004 million),MYR0.4 million ($0.08 million), JPY10.2 million ($0.08 million), USD0.1 million, and PHP5.1 million ($0.09 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 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, 2022. 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:
Net cash provided by (used in) operating activities
Net cash (used in) provided by investing activities
Net cash provided by financing activities
Effect of exchange rate change
Net (decrease) increase in cash
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Operating Activities
For the Years Ended June 30,
2021
(2,609,773) $
(5,619,471)
19,340,588
975,918
12,087,262
12,652,120
24,739,382 $
2022
3,200,889 $
(16,290,683)
7,474,641
(727,242)
(6,342,395)
24,739,382
18,396,987 $
2020
5,931,124
173,229
125,362
(178,930)
6,050,785
6,601,335
12,652,120
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.
Net cash provided by operating activities was approximately $5.9 million in fiscal 2020, including net income of $3.1 million, adjusted for non-
cash items of $4.4 million and negative adjustments for changes in operating assets and liabilities of $1.6 million. The adjustments for changes in operating
assets and liabilities mainly included the increase in accounts receivable of $6.6 million due to increased sales in fiscal 2020. During fiscal 2020, our
accounts receivable turnover was 91 days, stable with 99 days in fiscal 2019. The adjustments for changes in operating assets and liabilities also included
offset with an increase in salaries and benefits payable of $3.6 million due to unpaid employee compensation and benefits, and an increase in accounts
payable and other payables of $0.1 million in fiscal 2020.
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Investing Activities
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.
Net cash provided by investing activities was approximately $0.2 million in fiscal 2020, primarily due to our purchase of office equipment and
furniture of $0.2 million, disposition of long term investment of $1.0 million, our business acquisition of $1.6 million and short-term investments of $1.1
million in fiscal 2020, to better manage opportunities and capitalize on the growth potential in the human resource related industry. In fiscal 2020, we paid
$1,844,380 (2,496,000 Singapore dollars) and the Company’s common shares valued at $461,096 (624,000 Singapore dollars) for an 80% of equity interest
in Ridik Pte. The Company also injected $0.14 million (RMB 1,000,000) in EMIT. The Company sold an 18.42% equity interest in CLPS Lihong for the
consideration of $995,605 (RMB 7 million) to the third party.
Financing Activities
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, 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.
Net cash provided by financing activities was approximately $0.1 million in fiscal 2020. During the fiscal 2020, we had bank loans of
approximately $3.8 million, repaid loans of approximately $3.9 million, and received the over-allotment proceeds of $0.2 million.
Capital Expenditures
The Company made capital expenditures of $20.8 million, $1.1 million, and $0.2 million for the years ended June 30, 2022, 2021, and 2020,
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: 3.4% in 2021 and 2.5% in 2020.
Contractual Obligations
The Company’s subsidiaries lease office spaces under various operating leases. Operating lease expense amounted to $1,413,521, $942,606, and
$944,645 for the years ended June 30, 2022, 2021, and 2020, respectively. The following table sets forth our contractual obligations and commercial
commitments as of June 30, 2022:
Operating lease arrangements
Bank loans
Total
Payment Due by Period
Less than
1 Year
1-3 Years
More than
3 Years
Total
$
$
2,129,203 $
14,474,363
16,603,566 $
1,174,688 $
14,474,363
15,649,051 $
954,515 $
-
954,515 $
-
-
-
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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, 2022 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 and Estimates
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 continually evaluate these estimates and
assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be
reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from
our expectations as a result of changes in our estimates.
We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make
significant accounting estimates. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated
financial condition and results of operations.
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 services, IT solutions 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.
Time-and-expense basis contracts
The series of IT 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.
Fixed-price basis contracts
Revenues from fixed-price customized 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 clause
is generally not specified in the contract or stand-ready service on when-and-if-available basis.
There are two performance obligations identified in the fixed-price basis contracts: 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.
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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.
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.
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.
Accounts receivable and allowance for doubtful accounts
Accounts receivable are carried at net realizable value. An allowance for doubtful accounts is recorded in the period when loss is probable. We
determine the adequacy of a reserve for doubtful accounts based on individual account analysis and historical collection trends. We establish a provision for
doubtful receivables when there is objective evidence that we 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. We regularly review the
adequacy and appropriateness of the allowance for doubtful accounts.
Long-term investment
Our long-term investments consist of equity-method investments and equity investments without readily determinable fair values.
Investments in entities in which we 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 income. Equity method adjustments include our
proportionate share of investee income or loss, adjustments to recognize certain differences between our 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. We assess 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 income equal to difference between the proceeds we receive and the carrying amounts of the investment disposed.
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For equity investments without readily determinable fair values, we elect 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 income equal to the amount by which the carrying value exceeds the fair value of the
investment.
Business combination
We account 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 we 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 income. We 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. We determine 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 income as incurred. Although we believe 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, we allocate the total cost of the acquisition, including transaction costs, to the assets acquired based on their relative
fair values.
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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 income in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years
ended June 30, 2022, 2021 and 2020. 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 2025, 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. We, 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.
Share-based payment
We account 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. We, with the assistance of an independent third-party valuation firm, determined the fair value of the share options granted to employees. We use 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. We
recognize 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. We use 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 any of the terms or conditions of share-based payment awards is accounted for as a modification of awards. We measure 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, we recognize
incremental compensation cost in the period the modification occurred. For unvested awards, we recognize, 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, we recognized previously unrecognized compensation cost at the
cancellation date and reversed previously recognized share capital to additional paid-in capital.
95
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly
uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of
different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of
operations. Such critical estimates are discussed below. For further information on our other significant accounting estimates, see Note 2 to our
consolidated financial statements included elsewhere in this annual report.
Goodwill impairment
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 we believe impairment indicators are present.
We had only one reporting unit (that also represented our single operating segment) as of June 30, 2022 and 2021. Goodwill was allocated 100% to the
single reporting unit as of June 30, 2022 and 2021. We have 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 we believe, 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 two-step quantitative impairment test described above is
required. Otherwise, no further testing is required. In the qualitative assessment, we consider primary factors such as industry and market considerations,
overall financial performance of the reporting unit, and other specific information related to the operations.
For the year ended June 30, 2022, we performed two-step quantitative impairment test. In performing the two-step quantitative impairment test,
the first step compares the carrying amount of the reporting unit to the fair value of the reporting unit based on estimated fair value using the income
approach. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired and we are not required to perform
further testing. If the carrying value of the reporting unit exceeds the fair value of the reporting unit, then we must perform the second step of the
impairment test in order to determine the implied fair value of the reporting unit’s goodwill. The fair value of the reporting unit is allocated to its assets and
liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. If the carrying
amount of the goodwill is greater than its implied fair value, the excess is recognized as an impairment loss in general and administrative expenses.
Methodologies and significant estimates utilized in determining the fair value of the reporting unit
The fair value of the reporting unit was estimated using a discounted cash flow methodology. The discounted cash flow analysis requires
significant estimates, including projections of future operating results and cash flows of the reporting unit that are based on internal budgets and strategic
plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes
in these estimates and assumptions could materially affect the estimated fair value of the reporting unit that could result in an impairment charge to reduce
the carrying value of goodwill, which could be material to our financial position and results of operations.
The sensitivity analyses on the future cash flows and WACC assumptions are described below. These key assumptions utilized in the discounted
cash flow valuation methodology require significant management judgment:
Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions
regarding future growth and profitability of the reporting unit. These projections are consistent with our operating budget and strategic plan. Cash flows for
the seven years subsequent to the date of the quantitative goodwill impairment test were utilized in the determination of the fair value of the reporting unit.
The growth rates assumed a gradual increase in revenue based on new customer acquisition and market expansion. Beyond seven years a terminal value
was determined using a perpetuity growth rate based on inflation, our normalized operations and stability of market condition. A sensitivity analysis of the
revenue growth rate, EBIT margin, and terminal growth rate were performed on the reporting unit. For the analysis, a 10% reduction in the revenue growth
rate used, or a 10% decrease in EBIT margin, or 10% decrease in terminal value respectively would not have resulted in its carrying value exceeding its
estimated fair value.
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WACC - The WACC is the rate used to discount the reporting unit’s estimated future cash flows. The WACC is calculated based on the
proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor, which is derived
from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit’s cash flows.
The cost of debt component is calculated as the weighted average cost associated with all of the Company’s outstanding borrowings as of the date of the
impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization
ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC is 14% as of June 30, 2022. A sensitivity analysis of the
WACC was performed as of June 30, 2022. An increase in the WACC of 10% would not result in the carrying value of the reporting unit exceeding its fair
value.
No impairment loss was provided for the years ended June 30, 2022, 2021 and 2020.
Impairment of long-lived assets
We review our 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, we assess 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, we 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. Fair value is generally determined by discounting the cash flows expected to be
generated by the asset, when the market prices are not readily available. 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.
For the year ended June 30, 2022, we assessed 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.
The calculation of undiscounted cash flow analysis requires significant estimates and judgement, in particular, these estimates are sensitive to
significant assumptions, including revenue growth rate, and EBIT margin, which can be affected by expectations about internal budgets and strategic plans
and expected long-term growth rates. Changes in these estimates and assumptions could materially affect the estimated future undiscounted cash flows
expected to result from the use of the assets and their eventual disposition, which could result in an impairment charge to reduce the carrying value of long-
lived assets, and could be material to our financial position and results of operations.
The sensitivity analyses on the future cash flows are described below. These key assumptions utilized in the undiscounted cash flow valuation
methodology require significant management judgment:
Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions
regarding future growth and profitability of long lived asset group. These projections are consistent with our operating budget and strategic plan. We also
make assumptions about our EBIT margin based on our historical operating results to drive our future operating margin. Cash flows for estimated useful
lives of the long lived asset group subsequent to the balance sheet date of the impairment test were utilized in the determination of recoverability of long
lived asset group. The growth rates assumed a gradual increase in revenue based on new customer acquisition and market expansion. A sensitivity analysis
of the revenue growth rates and EBIT margin were performed on all asset groups. For each analyzed, a 10% reduction in the revenue growth rates used or
10% decrease in EBIT margin, respectively would not have resulted in its carrying value exceeding its estimated future undiscounted cash flows.
No impairment loss was provided for the years ended June 30, 2022, 2021 and 2020.
Recent Accounting Pronouncements
The Jumpstart Our Business Startups Act (“JOBS Act”) provides that an emerging growth company (“EGC”) as defined therein can take
advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have adopted the extended transition period.
For detailed discussion on recent accounting pronouncements, please see Note 2 to our consolidated financial statements included elsewhere in
this annual report.
97
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:
Age
59
58
39
46
55
52
70
Position
Chairman of the Board
Chief Executive Officer and Director
Chief Financial Officer
Chief Operating Officer
Independent Director
Independent Director
Independent Director
Name
Xiao Feng Yang
Raymond Ming Hui Lin
Rui Yang
Li Li
Jin He Shao(1)(4)
Zhao Hui Feng(3)
Kee Chong Seng(2)
(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.
98
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, 2022, 2021, and 2020.
Salary
Equity
Compensation
All Other
Compensation Total Paid
106,104
$
99,445
— $
112,762
— $
$
— $
— $
Name/principal position
Xiao Feng Yang, Chairman of the Board(1)
Raymond Ming Hui Lin, CEO and Director(2)
Rui Yang, CFO(3)
Li Li, Chief Operating Officer(4)
Jin He Shao, Independent Director(5)
Kee Chong Seng, Independent Director(6)
Zhao Hui Feng, Independent Director(7)
Year
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
2022
2021
2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
106,104
99,445 $
112,762 $
257,531 $
192,747
112,449 $
133,841 $
75,742 $
64,839 $
216,175 $
183,202 $
150,594 $
18,000 $
18,000 $
18,000 $
18,000 $
18,000 $
13,500 $
18,000 $
18,000 $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
$
— $
— $
257,531
192,747
112,449
133,841
75,742
64,839
216,175
183,202
150,594
18,000
18,000
18,000
18,000
18,000
13,500
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.
99
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.
100
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.
101
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.
102
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. 5,001,720
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.
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.
Number of Employees
E.
Share Ownership
See Item 7 below.
108
2022
2021
2020
3,824
3,352
2,746
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 22,446,822 common shares outstanding
as of September 24, 2022. 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
Xiao Feng Yang (2)(7)
Raymond Ming Hui Lin (3)(6)(7)
Rui Yang (4)(6)
Li Li(6)(8)
Jin He Shao (5)(7)
Kee Chong Seng(7)(10)
Zhao Hui Feng(7)(9)
All directors and executive officers as a group (7 persons)
Qinrui Ltd. (2)
Qinhui Ltd. (3)
5% or greater beneficial owners as a group
*
Less than 1%.
Common
Shares
Ownership%
(1)
5,542,950
6,750,873
307,448
535,138
11,000
24,500
8,000
24.69%
30.07%
1.37%
2.38%
*
*
*
13,179,909
58.72%
4,976,000
4,999,996
22.17%
22.27%
9,975,996
44.44%
(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.
(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.
(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.
(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.
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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
(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.
(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.
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As of September 24, 2022, 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 2022 and 2021
consisted of:
Related Party
Xiao Feng Yang
Raymond Ming Hui Lin
EMIT
Beijing Bright Technology Co., Ltd (“Beijing Bright”)
UniDev
Fuson Group Limited (“Fuson”)
MCT
(a)
Related party balances
Relationship with the Company
Chairman of the Board
CEO of the Company
Equity investee of the Company
Noncontrolling interest shareholder of JAJI China
Equity investee of the Company
Equity investee of the Company
Noncontrolling interest shareholder of MSCT
Due from related parties:
EMIT
Beijing Bright
UniDev
Fuson
Total
As of June 30,
2022
2021
$
$
226,421 $
102,993
44,341
3,887
377,642 $
152,367
393,761
-
-
546,128
Due from related parties mainly represents loan provided to EMIT and software development fee prepaid to Beijing Bright.
Due to related parties:
EMIT
UniDev
MCT
Total
As of June 30,
2022
2021
$
$
27,616 $
33,727
5,541
66,884 $
183,148
-
-
183,148
Due to related parties mainly represents the unpaid consulting service fee to EMIT and Beijing UniDev and unpaid administrative fee to MCT.
112
(b)
Related party transactions
a)
b)
c)
d)
e)
f)
Consulting services provided to the related parties
UniDev
EMIT
CareerWin
CLPS Lihong
Services provided by the related parties
EMIT
UniDev
CareerWin
Beijing Bright
Loans provided to the related parties
CLPS Lihong
EMIT*
Repayment of loans from the related parties
CLPS Lihong
EMIT
Interest income received from the related parties
EMIT
CLPS Lihong
Rental income from the related party
Fuson
*
The loan is charged at the interest rate of 4.35%.
C.
Interests of Experts and Counsel
Not required.
ITEM 8.
FINANCIAL INFORMATION
2022
For the year ended,
2021
2020
46,008 $
6,016
-
-
52,024 $
- $
-
-
269,472
269,472 $
157,762 $
34,995
-
142,487
335,244 $
758,976 $
-
-
604,033
1,363,009 $
- $
83,651
83,651 $
- $
15,491
15,491 $
9,260
-
9,260 $
3,587
3,587 $
- $
151,783
151,783 $
- $
-
- $
-
-
- $
-
- $
-
-
165,161
-
165,161
209,318
-
195,817
165,040
570,175
149,341
28,446
177,787
149,341
28,446
177,787
-
2,328
2,328
-
-
$
$
$
$
$
$
$
$
$
$
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.
113
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, 2022, 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, 2022 was $1.16 per share.
Monthly Highs and Lows
June 2022
July 2022
August 2022
September 2022
B.
Plan of Distribution
Not Applicable.
C.
Markets
Shares
High
Low
$
$
$
$
1.84 $
1.64 $
1.92 $
1.61 $
1.53
1.46
1.45
1.32
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.
115
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;
116
● 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.
117
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;
118
● 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.
119
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.
120
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 1102, 11th 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 depreciated by 2.9% in fiscal 2020,
appreciated by 8.6% in fiscal 2021, and depreciated by 3.7% in fiscal 2022, 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 10.14 hereto in Item 19.
121
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.
PART II
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, 2022, 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, 2022. 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, 2022.
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, 2022, that have materially affected, or are
reasonably likely to materially affect our internal control over financial reporting.
122
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.
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:
Audit Fees
Audit Related Fees
Tax Fees
All Other Fees
Total Fees
June 30,
2022
USD’000
June 30,
2021
USD’000
$
$
474 $
5
-
-
479 $
381
30
-
-
411
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 2021.
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.
Our Company is not owned in part by any central, provincial or local government of the PRC and is not an issuer identified by the SEC under the
Holding Foreign Companies Accountable Act of 2020 (“HFCAA”). The Public Company Accounting Oversight Board (the “PCAOB”) has determined that
it is unable to inspect or investigate completely our independent auditors because of a position taken by an authority in the PRC. In August 2022, the
PCAOB signed a Statement of Protocol (“SOP”) Agreement with the China Securities Regulatory Commission and China’s Ministry of Finance regarding
cooperation in the oversight of PCAOB-registered public accounting firms in Mainland China and Hong Kong. The agreement establishes a specific and
accountable framework for the PCAOB to conduct inspections and investigations of PCAOB-registered public accounting firms in China and Hong Kong.
Now PCAOB inspectors and investigators can travel to Hong Kong to start their work and inspect and investigate completely as required by the HFCAA. If
the PCAOB continues to be prohibited from conducting complete inspections and investigations of PCAOB-registered public accounting firms in China
and Hong Kong, roughly 200 China-based issuers will face trading prohibitions in the U.S. The PCAOB will determine whether it can complete inspections
and investigations in Mainland China and Hong Kong by the end of 2022.
123
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
PART III
The financial statements are filed as part of this Annual Report beginning on page F-1.
124
CLPS INCORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 2022, 2021 AND 2020
CLPS INCORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 1408)
Consolidated Balance Sheets as of June 30, 2021 and 2022
Consolidated Statements of Comprehensive Income for the Years Ended June 30, 2020, 2021 and 2022
Consolidated Statements of Shareholders’ Equity for the Years Ended June 30, 2020, 2021 and 2022
Consolidated Statements of Cash Flows for the Years Ended June 30, 2020, 2021 and 2022
Notes to the Consolidated Financial Statements for the Years Ended June 30, 2020, 2021 and 2022
F-1
Page
F-2
F-3 — F-4
F-5
F-6
F-7 — F-8
F-9 — F-51
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, 2022 and 2021, the related
consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended June 30,
2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each
of the three years in the period ended June 30, 2022, in conformity with U.S. generally accepted accounting principles.
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.
/s/ Ernst & Young Hua Ming LLP
We have served as the Company’s auditor since 2018.
Shanghai, the People’s Republic of China
October 20, 2022
F-2
CLPS INCORPORATION
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. dollars (“$”), except for number of shares)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net
Prepayments, deposits and other assets, net
Amounts due from related parties
Total Current Assets
Non-current assets:
Property and equipment, net
Intangible assets, net
Goodwill
Long-term investments
Prepayments, deposits and other assets, net
Deferred tax assets, net
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Bank loans
Accounts payable
Accrued expenses and other current liabilities
Tax payables
Contract liabilities
Salaries and benefits payable
Amounts due to related parties
Total current liabilities
Non-current liabilities:
Bank loans
Deferred tax liabilities
Other non-current liabilities
Total Liabilities
Notes
2022
2021
As of June 30,
4
5
12
6
7
8
9
5
13
10
13
11
12
10
13
13
$
$
18,396,987 $
-
53,769,887
4,215,414
377,642
76,759,930 $
24,739,382
4,158,535
44,138,997
2,530,458
546,128
76,113,500
20,601,098
970,044
2,363,841
610,386
248,456
327,040
$ 101,880,795 $
600,791
1,050,499
2,444,950
1,014,784
896,145
607,773
82,728,442
$
$
$
14,474,363 $
343,597
352,402
2,355,066
587,140
12,203,933
66,884
30,383,385 $
7,536,839
559,450
245,408
1,715,009
326,912
12,466,921
183,148
23,033,687
-
150,547
3,546,263
34,080,195 $
9,644
155,033
1,799,383
24,997,747
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CLPS INCORPORATION
CONSOLIDATED BALANCE SHEETS - CONTINUED
(Amounts in U.S. dollars (“$”), except for number of shares)
Commitments and Contingencies
Shareholders’ Equity:
Common stock, $0.0001 par value, 100,000,000 shares authorized; 22,444,822 shares issued and
outstanding as of June 30, 2022; 20,293,552 shares issued and outstanding as of June 30, 2021
Additional paid-in capital
Statutory reserves
Retained earnings
Accumulated other comprehensive (loss) income
Total CLPS Incorporation’s Shareholders’ Equity
Noncontrolling interests
Total Shareholders’ Equity
Notes
14
18
18
18
18
19
As of June 30,
2022
2021
2,244
55,705,209
5,071,876
6,323,792
(550,248)
66,552,873
2,029
48,516,695
4,214,075
2,726,165
1,230,083
56,689,047
1,247,727
1,041,648
67,800,600
57,730,695
Total Liabilities and Shareholders’ Equity
$ 101,880,795 $
82,728,442
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CLPS INCORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in U.S. dollars (“$”), except for number of shares)
Notes
20
For the years ended June 30,
2021
2022
2020
$ 152,022,381 $ 126,061,693 $
(85,890,757)
40,170,936
(111,033,345)
40,989,036
89,415,798
(58,296,097)
31,119,701
Revenues
Less: Cost of revenues
Gross profit
Operating income (expenses):
Selling and marketing expenses
Research and development expenses
General and administrative expenses
Subsidies and other operating income
Total operating expenses
Income from operations
Other income
Other expenses
Income before income tax and share of income in equity investees
Provision for income taxes
Income before share of income in equity investees
Share of (loss) income in equity investees, net of tax
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to CLPS
Other comprehensive (loss) income
Foreign currency translation (loss) income
Less: foreign currency translation (loss) income attributable to noncontrolling
interests
Other comprehensive (loss) income attributable to CLPS
Incorporation’s shareholders
Comprehensive income attributable to CLPS’s Incorporation shareholders
Comprehensive income attributable to noncontrolling interests
Comprehensive income
Basic earnings per common share
Weighted average number of share outstanding – basic
Diluted earnings per common share
Weighted average number of share outstanding – diluted
13
15
15
(4,103,066)
(7,971,145)
(23,045,664)
1,536,394
(33,583,481)
7,405,555
854,250
(575,605)
(3,753,236)
(13,337,913)
(16,784,688)
2,080,087
(31,795,750)
8,375,186
296,319
(351,045)
(3,059,877)
(10,436,975)
(16,343,936)
1,927,230
(27,913,558)
3,206,143
608,638
(107,322)
7,684,200
3,045,992
4,638,208
(50,297)
4,587,911
132,483
4,455,428 $
8,320,460
1,257,124
7,063,336
(44,121)
7,019,215
202,643
6,816,572 $
3,707,459
835,444
2,872,015
207,363
3,079,378
141,139
2,938,239
$
$
(1,828,542) $
2,695,223 $
(571,943)
(48,211)
102,475
(22,928)
$
(1,780,331) $
2,592,748 $
(549,015)
$
$
$
$
2,675,097 $
84,272
2,759,369 $
9,409,320 $
305,118
9,714,438 $
2,389,224
118,211
2,507,435
0.21 $
20,924,683
0.21 $
21,057,063
0.39 $
17,279,443
0.39 $
17,569,440
0.20
14,689,224
0.20
14,692,299
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)
Additional
Retained
Earnings
Accumulated
Other
Common Share
Paid-in Statutory (Accumulated Comprehensive Noncontrolling
Notes
Shares
Amount Capital
Surplus
Deficits)
Income (Loss)
Interests
Total
13,913,201
1,391 24,276,622 1,833,802
(4,509,729)
(813,650)
608,162 21,396,598
-
-
-
-
-
-
-
-
2,938,239
-
970,009
(970,009)
-
-
141,139 3,079,378
-
-
-
-
-
-
(549,015)
(22,928)
(571,943)
-
(138,644)
-
-
(138,644)
of adopting ASC
606
2
-
-
19
100,000
10
(131,002)
-
-
4,004,080
17
1,830,514
183
(183)
3
86,615
9
436,531
-
-
-
-
-
-
-
-
-
130,992
-
-
-
-
- 4,004,080
-
-
411,351
847,891
15,930,330
1,593 28,586,048 2,803,811
(2,680,143)
(1,362,665)
1,268,716 28,617,360
-
-
6,816,572
- 1,410,264
(1,410,264)
-
-
202,643 7,019,215
-
-
-
-
-
2,592,748
102,475 2,695,223
-
-
-
19
3
17
62,622
-
-
-
-
-
6
-
3,274
-
-
5,128,696
17
1,568,392
157
116,073
16
65,542
6
(6)
18
2,666,666
267 11,131,562
16
3
-
-
3,551,048
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(458,826)
(455,546)
(34,116)
(34,116)
- 5,128,696
-
116,230
-
-
- 11,131,829
- 3,551,048
-
(5,107)
(5,107)
-
20,293,552
-
-
2,029 48,516,695 4,214,075
-
-
2,726,165
-
1,230,083
(34,137)
(34,137)
1,041,648 57,730,695
Balance at June 30,
2019
Net income for the
year
Appropriation of
statutory reserve
Foreign currency
translation
adjustments
Cumulative effect
Purchase of
subsidiaries’
shares from
noncontrolling
interests
shareholders
Stock-based
compensation
expense
Exercise of share
options and
vesting of
restricted shares
Acquisition of
subsidiaries
Balance at June 30,
2020
Net Income for the
year
Appropriation of
statutory reserve
Foreign currency
translation loss
Purchase of
subsidiaries’
shares from
noncontrolling
interests
Disposal of
subsidiaries
Stock-based
compensation
Exercise of share
options and
vesting of
restricted shares
Exercise of
warrants
Issuance of
common shares
from private
placement
Warrants issued in
connection with
private placement
Noncontrolling
interests through
an acquisition
Dividends paid
to noncontrolling
interests
Balance at June 30,
2021
Net Income for the
year
Appropriation of
statutory reserve
Foreign currency
translation loss
Stock-based
compensation
Surrender of shares
Exercise of share
options and
vesting of
restricted shares
Noncontrolling
interests through
an acquisition
Balance at June 30,
2022
-
-
-
-
-
-
-
17
17
-
(220,823)
-
(22)
7,184,862
22
17
2,372,093
237
3,630
3
-
-
-
-
4,455,428
-
857,801
(857,801)
-
-
132,483 4,587,911
-
-
-
-
-
-
-
-
(1,780,331)
(48,211) (1,828,542)
-
-
-
-
-
-
-
- 7,184,862
-
-
-
3,867
-
121,807
121,807
22,444,822
2,244 55,705,209 5,071,876
6,323,792
(550,248)
1,247,727 67,800,600
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)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Share-based compensation
Depreciation and amortization
Deferred tax expenses (benefits)
Gain on disposal of a long-term investment
Share of loss (income) in equity investees, net of tax
Gain on disposal of subsidiaries
(Reversal of) provision for doubtful accounts
Loss from disposal of property and equipment
Impairment of a long-term investment
Others
Changes in assets and liabilities:
Accounts receivable
Prepayment, deposits and other assets
Prepaid income tax
Amounts due from related parties
Accounts payable
Accrued expenses and other current liabilities
Contract liabilities
Tax payables
Amounts due to related parties
Deferred subsidies
Salaries and benefits payable
Other non-current liabilities
Net cash provided by (used in) operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment
Proceeds from disposal of property and equipment
Acquisition of intangible assets
Payments for business acquisitions, net of cash acquired from acquisitions
Acquisition of long-term investments
Disposition of long-term investments
Disposition of subsidiaries
Maturities (purchases) of short-term investments
Repayments from a related party
Loans provided to a third party
Loans provided to a related party
Net cash (used in) provided by investing activities
For the years ended June 30,
2021
2022
2020
$
4,587,911 $
7,019,215 $
3,079,378
7,184,862
912,248
245,830
(138,479)
50,297
-
(178,010)
19,188
102,155
-
5,128,696
677,241
(413,609)
-
44,121
(9,022)
197,740
26,399
-
25,615
(12,317,416)
(123,268)
-
222,553
(215,853)
106,994
260,228
640,057
(115,260)
-
174,100
1,782,752
3,200,889
(16,712,597)
(728,562)
15,780
(224,429)
363,697
(18,349)
(378,628)
279,413
183,148
-
309,914
1,604,444
(2,609,773)
(20,750,110)
552
(9,076)
-
(409,625)
786,427
-
4,159,309
15,491
-
(83,651)
(16,290,683)
(1,072,389)
-
(6,521)
(304,476)
(331,036)
-
(191,839)
(3,375,521)
-
(185,906)
(151,783)
(5,619,471)
4,004,080
593,173
172,740
(433,490)
(207,363)
-
231,133
633
-
-
(6,603,589)
206,054
615,010
-
89,427
56,935
69,278
408,007
-
(109,250)
3,564,029
194,939
5,931,124
(167,701)
-
(63,855)
(1,556,910)
(143,299)
995,605
-
1,109,389
177,787
-
(177,787)
173,229
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CLPS INCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Amounts in U.S. dollars (“$”), except for number of shares)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term bank loans
Repayments of short-term bank loans
Capital contributions from private placement and warrants, net of issuance costs
Proceeds from exercise of options
Escrow receivable
Purchase of noncontrolling interests
Dividends paid to noncontrolling interests
Net cash provided by financing activities
For the years ended June 30,
2021
2022
2020
21,955,625
(14,484,851)
-
3,867
-
-
-
7,474,641
13,301,775
(8,270,611)
14,682,877
116,230
-
(455,546)
(34,137)
19,340,588
3,821,602
(3,896,240)
-
-
200,000
-
-
125,362
Effect of exchange rate changes on cash
(727,242)
975,918
(178,930)
Net (decrease) increase in cash
Cash and cash equivalents, at the beginning of the year
(6,342,395)
24,739,382 $
12,087,262
12,652,120 $
6,050,785
6,601,335
$
Cash, cash equivalents at the end of the year
$
18,396,987 $
24,739,382 $
12,652,120
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income tax paid
Interest paid
$
$
676,179 $
342,144 $
1,746,327 $
154,516 $
1,169,717
89,503
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
Qiner Co., Limited (“Qiner”)
Qinheng Co., Limited (“Qinheng”)
Shanghai Qincheng Information Technology Co., Ltd. (“CLPS QC” or
“WOFE”)
Arabian Jasmine Ltd. (“Arabian”)
Shanghai Chenqin Information Technology Services Co., Ltd.
Noni (Singapore) Pte. Ltd. (“Noni”)
ChinaLink Professional Service Co., Ltd. (“CLPS Shanghai”)
CLPS Dalian Co., Ltd. (“CLPS Dalian”)
CLPS Ruicheng Co., Ltd. (“CLPS RC”)
CLPS Beijing Hengtong Co., Ltd. (“CLPS Beijing”)
CLPS Technology (Singapore) Pte. Ltd. (“CLPS SG”)
CLPS- Ridik Technology (Australia) Pty Ltd. (“CLPS Ridik AU”)
CLPS Technology (Hong Kong) Co., Limited (“CLPS Hong Kong”)
JAJI (Shanghai) Co., Ltd (“JAJI China”, formerly , Judge (Shanghai)
Co., Ltd.)
Date of
Incorporation/
Acquisition
Incorporated on
April 21, 2017
Incorporated on
June 9, 2017
Incorporated on
August 4, 2017
Incorporated on
May 25, 2021
Incorporated on
May 31, 2021
Incorporated on
June 22, 2021
Incorporated on
August 30, 2005
Incorporated on
May 25, 2011
Incorporated on
June 26, 2013
Incorporated on
March 30, 2015
Incorporated on
August 18, 2015
Incorporated on
November 10, 2015
Incorporated on
January 7, 2016
Acquired on
November 9, 2016
Place of
Incorporation
Hong Kong, China
Hong Kong, China
Shanghai, China
Virgin
Islands,
British
Shanghai,
China
Singapore
Shanghai, China
Dalian, China
Shanghai, China
Beijing, China
Singapore
Australia
Hong Kong, China
Shanghai, China
JAJI (Shanghai) Human Resource Co., Ltd. (“JAJI HR”,formerly
Acquired on
Shanghai, China
Judge (Shanghai) Human Resource Co., Ltd.)
CLPS Shenzhen Co., Ltd. (“CLPS Shenzhen”)
CLPS Guangzhou Co., Ltd. (“CLPS Guangzhou”)
November 9, 2016
Incorporated on
April 7, 2017
Incorporated on
September 27, 2017
Shenzhen, China
Guangzhou, China
F-9
% of
Equity
Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
60%
60%
100%
100%
Principal
Activities
Holding
Company
Holding
Company
Holding
Company
Holding
Company
Holding
Company
Holding
Company
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
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
CLPS Hangzhou Co. Ltd. (“CLPS Hangzhou”)
CLPS Technology Japan (“CLPS Japan”)
Ridik Pte. Ltd. (“Ridik Pte.”)
Ridik Sdn. Bhd. (“Ridik Sdn.”)
Ridik Software Solutions Pte. Ltd. (“Ridik Software Pte.”)
Qinson Credit Card Services Limited (“Qinson”)
CLPS Technology (California) Inc. (“CLPS California”)
Ridik Consulting Private Limited (“Ridik Consulting”)
Hainan Qincheng Software Technology Co., Ltd.
CareerWin Executive Search Co., Ltd. (“CareerWin”)
CLPS Xi’an Co., Ltd.
LinkCrypto Finance Technology Limited (“LinkCrypto”)
MSCT Investment Holdings Limited (“MSCT”)
Date of
Incorporation/
Acquisition
Incorporated on
July 31, 2019
Incorporated on
September 13, 2019
Acquired on
September 26, 2019
Acquired on
September 26, 2019
Acquired on
September 26, 2019
Incorporated on
December 31, 2019
Incorporated on
January 2, 2020
Acquired on
January 6, 2020
Incorporated
On January 20, 2021
Acquired on
March 3, 2021
Incorporated
On April 15, 2021
Incorporated
On July 26, 2021
Acquired on
August 16, 2021
Place of
Incorporation
Hangzhou, China
Japan
Singapore
Malaysia
Singapore
Hong Kong, China
California, the
United States of
America
India
Hainan,
China
Shanghai,
China
Xi’an, China
Hong Kong, China
Virgin Islands,
British
% of
Equity
Ownership
100%
100%
100%
100%
100%
100%
100%
100%
100%
60%
100%
100%
53.33%
Principal
Activities
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Software
development
Headhunting
Service
Software
development
Blockchain
technology
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.
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, valuation of accounts receivable, prepayments,
deposits and other assets, 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, relative standalone
selling price of the performance obligations in the IT solution services, provision for accrued expenses and other current liabilities, valuation allowance of
deferred tax assets, provision for uncertain tax positions, 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.
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.
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 such gains and losses are reflected in earnings during the period in
which gains or losses are realized.
Accounts receivable and allowance for doubtful accounts
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.
Prepayments, deposit and other assets and allowance for doubtful accounts
Prepayment, deposit and other assets primarily consists of advances and deposits to suppliers for purchasing goods or services that have not been received
or provided and advances to employees. These advances are interest free, unsecured and short-term in nature and are reviewed periodically to determine
whether their carrying value has become impaired. An allowance for doubtful accounts is recorded in the period when loss is probable.
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
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 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 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 income equal to the amount by which the carrying value exceeds the fair value of the
investment. For the years ended June 30, 2022, 2021 and 2020, no such investment was remeasured and accordingly no unrealized gains (losses) was
recognized.
The impairment loss of $102,155, nil and nil for equity method investments were recognized for the years ended June 30, 2022, 2021 and 2020,
respectively. No impairment loss was recognized for equity investments without readily determinable fair value for the periods presented.
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 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 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-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
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 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:
Leasehold improvements
Automobiles
Equipment and office furniture
Building
Office building related facility, machinery and equipment
Useful life
The shorter of remaining lease terms or the estimated useful lives
5 years
1-5 years
31 or 50 years
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 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:
Customer contracts
Customer relationship
Software
The Company does not have any indefinite-lived intangibles other than goodwill.
F-13
Useful life
10 years
5 – 10 years
3 – 10 years
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, 2022 and 2021. Goodwill was
allocated 100% to the single reporting unit as of June 30, 2022 and 2021. 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 two-step 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 the two-step quantitative impairment test, the first step 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 and the Company is not required to perform further testing. If the carrying value of the
reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the
implied fair value of the reporting unit’s goodwill. The fair value of the reporting unit is allocated to its assets and liabilities in a manner similar to a
purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. If the carrying amount of the goodwill is greater than
its implied fair value, the excess is recognized as an impairment loss in general and administrative expenses.
No impairment loss was provided for the years ended June 30, 2022, 2021 and 2020.
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. Fair value is generally determined by discounting the cash flows
expected to be generated by the asset, when the market prices are not readily available. 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, 2022, 2021 and 2020.
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
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 services, IT solutions 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.
Time-and-expense basis contracts
The series of IT 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.
Fixed-price basis contracts
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.
There are two performance obligations identified in the fixed-price basis contracts: 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. No impairment loss was recognized for contract assets for the years
ended June 30, 2022 and 2021.
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.
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.
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
Revenue recognition (continued)
The opening and closing balances of contract assets arising from contracts with customers as of June 30, 2022 were $513,199 and $1,461,412, respectively,
and the opening and closing balances of deferred contract costs arising from contracts with customers as of June 30, 2022 were $376,138 and $714,127.
The opening and closing balances of contract liabilities arising from contracts with customers as of June 30, 2022 were $326,912 and $587,140,
respectively. Revenue recognized in the year ended June 30, 2022 that was included in the contract liability balance at the beginning of the period was
$241,435. This revenue was driven primarily by IT solution service performance obligations being satisfied.
The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and
(ii) contracts for which the Company recognizes revenue at the amount to which it has the right to invoice for services performed.
Revenue includes reimbursements of travel and out-of-pocket expense, with equivalent amounts of expense recorded in cost of revenues.
The Company is subject to value added tax (the “VAT”) that is imposed on and concurrent with the revenues earned for services provided in the PRC. The
Company’s applicable value added tax rate is 6%. VAT are recorded as reduction of revenues when incurred.
The Company’s disaggregated revenue disclosures are presented in Note 20.
F-16
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 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.
Advertising expenditures
Advertising expenditures are expensed as incurred and such expenses were minimal for all the periods presented. Advertising expenditures have been
included as part of selling and marketing expenses.
Operating leases
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.
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 $6,662,389, $6,180,287 and $16,771,118 for the years ended June 30, 2020, 2021 and 2022, respectively.
F-17
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 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-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
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 any of 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-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
Foreign currency
The functional currency of the Company is US$. The functional currencies of the Company’s subsidiaries are the local currency of the country in which the
subsidiary operates, which is determined based on ASC Topic 830, Foreign Currency Matters (“ASC 830”).
Transactions denominated in foreign currencies are re-measured into the functional currency at the exchange rates as set forth in the H.10 statistical release
of the U.S. Federal Reserve Board prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are re-measured at
the exchange rates prevailing at the balance sheet dates. Non-monetary items that are measured in terms of historical costs in foreign currency are re-
measured using the exchange rates at the dates of the initial transactions. Exchange gains and losses are included in the consolidated statements of
comprehensive income.
The Company’s financial statements are reported using US$. 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 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-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
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, 2022. Assets and liabilities measured on a recurring
basis or disclosed at fair value as of June 20, 2021 are summarized below:
Fair Value Measurements as of
June 30, 2021
Significant
Other
Observable
Inputs
(Level 2)
Quoted Price in
Active Market
for Identical
Assets
(Level 1)
Unobservable
inputs
(Level 3)
Fair value measurements
Recurring
Short-term investments
Trading securities
$ - $
4,158,535 $
-
F-21
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Fair value of financial instruments (continued)
For the years ended June 30, 2022 and 2021, the Company recognized nil gain or loss for the equity investments using the measurement alternative. As of
June 30, 2022 and 2021, the Company had no financial assets and liabilities measured and recorded at fair value on a non-recurring basis.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework-Changes to the Disclosure Requirements
for Fair Value Measurement (“ASU 2018-13”), which modifies the disclosure requirements on fair value measurements in ASC 820. The Company
adopted ASU 2018-13 on July 1, 2020, which has no material impact to the Company’s consolidated financial statements.
Comprehensive income
Comprehensive income is defined as the changes in equity of the Company during a period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners. Accumulated other comprehensive income (loss) of the Company includes
foreign currency translation adjustments related to the Company’s subsidiaries whose functional currency is not US$.
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 Company’s expense transactions 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 depreciated
by 2.9% in fiscal 2020, appreciated by 8.6% in fiscal 2021, and depreciated by 3.7% in fiscal 2022, 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-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
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, short-
term investments, account receivables, other assets, note receivables, and amounts due from related parties. As of June 30, 2022 and 2021, $14,787,554 and
$9,705,412 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, 2022, the Company and its
subsidiaries had $14,787,554, $2,034,692, $6,800, $1,195,402, $76,799, $4,007, $75,322, $124,583 and $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. As of June 30,
2021, the Company and its subsidiaries had $9,705,412, $784,069, $11,477, $13,965,404, $1,833, $65,490, $191,584 and $14,113 of cash and cash
equivalents on deposit at financial institutions in mainland China, Singapore, Australia, Hong Kong, India, Malaysia, Japan and America, 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 20.6%, and 12.2%, respectively, of total revenues during the year ended June 30, 2022, 19.1%, and
11.9%, respectively, of total revenues during the year ended June 30, 2021. One customer accounted for 21.5% of total revenues during the year ended June
30, 2020. The top two customers accounted for 30.2%, and 9.3%, respectively, of the Company’s total accounts receivable balance as of June 30, 2022,
23.2%, and 16.3%, respectively, of the Company’s total accounts receivable balance as of June 30, 2021.
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.
Recent accounting pronouncements
The Jumpstart Our Business Startups Act (“JOBS Act”) provides that an emerging growth company (“EGC”) as defined therein can take advantage of an
extended transition period for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards
until those standards would otherwise apply to private companies. The Company has adopted the extended transition period.
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
Recent accounting pronouncements (continued)
In February 2016, the FASB issued ASU No. 2016-02, Leases, or ASU 2016-02, which modifies lease accounting for lessees to increase transparency and
comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. In July 2018, the
FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, or ASU 2018-10, to supersede ASU 2016-02. In addition, the FASB
issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, that provide entities with an additional (and optional) transition method to adopt the
new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-
effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, an entity’s reporting for the comparative periods
presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with current GAAP (Topic ASC 840,
Leases). In June 2020, the FASB issued ASU No. 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842): Effective Dates
for Certain Entities, which amended the effective date of Topic 842, Leases. The updated guidance is effective for the Company’s annual reporting period
ending June 30, 2023 and interim periods during the year ending June 30, 2024. The Company does not plan to early adopt the new lease standards and the
Company expects that applying the ASU 2016-02 would materially increase its assets and liabilities due to the recognition of right-of-use assets and lease
liabilities on its consolidated balance sheets, with an immaterial impact on its consolidated statements of comprehensive loss and cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, or ASU 2016-13. This ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other
financial instruments held by financial institutions and other organizations. This ASU requires the measurement of all expected credit losses for financial
assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This ASU requires enhanced
disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as
well as the credit quality and underwriting standards of the Company’s portfolio. These disclosures include qualitative and quantitative requirements that
provide additional information about the amounts recorded in the financial statements. In November 2018, the FASB issued ASU No. 2018-19,
Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which clarifies that receivables arising from operating leases should be
accounted for in accordance with ASC 842, Leases (“ASC 842”) instead of ASC Subtopic 326-20. In November 2019, the FASB issued ASU No. 2019-10,
Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which amended the
effective date of ASU 2016-13. The amendments in these ASUs are effective for the Company’s annual reporting period ending June 30, 2024 and interim
periods during the year ending June 30, 2024. Early adoption is permitted. The Company does not expect to early adopt this guidance and is in the process
of evaluating the impact of adoption of this guidance on the Company’s consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost
and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the
methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends
other aspects of the guidance to help simplify and promote consistent application of GAAP. ASU 2019-12 is effective for the Company’s annual reporting
period ending June 30, 2023 and interim periods during the year ending June 30, 2024. The Company does not expect to early adopt this guidance and is in
the process of evaluating the impact of adoption of this guidance on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which
simplifies the accounting for goodwill impairment by eliminating Step two from the goodwill impairment test. If the carrying amount of a reporting unit
exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an implied fair value in Step two to
measure the impairment loss. In March 2021, the FASB issued ASU 2021-03, Intangibles-Goodwill and Other (Topic 350): Accounting Alternative for
Evaluating Triggering Events, which provide entities an accounting alternative to perform the goodwill impairment triggering event evaluation as of the
end of the reporting period, whether the reporting period is a interim or annual period. The guidance begins to take effect for impairment tests performed
during the fiscal year ending June 30, 2024. Earlier application is permitted. The guidance should be applied on a prospective basis. The Company does not
expect to early adopt this guidance and is in the process of evaluating the impact of adoption of this guidance on the Company’s consolidated financial
statements.
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
Recent accounting pronouncements (continued)
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815). The amendments clarify that an entity should consider observable transactions that require it to either
apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately
before applying or upon discontinuing the equity method. The amendments also clarify that for the purpose of applying paragraph 815-10-15-141(a) an
entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing
investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the
financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the
accounting for those forward contracts and purchased options. The amendments are effective for fiscal years beginning July 1, 2022, and interim periods
within those fiscal years. The Company does not expect to early adopt this guidance and is in the process of evaluating the impact of adoption of this
guidance on the Company’s consolidated financial statements.
In May 2021, the FASB issued Accounting Standards Update 2021-04—Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments
(Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):
Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging
Issues Task Force). The FASB is issuing this Update to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding
equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Stakeholders asserted that there is
diversity in an issuer’s accounting for economically similar modifications or exchanges of freestanding equity-classified written call options due to a lack
of explicit guidance in the Codification. Stakeholders requested that the Board provide guidance that will clarify whether an issuer should account for a
modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an
adjustment to equity and, if so, the related earnings per share (EPS) effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The
amendments in this Update are effective for all entities for fiscal years beginning July 1, 2022, including interim periods within those fiscal years. The
Company does not expect to early adopt this guidance and is in the process of evaluating the impact of adoption of this guidance on the Company’s
consolidated financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from
Contracts with Customers (“ASU 2021-08”). The amendments create an exception to the general recognition and measurement principal in ASC 805,
Business Combinations to measure assets and liabilities acquired in a business combination at fair value. Instead, an acquirer in a business combination will
be required to apply ASC 606 to recognize and measure contract assets and contract liabilities that result from contracts accounted for under ASC 606 on
the acquisition date and will generally result in the acquirer recognizing amounts consistent with those recorded by the acquiree immediately before the
acquisition date. The amendments are effective for fiscal years beginning July 1, 2023 and interim periods within those fiscal years. The Company does not
expect to early adopt this guidance and is in the process of evaluating the impact of adoption of this guidance on the Group’s consolidated financial
statements.
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance.
This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting
model by analogy. This update is effective for annual periods beginning July 1, 2022. This guidance should be applied either prospectively to all
transactions that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial
application or retrospectively to those transactions. The Company will apply the guidance prospectively and expects the impact of this guidance will
require additional disclosures on the Company’s government assistance arrangements in its consolidated financial statements, including the significant
terms and conditions of the government assistance transaction.
The Company does not believe other recently issued but not yet effective accounting statements, if recently adopted, would have a material effect on the
Company’s consolidated balance sheets, consolidated statements of comprehensive income and consolidated statements of cash flows.
F-25
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 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 (SGD 3,402,304), in the form of cash of $2,026,043 (SGD 2,799,180) and the Company’s common shares
which were valued at $436,537 (SGD 603,123). 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. On December 3, 2019, the Company issued 86,615 common shares with
$0.0001 par value per share to the selling shareholders.
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:
Cash acquired
Accounts receivable, net
Prepayments, deposits and other assets, net
Property and equipment, net
Customer relationship
Short-term bank loans
Accounts payable and other current liabilities
Tax payables
Salaries and benefits payable
Long-term bank loans
Deferred tax liabilities
Noncontrolling interests
Goodwill
Total consideration
F-26
Amounts
474,323
618,144
103,697
1,493
904,748
(48,103)
(128,688)
(102,978)
(431,548)
(44,201)
(162,855)
(411,351)
1,689,899
2,462,580
$
$
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
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.
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.
Pro forma financial information of Ridik Pte. and Ridik Consulting are not presented as the effects of the acquisition on the Company’s consolidated
financial statements were not material.
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:
Cash acquired
Accounts receivable, net
Property and equipment, net
Intangible assets, net
Accounts payable and other current liabilities
Tax payables
Salaries and benefits payable
Deferred tax liabilities
Goodwill
Total consideration
Amounts
4,037
24,811
2,117
126,680
(71,488)
(2,576)
(5,099)
(25,336)
236,834
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-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 - 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:
Net assets acquired:
Cash and cash equivalents
Intangible assets (Note 7)
Other current liabilities
Deferred tax liabilities
Noncontrolling interests
Total consideration
Amounts
205,711
151,168
(5,390)
(23,971)
(121,807)
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.
Disposal of Infogain
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 $9,022 (SGD 11,921)
from the transaction in “Other income, net” in the consolidated statements of comprehensive income for the year ended June 30, 2021. The deconsolidation
of Infogain did not meet the definition of a discontinued operation in accordance with ASC 205-20, Presentation of Financial Statements – Discontinued
Operations (“ASC 205-20”), as the disposal of Infogain did not represent a shift in the Company’s strategy that has (or will have) a major effect on an
entity’s operations and financial results.
F-28
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 4 – ACCOUNTS RECEIVABLE, NET
Accounts receivable, net consisted of the following:
Trade accounts receivable
Less: allowance for doubtful accounts
Accounts receivable, net
The movement of the allowance for doubtful accounts is as follows:
Balance at the beginning of the year
Provision for doubtful accounts
Recovery of doubtful accounts
Foreign currency translation adjustments
Balance at the end of the year
NOTE 5 – PREPAYMENTS, DEPOSITS AND OTHER ASSETS, NET
Prepayments, deposits and other assets, net consisted of the following:
Prepaid expenses
Contract assets
Advances and deposits to suppliers
Deferred contract costs
Government subsidies
Note receivables
Advances to employees
Due from Infogain
Less: allowance for doubtful accounts
Total
Less: non-current portion
Prepayments, deposits and other assets – current portion
F-29
As of June 30,
2022
53,896,259 $
(126,372)
53,769,887 $
2021
44,448,073
(309,076)
44,138,997
As of June 30,
2022
2021
309,076 $
2,508
(180,518)
(4,694)
126,372 $
97,140
214,734
(16,994)
14,196
309,076
As of June 30,
2022
928,025 $
1,461,411
728,238
714,127
437,288
187,916
6,865
-
-
4,463,870
(248,456)
4,215,414 $
2021
1,559,176
513,199
651,402
376,138
-
127,027
13,755
185,906
-
3,426,603
(896,145)
2,530,458
$
$
$
$
$
$
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:
Balance at the beginning of the year
Provision (reversal) for doubtful accounts
Write-off
Foreign currency translation adjustment
Balance at the end of the year
NOTE 6 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
Office building
Equipment
Office building related facility, machinery and equipment
Automobiles
Office Furniture
Leasehold improvements
Total
Less: accumulated depreciation
Property and equipment, net
As of June 30,
2022
2021
- $
-
-
-
- $
212,447
-
(230,032)
17,585
-
As of June 30,
2022
20,198,454 $
1,224,250
225,773
118,472
69,448
667,785
22,504,182
(1,903,084)
20,601,098 $
2021
-
1,047,227
-
122,903
147,207
614,680
1,932,017
(1,331,226)
600,791
$
$
$
$
Depreciation expense was $709,836, $404,063, and $360,302 for the years ended June 30, 2022, 2021 and 2020, respectively. No impairment loss was
recognized for the years ended June 30, 2022, 2021 and 2020.
NOTE 7 – INTANGIBLE ASSETS, NET
As of June 30, 2022 and 2021, intangible assets, net consisted of the following:
Customer relationship
Customer contracts
Software
Less: accumulated amortization
Intangible assets, net
As of June 30,
2022
1,021,509 $
344,003
228,853
(624,321)
970,044 $
2021
1,056,162
356,870
80,330
(442,863)
1,050,499
$
$
During the year ended June 30, 2021, customer relationship of $127,002 was derived from the acquisition of CareerWin with an estimated useful life of 5
years. During the year ended June 30, 2022, software of $150,468 was derived from the asset acquisition of MSCT with an estimated useful life of 10 years
(Note 3).
F-30
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 7 – INTANGIBLE ASSETS, NET - continued
The movement of intangible assets, net is as follow:
Balance as of July 1, 2021
Addition
Amortization
Foreign currency translation adjustment
Balance as of June 30, 2022
For the year
ended
June 30,
2022
1,050,499
160,032
(202,412)
(38,075)
970,044
$
$
The amortization expenses were $202,412, $273,178 and $232,871 for the years ended June 30, 2022, 2021 and 2020. Estimated future amortization
expenses are as follows:
Year ending June 30,
2023
2024
2025
2026
2027
2028 and after
Total
No impairment losses were recognized for the years ended June 30, 2022, 2021 and 2020.
NOTE 8 – GOODWILL
The changes in the carrying amount of goodwill for the year ended June 30, 2022 were as follows:
Balance as of July 1, 2021
Foreign currency translation adjustment
Balance as of June 30, 2022
Amortization
expense
$
$
192,351
144,117
139,541
123,943
105,102
264,990
970,044
For the year
ended
June 30,
2022
2,444,950
(81,109)
2,363,841
$
$
The Company has only one reporting unit. For the years ended June 30, 2021, the Company performed a qualitative assessment of the goodwill for the
reporting unit based on the requirements of ASC 350-20. The Company evaluated all relevant factors, weighed all factors in their entirety and concluded
that it was not more-likely-than-not that the fair value of the reporting unit was less than its carrying amount. Therefore, further impairment testing on
goodwill was unnecessary as of June 30, 2021.
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.
F-31
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 9 – LONG-TERM INVESTMENTS
Equity investments without readily determinable fair values
Beijing UniDev Software Co., Ltd. (“UniDev”)
Shenzhen Huaqin Robotics Co., Ltd. (“Huaqin Robotics”)
CLPS Lihong Financial Information Services Co., Ltd. (“CLPS Lihong”)
Guangdong Zhichuang Software Technology Co., Ltd. (“CLPS Guangdong Zhichuang”)
Total equity investments without readily determinable fair values
Equity method investments
Fuson Group Limited (“Fuson”)
Shanghai Shier Information Technology Co., Ltd. (“Shier”)
Economic Modeling Information Technology Co., Ltd. (“EMIT”)
Total equity method investments
Total
Equity investments without readily determinable fair values
As of June 30,
2022
2021
252,161
149,296
-
-
401,457
-
154,880
558,509
92,928
806,317
139,164
69,765
-
208,929
610,386 $
-
73,717
134,750
208,467
1,014,784
$
In accordance with ASC 321, the Company elected to use the measurement alternative to measure such investments at cost, less any impairment, plus or
minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if any.
The carrying amount of investments without readily determinable fair values was $401,457 (RMB 2.69 million) and $806,317 as of June 30, 2022 and
2021, respectively. No downward adjustments (including impairment charges) or upward adjustments was recognized on equity investments without
readily determinable fair value for the years ended June 30, 2022, 2021 and 2020.
Equity method investments
On April 3, 2019, the Company purchased a 30% equity interest of EMIT at nil consideration with a committed to invest $445,454.14 (RMB 3.00 million)
in total within 20 years. During the years ended June 30, 2020, the Company made capital contribution to EMIT of $143,299.
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 EMIT, Shier and Fuson as equity method investments due to its significant influence over the entities.
The Company recorded a loss of $50,297, a loss of $44,121 and an income of $207,363 from equity investments accounted for using equity method for the
years ended June 30, 2022, 2021 and 2020, respectively. The company recognized an impairment loss of $102,155 of EMIT for the years ended June 30,
2022. The carrying amount of the Company’s equity method investments were $208,929 and $208,467 as of June 30, 2022 and 2021, respectively.
The carrying amount of the equity method investments in excess of the Company’s proportionate interest was not material and recognized as equity method
goodwill.
Selected financial information of the equity method investees are not presented as the effects were not material.
F-32
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 10 – BANK LOANS
Outstanding balances of bank loans consisted of the following:
Loan from Bank of Shanghai Pudong Development
Loan from China Merchants Bank
Loan from Bank of Communication
Loans from Development Bank of Singapore
Total bank loans
Less: Non-current portion
Short-term bank loans and long-term bank loans – current portion
As of June 30,
2022
2021
$
$
$
7,040,738 $
5,931,331
1,492,961
9,333
14,474,363 $
-
14,474,363 $
4,425,504
-
3,097,605
23,374
7,546,483
(9,644)
7,536,839
Bank loans payable consisted of several bank loans denominated in RMB and SGD.
As of June 30, 2022, the Company had total financing credit facilities of RMB8,000,000, of which the unused amount was RMB3,000,000.
As of June 30, 2022, certain bank borrowings of RMB5,000,000 are guaranteed by subsidiaries of the Group. Others are unsecured loans.
Interest expenses were $447,187, $156,749 and $90,940 for the years ended June 30, 2022, 2021 and 2020, respectively. The effective weighted average
interest rates were 3.771%, 4.160% and 4.168% for the years ended June 30, 2022, 2021 and 2020, respectively.
As of June 30, 2022, all loan principal will be due within 1 year.
F-33
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 11 – 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 $1,550,145 and $1,561,677 accrued employer
portion of social benefits payable to local governments as of June 30, 2022 and 2021, respectively.
NOTE 12 – RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the
other party in making financial and operational decisions. The related parties that had transactions or balances with the Company in 2022 and 2021
consisted of:
Related Party
Xiao Feng Yang
Raymond Ming Hui Lin
EMIT
Beijing Bright Technology Co., Ltd (“Beijing Bright”)
UniDev
Fuson Group Limited (“Fuson”)
MCT
Relationship with the Company
Chairman of the Board
CEO of the Company
Equity investee of the Company
Noncontrolling interest shareholder of JAJI China
Equity investee of the Company
Equity investee of the Company
Noncontrolling interest shareholder of MSCT
F-34
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 12 – RELATED PARTY TRANSACTIONS – continued
(a) Related party balances
The balances due from and due to related parties were as follows:
Due from related parties:
EMIT
Beijing Bright
UniDev
Fuson
Total
As of June 30,
2022
2021
$
$
226,421 $
102,993
44,341
3,887
377,642 $
152,367
393,761
-
-
546,128
Due from related parties mainly represents loan provided to EMIT and software development fee prepaid to Beijing Bright.
Due to related parties:
EMIT
UniDev
MCT
Total
As of June 30,
2022
2021
$
$
27,616 $
33,727
5,541
66,884 $
183,148
-
-
183,148
Due to related parties mainly represents the unpaid consulting service fee to EMIT and UniDev and unpaid administrative fee to MCT.
F-35
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 12 – RELATED PARTY TRANSACTIONS - continued
(b) Related party transactions
a) Consulting services provided to the related parties
UniDev
EMIT
CareerWin
CLPS Lihong
b) Services provided by the related parties
EMIT
UniDev
CareerWin
Beijing Bright
c) Loans provided to the related parties
CLPS Lihong
EMIT
d) Repayment of loans from the related parties
CLPS Lihong
EMIT
e)
Interest income received from the related parties
EMIT
CLPS Lihong
f) Rental income from the related party
Fuson
F-36
For the year ended,
2021
2022
2020
46,008 $
6,016
-
-
52,024 $
- $
-
-
269,472
269,472 $
157,762 $
34,995
-
142,487
335,244 $
758,976 $
-
-
604,033
1,363,009 $
- $
83,651
83,651 $
- $
15,491
15,491 $
9,260
-
9,260 $
3,587
3,587 $
- $
151,783
151,783 $
- $
-
- $
-
-
- $
-
- $
-
-
165,161
-
165,161
209,318
-
195,817
165,040
570,175
149,341
28,446
177,787
149,341
28,446
177,787
-
2,328
2,328
-
-
$
$
$
$
$
$
$
$
$
$
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 13 – 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 16.5%, 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 2019 to 2021 and it
enjoys a preferential tax rate of 15%. As of the reporting date, CLPS Shanghai has not been awarded the renewed “HNTE” certificate, and subject to a
unified 25% enterprise income tax rate for tax year 2022.
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.
Income (loss) before income taxes
Mainland China
Non- Mainland China
The following table reconciles the statutory rate to the Company’s effective tax rate:
PRC statutory income tax rate
Effect of income tax rate difference in other jurisdictions
Effect of tax rate changes on deferred taxes
Effect of PRC preferential tax rate and tax relief
Research and development credits
Withholding tax
Intercompany transfers
Investment gain/loss
Deferred tax
Change in valuation allowances
Others
Effective tax rate
F-37
For the years ended June 30,
2021
14,814,221 $
(6,493,761)
8,320,460 $
2022
17,366,634 $
(9,682,434)
7,684,200 $
2020
9,266,586
(5,559,127)
3,707,459
$
$
For the years ended June 30,
2021
2020
2022
25.0%
25.8%
(0.3)%
(10.1)%
(18.0)%
-
10.8%
(1.5)%
-
6.6%
1.5%
39.8%
25.0%
19.1%
(0.5)%
(5.3)%
(28.9)%
11.7%
7.5%
(0.3)%
(16.7)%
3.5%
15.1%
25.0%
36.8%
4.5%
(7.8)%
(52.4)%
-
-
(0.1)%
12.1%
4.4%
22.5%
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 13 – TAXES - continued
(a)
Corporate Income Taxes (“CIT”) (continued)
The provision (benefit) for income tax consists of the following:
Current income tax
Deferred income tax
Total provision for income tax expenses
For the years ended June 30,
2021
1,670,733 $
(413,609)
1,257,124 $
2022
2,800,162 $
245,830
3,045,992 $
2020
662,704
172,740
835,444
$
$
As of June 30, 2022, the Company had net operating loss carry forwards of approximately $1,572,903 from the Company’s PRC subsidiaries, which will
expire between 2022 and 2027 if not utilized. As of June 30, 2022, the Company had net operating loss carry forwards of approximately $1,031,900,
$254,524, $547,047, $159,183 and $12,358 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:
Deferred tax assets:
Net operating loss carry forwards
Accrued expenses
Share of investee’s loss
Others
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Share of investee’s income
Total deferred tax liabilities
As of June 30,
2022
2021
743,898 $
163,497
129,191
71,714
(781,260)
327,040 $
611,315
181,730
12,823
93,385
(291,480)
607,773
150,547 $
-
150,547 $
154,022
1,011
155,033
$
$
$
$
As of June 30, 2022 and 2021, 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, 2022 and 2021, the Company accrued dividend distribution withholding tax for the remittance of earnings from the
subsidiaries in Mainland China to offshore entities of nil and $994,941, respectively. As of June 30, 2022 and 2021, 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, 2022 and 2021, the taxable temporary differences for unrecognized deferred tax liabilities related to investments in foreign subsidiaries were $
23,731,272 and $20,328,999, respectively. The amount of unrecognized deferred tax liabilities for temporary differences related to investments in foreign
subsidiaries is not determined because such a determination is not practicable.
F-38
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 13 – 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, 2022, 2021 and 2020, the Company had unrecognized tax benefits of $3,095,554,
$1,333,608 and $194,939, respectively, if ultimately recognized, will impact the effective tax rate. The Company has presented unrecognized tax benefits of
$2,497,005, $750,616 and $128,467 on a net basis with deferred tax assets relating to tax losses carry forward, $446,490, $ 208,109 and $128,467 of which
a full valuation allowance would otherwise be recorded as of June 30, 2022, 2021 and 2020. The Company recorded interests of $36,363 and zero penalties
related to potential underpaid income tax expenses for the year ended June 30, 2022 and interests of $53,826 and zero penalties for the year ended June 30,
2021, zero interests and penalties for the year ended June 30, 2020.
A reconciliation of the beginning and ending amount of unrecognized tax benefit was as follows:
Balance at July 1
Increase
Decrease
Foreign currency translation adjustment
Balance at June 30
2022
1,333,608 $
2,132,154
(267,622)
(102,586)
3,095,554 $
2021
2020
194,939 $
1,139,596
(47,149)
46,222
1,333,608 $
128,467
228,358
(157,906)
(3,980)
194,939
$
$
As of June 30, 2022, the open tax years for Mainland China ranges from calendar year 2017 to calendar year 2021.
(b)
Tax Payables
The Company’s tax payables consist of the following:
VAT payable
Corporate income tax payable
Withholding tax payable
Disability insurance fund payable
Other tax payables
Total tax payables
F-39
As of June 30,
2022
2021
$
$
693,239 $
462,792
349,582
776,979
72,474
2,355,066 $
770,853
40,211
275,208
565,806
62,931
1,715,009
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Long-term leases commitments
The Company’s subsidiaries lease administrative office space under various operating leases. Rental expenses recognized using the straight-line basis under
operating leases amounted to $1,413,521, $942,606 and $944,645 for the years ended June 30, 2022, 2021 and 2020, respectively.
Future minimum lease payments under non-cancellable operating leases are as follows:
Twelve months ending June 30,
2023
2024
2025
Total
Contingencies
Lease
expense
$
$
1,174,688
795,710
158,805
2,129,203
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-40
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 15 – EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated:
Basic earnings per share calculation:
Numerator:
Net income attributable to common shares
Denominator:
Weighted average common shares outstanding
Basic earnings per share attributable to common shares
Diluted earnings per share calculation:
Numerator:
For the years ended June 30,
2021
2022
2020
$
4,455,428 $
6,816,572 $
2,938,239
20,924,683
0.21 $
17,279,443
0.39 $
14,689,224
0.20
$
Net income attributable to common shares for calculating diluted earnings per share
$
4,455,428 $
6,816,572 $
2,938,239
Denominator:
Weighted average common shares outstanding
Weighted average common shares equivalents:
Effects of dilutive securities
Warrants
Share options
RSUs
Shares used in computing diluted earnings per share attributable to common shares
Diluted earnings per share attributable to common shares
20,924,683
17,279,443
14,689,224
-
-
132,380
21,057,063
0.21 $
-
179,479
110,518
17,569,440
0.39 $
-
-
3,075
14,692,299
0.20
$
For the years ended June 30, 2022 and 2020, 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.
F-41
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 16 – WARRANTS
Warrants issued on May 24, 2018
In connection with the closing of the Company’s IPO on May 24, 2018, the Company issued 283,192 warrants to several placement agents of the IPO. Each
warrant entitles the warrant holder to purchase the Company’s common shares at $4.20 or $6.3 per share. The warrants carry a term of five years expiring
in May 2023 and shall not be exercisable for a period of 180 days from May 23, 2018. During the year ended June 30, 2019, 176,192 warrants were
exercised and 99,380 common shares were issued. During year ended June 30, 2020, no warrants were exercised. During year ended June 30, 2021,
107,000 warrants were exercised and 65,542 common shares were issued. During year ended June 30, 2022, no warrants were exercised. As of June 30,
2022 and 2021, no warrants were issued and outstanding respectively.
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:
Expected term (in years)
Expected volatility
Risk-free interest rate
For the
year ended
June 30,
2018
2.75
49.39%
2.11%
Expected term represents the weighted average period of time that the warrants granted are expected to be outstanding giving consideration to historical
exercise patterns. 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 May 24, 2018 was $612,223.
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, 2022, no warrants were exercised. As of June 30, 2022 and 2021, 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:
Expected term (in years)
Expected volatility
Risk-free interest rate
For the
year ended
June 30,
2021
5.50
41.48%
0.83%
Expected term represents the weighted average period of time that the warrants granted are expected to be outstanding giving consideration to historical
exercise patterns. 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 May 3, 2021 was $3,413,332.
F-42
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 17 – 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.
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.
F-43
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 17 – SHARE-BASED PAYMENT - continued
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.
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
$1,196,971, $529,479 and $448,736 were recognized for the years ended June 30, 2022, 2021 and 2020, respectively. The weighted-average grant-date fair
value per share of options granted was $1.13 for senior executives and $1.01 for key employees during the year ended June 30, 2022, $1.06 for senior
executives and $1.03 for key employees during the year ended June 30, 2021, and $1.03 for senior executives and $1.01 for key employees during the year
ended June 30, 2020, respectively.
The assumptions used to value the Company’s stock options grants were as follows:
Expected volatility
Risk-free interest rate
Exercise multiples
Expected dividend yield
Forfeited rates
Fair market value per common share
For the years ended June 30,
2021
2022
2020
40%
0.71~1.62%
2.2~2.8
0%
12~19
1.92~3.15
$
41%
0.36%
2.2~2.8
0%
12~19%
$
2.89
$
43%
1.63%
2.2~2.8
0%
9~10%
5.25
F-44
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 17 – SHARE-BASED PAYMENT - continued
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:
Outstanding as of July 1, 2021
Granted
Exercised*
Forfeited or expired
Outstanding as of June 30, 2022
Outstanding and exercisable as of June 30, 2022
Vested and expected to vest as of June 30, 2022
Number of
stock options
Weighted
Average
Exercise Price
Weighted
Average
Grant-date
Fair Value
1,430,490 $
4,090,300 $
(1,443) $
(833,674) $
4,685,673 $
555,842 $
3,167,351 $
3.09 $
2.36 $
2.68 $
2.73 $
2.52 $
3.34 $
2.64 $
1.35
1.07
1.02
1.23
1.13
1.55
0.15
Weighted
Average
Remaining
Contractual
Life
4.4 years
Aggregate
Intrinsic
Value
1,949,145
4.1 years
4.1 years
-
-
-
* During the year ended June 30, 2022, 1,443 share options were exercised and 1,443 common shares were issued.
The aggregate intrinsic value in the table above represents the difference between the closing stock price on the last trading day in fiscal 2022 and the
options’ respective exercise price. Total intrinsic value of options exercised for the year ended June 30, 2022 and 2021 was $1,125 and $57,613,
respectively. No options were exercised in fiscal year 2020. The total fair value of options vested during the years ended June 30, 2022, 2021 and 2020 was
$505,295, $354,701 and $274,063, respectively.
As of June 30, 2022, there was $1,328,464 of unrecognized compensation cost, adjusted for estimated forfeitures based on historical data, related to non-
vested stock options granted to the Company’s employees and directors. Total unrecognized compensation cost is expected to be recognized over a period
of 1.88 years as of June 30, 2022. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.
F-45
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 17 – SHARE-BASED PAYMENT - continued
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.
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
$5,987,891, $4,599,217 and $3,555,344 was recognized for the years ended June 30, 2022, 2021 and 2020, respectively.
The following table sets forth the summary of RSUs activities:
Outstanding as of July 1, 2021
Granted
Vested
Forfeited or expired
Outstanding as of June 30, 2022
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
52,650 $
2,519,600 $
(2,370,650) $
(5,400) $
196,200 $
3.16
2.52
2.48
3.15
3.10
As of June 30, 2022, there was $289,321 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
1.86 years. The total fair value of the restricted share units vested was $4,617,882, $5,338,069 and $4,702,325 during the year ended June 30, 2022, 2021
and 2020, respectively. The weighted-average grant-date fair value per share of RSUs granted was $2.52, $3.34 and $2.32 during the year ended June 30,
2022, 2021 and 2020, respectively.
The following table summarizes the total share-based compensation expense recognized by the Company:
Cost of revenues
Selling and marketing expenses
General and administrative expenses
Total
2022
2021
$
$
36,906 $
165,209
6,982,747
7,184,862 $
8,403 $
122,087
4,998,206
5,128,696 $
2020
12,448
201,168
3,790,464
4,004,080
F-46
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 18 – 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.
No dividend was declared during the years ended June 30, 2022, 2021 and 2020.
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 $857,801, $1,410,264 and $970,009 to statutory reserves during the years ended June 30,
2022, 2021 and 2020, 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 $23,264,745 and $11,482,521 as of June 30, 2022 and 2021, 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.
Accumulated other comprehensive income (loss)
The components of accumulated other comprehensive income (loss) were as follows:
Balance at June 30, 2020
Other comprehensive loss before reclassification
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income
Other comprehensive loss attribute to noncontrolling interests
Balance at June 30, 2021
Other comprehensive income before reclassification
Amounts reclassified from accumulated other comprehensive income
Net current-period other comprehensive income
Other comprehensive loss attribute to noncontrolling interests
Balance at June 30, 2022
Foreign
currency
translation
income (loss)
(1,362,665)
2,697,395
(2,172)
2,695,223
(102,475)
1,230,083
(1,828,542)
-
(1,828,542)
48,211
(550,248)
$
$
$
$
$
$
$
$
$
$
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, 2020, 2021 and 2022.
F-47
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 19 – 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 $121,807 (Note 3).
F-48
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 20 – 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, 2022, 2021 and 2020.
For the years ended June 30,
2021
2022
Mainland China
Singapore
Hong Kong
United States
Malaysia
Japan
Australia
India
Total
$ 137,915,276 $ 112,511,341 $
9,613,026
9,559,951
3,728,039
3,365,491
34,740
883,478
148,128
161,132
26,419
137,053
-
-
-
-
$ 152,022,381 $ 126,061,693 $
The following table presents revenues by the service lines for the years ended June 30, 2022, 2021 and 2020.
2022
For the years ended June 30,
2021
IT consulting service
Customized IT solution service
Other
Total
Long-lived assets by geographic area are presented as follows:
$ 144,092,811 $ 122,273,395 $
3,130,646
657,652
$ 152,022,381 $ 126,061,693 $
6,738,118
1,191,452
2020
78,840,635
7,369,345
3,071,857
-
125,748
5,394
2,167
652
89,415,798
2020
87,136,754
1,844,892
434,152
89,415,798
Hong Kong
Singapore
Mainland China
India
Japan
As of June 30,
2022
15,468,306 $
4,586,546
541,766
3,153
1,327
20,601,098 $
$
$
2021
111,590
4,305
481,473
2,354
1,069
600,791
F-49
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 21 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed balance sheets
ASSETS
Current assets:
Cash and cash equivalents
Amounts due from subsidiaries
Prepayments, deposits and other assets, net
Total Current Assets
Non-Current assets:
Investments in subsidiaries
Total Assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Salaries and benefits payable
Amounts due to subsidiaries
Total Current Liabilities
Total Liabilities
Shareholders’ Equity
Common stock, $0.0001 par value, 100,000,000 shares authorized; 22,444,822 shares issued and outstanding as of
June 30, 2022; 20,293,552 shares issued and outstanding as of June 30, 2021*
Additional paid-in capital
Accumulated retained earnings
Accumulated other comprehensive (loss) income
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
F-50
As of June 30,
2022
2021
$
115,901 $
22,776,226
378,836
23,270,963
12,975,407
7,576,560
382,807
20,934,774
50,416,453
73,687,416 $
36,295,558
57,230,332
$
-
7,134,543
7,134,543
7,134,543 $
541,285
-
541,285
541,285
$
2,244
55,705,209
11,395,668
(550,248)
2,029
48,516,695
6,940,240
1,230,083
66,552,873
56,689,047
$
73,687,416 $
57,230,332
CLPS INCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in U.S. dollars (“$”), except for number of shares)
NOTE 21 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION - continued
Condensed statements of comprehensive income
General and administrative expenses
Share of profit in subsidiaries, net (Note a)
Other income
Other expenses
Income before income tax
Provision for income tax
Net income
Other comprehensive (loss) income
Foreign currency translation (loss) gain
Comprehensive income
Condensed statements of cash flows
Net cash used in operating activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, at the beginning of the year
Cash, cash equivalents at the end of the year
(a) Basis of presentation
For the years ended June 30,
2021
2022
2020
$
(7,640,065) $
12,060,619
34,874
-
(6,267,334) $
13,202,527
6,365
(124,986)
(5,505,559)
8,404,632
46,904
(7,739)
4,455,428
-
4,455,428
6,816,572
-
6,816,572
2,938,238
-
2,938,238
$
(1,780,331) $
2,592,748 $
(549,015)
$
2,675,097 $
9,409,320 $
2,389,223
2022
For the years ended June 30,
2021
(2,107,118) $
14,799,107
101,905
12,793,894
181,513 $
12,975,407 $
$ (20,091,683) $
7,395,038
(162,861)
(12,859,506)
12,975,407 $
115,901 $
$
$
2020
(3,586,857)
200,000
97,179
(3,289,678)
3,471,191
181,513
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 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-51
ITEM 19.
EXHIBITS
The financial statements are filed as part of this Annual Report beginning on page F-1.
Exhibit No.
Description
1.1
2
3.1
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
12.1
12.2
13.1
Form of Underwriting Agreement (2).
Description of Securities registered under Section 12 of the Exchange Act (6)
Memorandum and Articles of Association (1).
Specimen Share Certificate (1).
2017 Equity Incentive Plan (1).
2019 Equity Incentive Plan (3).
2020 Equity Incentive Plan(4)
Form Independent Director Agreement (1).
Employment Agreement between the Company and Xiao Feng Yang (1).
Employment Agreement between the Company and Raymond Ming Hui Lin (1).
Employment Agreement between the Company and Rui Yang (5).
Employment Agreement between the Company and Li Li (7).
ANZ Global Services and Operations (Chengdu) Company Limited Agreement (1).
Master Lease Agreement - Shanghai Pudong Software Park Co., Ltd.
Master Lease Agreement - Shanghai Pudong Software Park Co., Ltd.
Master Lease Agreement - Dalian High-Tech Park
Form of Framework Contract for Subcontracting (1).
Form Warrant Agreement (2).
Form Lockup Agreement (2).
Escrow Indemnification Agreement (2).
Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-10 million
Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-10 million
Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-10 million
Credit Agreement with Bank of Shanghai Pudong Development Bank Co. Ltd-10 million
Credit Agreement with Bank of Communications Bank Co., Ltd.-10 million.
Credit Agreement with China Merchants Bank Co., Ltd.-7.7 million
Credit Agreement with China Merchants Bank Co., Ltd.-8 million
Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended.
Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as
amended.
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of
14.1
21.1
23.1
99.1
99.2
99.3
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
the Sarbanes-Oxley Act of 2002.
Code of Conduct and Ethics (1).
List of Subsidiaries of the Registrant.
Consent of Ernst & Young Hua Ming LLP.
Charter of the Audit Committee (1).
Charter of the Compensation Committee (1).
Charter of the Nominating Committee (1).
Inline XBRL Instance Document.
Inline XBRL Taxonomy Extension Schema Document.
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
Inline XBRL Taxonomy Extension Definition Linkbase Document.
Inline XBRL Taxonomy Extension Label Linkbase Document.
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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.
125
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.
SIGNATURES
October 20, 2022
October 20, 2022
CLPS Incorporation
By:
By:
/s/ Raymond Ming Hui Lin
Name: Raymond Ming Hui Lin
Title: Chief Executive Officer
(Principal Executive Officer)
/s/ Rui Yang
Name: Rui Yang
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
126
Rental Contract for Shanghai Pudong Software Park Guo Shoujing Park
Exhibit 10.10
Contract No: ZL (C) 20210016
Both parties to this contract:
Party A (Lessor): Shanghai Pudong Software Park Co., Ltd.
Party B (Lessee): Jaji (Shanghai) Co., Ltd.
According to Contract Law of the People’s Republic of China and Regulations of Shanghai Municipality on House Leasing, both parties conclude the
contract on the basis of equality, voluntariness, fairness, honesty and credibility, for consenting that Party B should lease the house that Party A can lease
according to law.
Section 1.
1-1
1-2
1-3
1-4
The house which is rented to Party B by Party A is located in Room 18101/18102/18103/18104, Building 18, Guo Shoujing Road No.498, Zhang
Jiang High Tech Park, Pudong, Shanghai (hereinafter referred to as “the House”). The building area of the House is 914.62 square meters. The
House should be used for research and development and office. The structure of the House is reinforced concrete structure. The plan of the house
is shown in Annex I of this contract.
Party A establishes a leasing relationship with Party B as the real estate owner of the House. Party A has told Party B and Party B has fully known
that the House has been mortgaged before the contract is signed.
The following (if any) is shown in Annex II and/or supplementary agreements of the Contract: the scope of use, conditions and requirements of
public or shared parts of the House, the existing decoration of the House, ancillary facilities and equipment status, and the contents, standards,
related matters of the decoration and additional facilities which Party A allows Party B to do in writing. Both parties agree that all attachments and
supplementary agreements should be a basis for acceptance of housing delivery and return when the Contract is terminated or released.
When the Contract is signed, the House has accepted and used by Party B, and Party B confirm that the House can fit the purpose and acquirement
of rental at the beginning of the tenancy term. On the basis of Party B’s occupancy of the House, Party A does not have to perform any further
duty to deliver the House to Party B.
2. Rental Purposes
2-1
2-2
Party B has fully known the House’s properties and uses and Party B promises to Party A that the House will only be used for research and
development and office and Party B will abide by the state and the city regulations on the use of housing and property management.
Party B promises that the above-mentioned purpose of the use will not be changed during the rental term unless such change gets Party A’s written
consent and is approved by the relevant departments according to relative regulations.
3. Lease Term
3-1
3-2
3-3
the lease term of the house starts from April 1, 2021 (hereinafter referred to as the lease commencement date) to December 31, 2023 (hereinafter
referred to as the lease expiration date).The rent period is from April 1, 2021 (hereinafter referred to as the rent payment date) to the expiration
date of the lease term.
he delivery date of the house is April 1, 2021
Party A shall notify Party B of the acceptance and handover of the house at least one day in advance and no later than the delivery date. Party B
shall send a representative to jointly accept the house with Party A and / or the property management company entrusted by Party A at the time
notified by Party A.After the acceptance, Party B shall sign the written House acceptance handover certificate to show that Party A has delivered
the house to Party B.
If both parties check that the house and its ancillary facilities do not meet the delivery standards agreed in this contract, Party A shall
correct them within 3 days or within a reasonable period agreed by both parties to meet the delivery standards, and notify Party B and Party A to
jointly accept the house again.After the re acceptance, Party B shall sign the written House acceptance handover letter to show that Party A has
delivered the house to Party B.
If Party A fails to deliver the house to Party B as of the lease commencement date of Article 31, Party A shall extend the lease
commencement date of Party B, and the new lease commencement date shall be calculated from the actual delivery date.From the lease date of
Article 3.1, if the delivery of the house is delayed for more than 10 working days due to Party A, Party A shall pay Party B 10% of the daily rent
of the house as liquidated damages for each delayed delivery day from the first working day after the lease date of Article 3.1, and postpone Party
B's lease date. The new lease date shall be calculated from the actual delivery date.If the starting date of rent is postponed according to this
paragraph, the starting date of rent shall be postponed accordingly.If the aforesaid breach of contract by Party A lasts for more than 30 days, Party
B has the right to terminate this contract.
3-4
Party B shall handle the relevant handover procedures of the leased house no later than the delivery date. Party B's delay in handling the
handover procedures will not affect the rent payable by Party B from the date of rent payment and other expenses borne by Party B.If the relevant
handover procedures are not completed within 30 days after the delivery date agreed in the contract due to Party B, Party A has the right to
terminate the contract.
4. Rent and Payment Methods
4-1
Party A and Party B agree that the rental unit price of the house is calculated according to the construction area per square meter per day, and Party
A will issue a valid invoice after receiving Party B’s monthly rent. Within the lease term agreed in this Contract
From April 1st,2021 to December 31st ,2021, the unit rental price is RMB 3.97 yuan
From January 1st , 2022 to December 31st ,2022, the unit rental price is RMB 4.09 yuan
From January 1st , 2023 to December 31st ,2023, the unit rental price is RMB 4.19 yuan
(The above unit rental prices are tax-inclusive prices)
4-2
Party B should pay the rent for the first month no later than the rent date. The days for calculating the rent for the first mouth is started form the
rent date to the last day of the mouth. The monthly rent will be calculated and paid according to the calendar days of the month (the monthly rent
calculation formula is: housing construction area ╳ unit rental price ╳ the calendar days of the month. The monthly rental amount is rounded to
one decimal place). Party B should pay the rent to Party A before the 10th of each month (in case of national legal holidays postponed to the next
working day). The last month’s rent should be calculated from the first day of last month to the terminal day. If the days of the last month are less
than 10, the last month’s rent should be paid before the terminal date. If the days of the last month are not less than 10, the last month’s rent should
be paid before the10th day of the month (in case of national legal holidays postponed to the next working day). Party A should issue the
corresponding rental invoice to Party B within 3 working days after receiving the rent of the month.
2
4-3
Party A should issue the corresponding rental invoice to Party B within 3 working days after receiving the rent of the month. In the term of the
Contract, if the invoice type or tax rate changes due to the change of taxation policies of the state and government, Party B agrees to adjust the
price of rent and deposit according to the latest tax rate during the remaining lease. At that time, Party A will give Party B a formal notice, and
both Parties should sign up supplementary agreements.
4-4
Party B pays the rent to Party A’s following account by check or transfer:
Shanghai Pudong Software Park Co., Ltd.
1001194909004601783
ICBC Shanghai Zhangjiang sub branch
4-5
The rent is denominated and settled in RMB. In any case that the rent needs to be denominated and settled in other currency (the currency should
be accepted by Chinese banks and convertible into RMB), the actual amount of RMB exchanged by the bank designated by Party A shall prevail.
Relevant fees due to the payment (such as bank charges) should be borne by Party B.
4-6
Party A may entrust a property management company to assist in collecting the rent.
5. Rental Deposit and Other Fees
5-1
Both Parties agree that Party B shall pay rental deposit to Party A within 5 working days after signing the Contract. The amount of the deposit is
equivalent to the rent for the three months (90 days) of the highest unit price within the lease term, which is RMB344,903 yuan. Party A shall
issue a receipt to Party B after receiving the deposit. If Party B fails to pay the lease deposit in full to Party A in accordance with the provisions of
this contract, Party B shall pay Party A late payment fee of 0.3% of the outstanding amount per day, until the full payment is completed. If Party B
delays or fails to pay more than 15 working days, Party A has the right to rescind the contract.
During the term of this contract, Party B shall, due to breach of contract, pay liquidated damages and/or damages to Party A in accordance with
the provisions of this contract, and Party B shall separately pay Party A liquidated damages and/or damages, and shall not have the right to request
Party A to deduct from the above deposit. Party A shall have the right (without any obligation) to deduct such liquidated damages and / or
damages from Party B’s rental deposit and notify Party B in writing of the amount of the deduction and margin supplement. Party B should pay
Party A to complement the margin within 5 working days after accepting the notice from Party A.
Within 10 working days after the termination of the lease, Party A will refund Party B the balance of deposit to offset the fees (with no interest)
which Party B should bear under the Contract (including but not limited to the monthly rent payable by Party B, property management fees,
energy consumption, Party B’s liquidated damages and / or compensation for damages). However, if Party B uses the House for the registration of
Party B’s residence, Party B shall, within 30 days from the date of the termination of the lease, complete the cancellation or alteration registration,
and deliver the copy of the registration approval to Party A for record. Party A shall return the lease deposit to Party B according to the above term
after that.
Besides the house rent and property management fees, Party B shall bear the costs of energy consumption (electricity, water and gas),
communication expenses, rental fees for equipment and facilities incurred for its own use. Party A shall install separate meter for Party B’s energy
consumption and collect the fees from Party B according to the meter reading before transferring it to the offices of utilities. Party A may entrust
property management companies to assist in collecting the above fees.
Both parties agree that the property management company entrusted by Party A (hereinafter referred to as “the management company”) is
responsible for the property management of the House. At the time of signing the Contract, the management company is Shanghai Puyuan
Property Management Co., Ltd., which will be responsible for the property equipment operation, daily management and services of the House.
Party B shall pay the property management fee. Party B shall sign the Property Management Agreement with the property management company
prior to the transfer of the House. Property management fee and payment method of the House shall be implemented in accordance with the
Property Management Agreement signed by Party B and the property management company.
5-2
5-3
3
6. Housing Requirements and Maintenance Responsibilities
6-1
6-2
6-3
6-4
6-5
During the rental term, Party A promises that the House and its ancillary public facilities would be in normal usable and safe condition. If Party B
finds that there is any damage or malfunction of the House or its ancillary public facilities (other than Party B’s decoration and equipment), Party
B shall notice Party A and / or the management company to repair. Party A and / or the management company shall conduct inspection or repair in
48 hours after receiving the written notice from Party B and repair it within the period agreed on by both parties or within a reasonable period. If
Party A shall assume the responsibility for maintenance but Party A fails to repair it overdue, Party B may take the maintenance for it and
reasonable maintenance expenses shall be borne by Party A.
During the rental term, Party B shall fair use and take good care of the House and its affiliated public facilities, and take various preventive
measures to make the House safe from rain, wind or other natural causes. Party B shall assume maintenance responsibility for the improper or
unreasonable use of Party B which results in the damage or failure of the House and its affiliated public facilities. If Party B refuses to assume
responsibility for maintenance, Party A can take the maintenance on behalf of Party B, and reasonable maintenance costs borne by Party B. The
maintenance of non-public facilities which is owned by Party B can be entrusted to the property management companies, and maintenance costs
borne by Party B.
Party B shall strictly follow the applicable laws, regulations, rules and regulations of China and use the House in accordance with the contractual
purposes, especially not to use the House in any unreasonable or unethical way. Party B will not use the House in any way that invalidates or
increases the risk of insurance. Party B shall ensure that the business activities engaged in using the House have obtained the business license
issued by the government administration for industry and commerce and guarantee that legal registration and permission shall be kept throughout
the lease period.
During the rental term, Party A reserves the right to publish or authorize others to advertise, improve or add public facilities in other proper places
where is not exclusively for Party B. Party A shall not affect Party B’s normal use of the House and Party B’s Normal business.
Party B agrees to guarantee that Party A and / or Party A’s personnel shall be exempt from Party B’s personal injury and / or property damage, and
Party A and Party A’s personnel shall also be exempt from the third party’s claims and litigation caused by Party B.
7. Decoration and Accretion
7-1
Party B shall be responsible for the second decoration of the House. Party B’s decoration plan (including marking on the building facade or roof or
other public parts of the House) shall be subject to Party A’s approval and Party A’s written consent. Party B shall not, without prior written
consent of Party A, carry out any unauthorized activities or allow any other person to carry out any unauthorized alteration or addition of the
House and its decoration, ancillary facilities and equipment (including but not limited to trunk lines, drainage, firefighting, indoor and outdoor
appearances and existing installations). If such decoration needs the approval of the government department, Party B shall obtain the approval
before construction.
4
7-2
7-3
7-4
7-5
During renovating the House, Party B shall not damage the building’s facade or carry out any internal structural alterations that may affect the
service life and safety of the House, including but not limited to the demolition and alteration of the bearing beam walls. If Party B needs to
change the structure of the house or modify the ancillary facilities and equipment of the house, etc., in addition to the written consent of Party A,
Party B shall pay the structural restoration fee deposit in accordance with the “Relevant Charges for Second Renovation of Leased Office of
Shanghai Pudong Software Park”, otherwise Party B shall not carry out construction.
During the rental term, the decoration belongs to Party B, and its responsibility for maintenance is also borne by Party B, unless the Parties agree
otherwise. After the expiry of the rental term (including any early termination of the Contract attributable to Party B), Party B is obliged to remove
the decoration extras and restore the house to the pre-lease status (except for natural losses). If Party B does not move on schedule, Party A can
take the behalf of the removal, and the cost borne by Party B or deducted the cost from the deposit unless Party A agrees that Party B shall retain
decoration remnants when returning the house.
Party A’s written consent to the decoration of Party B shall not be construed as Party A’s obligation or responsibility to Party B’s decoration and its
consequences. Party B shall guarantee that its decoration and other facilities for its own addition are safe and will not cause any potential safety
hazard for the House or its users. Party B shall assume complete legal, technical and economic responsibility for its own decoration and its
consequences.
Party A shall have the right to request Party B immediately to take all necessary measures to solve such safety problems if Party A finds any
potential safety hazard caused by Party B’s decoration and attachment actions during and after the lease and whether or not Party A agrees to such
decoration and attachment plan, until Party A unilaterally lift the lease. Party B entrusts the contractor to renovate the house. If it is not the cause
of Party A, which violates the laws and regulations of China, and the relevant provisions of construction, fire control and safety management, or
causes property damage, Party B and the contractor shall take the responsibility.
8. Enter and Check
8-1
8-2
During the lease, in order to ensure that the house and its ancillary facilities are properly accessible and safe, Party A and / or the management
company shall have the right to send staff to enter the house for reasonable inspection, maintenance and repair, but Party A and / or the
management company shall notify Party B at least 1 working day in advance (except: emergency situation and situation that Party A cannot be
foreseen or controlled). Party B should be cooperated with inspection, maintenance and repair, but Party A should minimize the impact on the use
of the House by Party B.
If Party B renounces the right of renewal, or terminates this contract prematurely according to the Contract, or Party A and Party B fail to agree on
whether to renew or not, Party B agrees that Party A has the right to accompany the interested subsequent tenants to visit the House within the
time agreed upon by both parties within 6 months prior to the termination, but Party A should give advanced notice to Party B.
5
9. Sublet, Mix, Transfer and Exchange
9-1
9-2
Without the prior written consent of Party A, Party B shall not sublet part or whole of the House to any third party in any form (including but not
limited to contracting, pooling affiliates, establishing affiliates, etc.) during the rental term, or mixed-use the House with any third party, or
transfer the House to others for rent, or exchange with others.
If Party B sublets part or whole of the House to any third party during the rental term, or uses it in combination with any third party, or transfers
the House to others for rent, or exchanges with other people’s rented houses in accordance with a separate written agreement between Party A and
Party B, Party B shall still be liable for the behavior of actual user of the House and the consequences during the rental term.
10. Priority Renewal Rights
10-1
If the lease of the Contract expires and Party B needs to continue leasing the House, Party B shall submit a written request for renewal to Party A
at least four months before the expiry of the rental term of the Contract, and re-sign the rental contract with the consent of Party A. Under the
same conditions, Party B shall enjoy the priority of renewal of the whole of the House, except as otherwise stipulated by laws and regulations. If
Party B submits to Party A only a written request for renewal of the part of the House, Party B will not enjoy the priority of renewal. If Party B
lately requests for the renewal of a written request, it shall be deemed that Party B renounces the priority of renewal.
10-2
After Party A agrees with Party B’s renewal and renewal conditions, both parties shall conclude a rental contract for the renewal of the House 3
months before the expiry date of the Contract. If Party B fails to sign the renewal contract with Party A overdue, it shall be deemed that Party B
renounces the priority of renewal. The renewal rent is determined according to the renewal contract.
11. Return
11-1
Party B shall return the House to Party A no later than the expiry date of the lease or the date on which the Contract is terminated prematurely.
11-2
Before Party B returns the House to Party A, Party B shall clean the House so that the House is in good condition and can be rented. The House
which is returned by Party B shall be in conformity with the condition when the house was delivered (that is, it meets the requirements of Annex II
and / or other supplementary agreements). When the House is returned, it should be checked by Party A or / and the property management
company entrusted by Party A and the expenses should be settled.
6
11-3
11-4
Party B may retain the status quo of the House’s decoration if it has the written consent of Party A (permit that Party B may produce some natural
wear and tear due to normal use) and move out of the House (hereinafter referred to as “move out of the House”), otherwise, it should be
reinstated. If Party A shall agree in writing before Party B can retain the status quo of the House’s decoration, Party A shall have no obligation to
make any compensation or compensation for Party B’s construction or renovation of the House and its decoration and facilities. If the Contract is
terminated early due to Party A’s reason or because Party A breaches the Contract, Party B has no obligation to restore the status quo ante, and the
House will be returned according to the current status.
If Party B fails to return the house to Party A without the written consent of Party A or does not reach an agreement in writing with Party A on
renewing the term, Party B shall pay the overdue liquidated damages of the House which is 3 times the rent to Party A, and shall bear all the
energy, equipment, property management fees and all other expenses stipulated in the Contract during the period of occupation of the House. In
addition, if Party B fails to return the house to Party A 15 days after the expiry date of the lease or the early termination date of the Contract, Party
A has the right to release the house after written notice to Party B, Party A can (but does not have the obligation to) deposit it locally or
expeditiously and Party A has the right to collect the custody fee and removal fee from Party B in respect of the objects and has the right to sell,
transfer, discard or other ways which Party A deems it appropriate, and use the proceeds (if any) for any payment that Party B owes Party A and
for any loss. In case of insufficient payment and compensation, Party A shall have the right to recover the balance from Party B.
12. Exemption for Party A
12-1
During the rental term, when Party B occupies the House and its ancillary facilities, public facilities, if Party B causes any loss of property,
damage and personal injury caused by any of the following circumstances, Party B hereby agree, not because of Party A’s intention or gross
negligence, Party A does not bear any responsibility:
(1) Any loss or damage due to expropriation, acquisition, confiscation, nationalization or any force majeure caused by state or government
agencies;
(2) Any loss or damage caused by theft, robbery and other criminal cases;
(3) No water, electricity, telephone, fax, air-conditioning and other services to the House at any time or any public facilities in the House,
including the planned maintenance and inspection of public facilities by a third party entrusted by Party A, are not operated and it is not due
to Party A’s reasons;
(4) Party B’s losses and damages caused by other lessees or third parties;
(5) Party B’s losses and damages which is not caused by Party A’s intentional or gross negligence (Party A and / or the security guards and
watchman’s security services provided to the House do not constitute Party A’s liability to the House, personnel, and property).
13. Breach of the Contract and Liability for Breach of Contract
13-1
Party A’s default
(1) Party A shall compensate for the loss of Party B due to Party A’s transfer of property right caused by Party A’s setting up a new mortgage to
the House during the rental term as stipulated in this contract.
(2) During the rental term, Party A fails to perform the repair and maintenance responsibilities as stipulated in the Contract in time, resulting in
damage to the House or property, or personal injury to Party B’s personnel, sub-contractors, agents, employees, and decorators due to the
structural problems of the House, Party A should be responsible for compensation.
(3) During the rental term, except the exempt situation regulated by the Contract, laws or regulations, if Party A decides to terminate this contract
or take the House back early without authorization, Party A should give a written notice to Party B 6 months early. In this case, in addition to
returning the deposit to Party B, Party A should also pay liquidated damages which is amount to the monthly rent at that time to Party B. If
Party A informs Party B 3 months early but less than 6 months, Party A should pay liquidated damages which is twice the monthly rent at that
time to Party B. If Party A does not inform Party B 3 months early, Party A should pay liquidated damages which is triple the monthly rent at
that time to Party B.
7
13-2
Party B’s default
(1) If Party B overdue payment of rent, deposit, equipment rental fee, energy consumption fee, property management fee or other relevant
expenses payable, Party B shall pay overdue fine which is 0.3% of the amount of overdue payment per day. If overdue 30 days, Party A has
the right to interrupt the water, electricity and other energy supply, until Party B pays all the expenses. And Party B should bear the cost of re-
connection.
(2) If Party B fails to obtain the written consent of Party A to renovates the House or additional facilities beyond the written consent of Party A,
Party A has the right to request Party B to restore the original state of the House. Party B shall be responsible for indemnification if Party B
causes irreparable damage to the House or Party A suffers losses (including but not limited to fines, damages, etc.) due to the aforesaid acts of
Party B.
(3) Party B or any person expressly or implicitly authorized by Party B to enter the House or parking space shall be regarded as Party B’s act. If
such act causes damage or loss of personal or property to Party A or building, Party B shall jointly and severally liable for compensation.
(4) During the rental term, except the exempt situation regulated by the Contract, if Party B decides to terminate this contract early without
authorization and Party B gives a written notice to Party A 3 months early, Party B should pay liquidated damages which is amount to the
monthly rent at that time to Party A. If Party B does not inform Party A 3 months early, Party B should pay liquidated damages which is triple
the monthly rent at that time to Party A. Party A may deduct the above liquidated damages from the remaining balance of the rental deposit
that Party B has already paid, and the insufficient part will be delivered separately by Party B.
Retirement refers to the behavior that Party B decides to terminate the lease relationship early for its own reasons, limited to a written
statement.
(5) If Party B registers the House as its domicile, and Party B fails to complete the registration of alteration or cancellation within 30 days from
the date of termination of the tenancy or provide the copy of certificate of registration to Party A for the record, Party B shall pay Party A
liquidated damages which is amount to the monthly rent at that time.
(6) Party A has right to request Party B to compensate Party A for the losses suffered thereby, if Party B takes the following actions:
(1) Intentional or negligent act of Party B and its employees and contractors on any part of the building or the House;
(2) Party B violates or fails to comply with any applicable provisions of the Contract;
(3) Party B, its employees and other acts of the contractor will affect the normal operation and management of the building by Party A and
the property management company unless Party B provides reasonable explanations within 24 hours after receiving the written notice
from Party A.
14. The Force Majeure
14-1
If either the Property or any part of the Building is destroyed or is not suitable for research and development and office during the lease period due
to Force Majeure, either party shall be entitled to notify the other in writing of the termination of the Contract, and neither party shall pursue the
default responsibility. The Contract is terminated from the day when notice is given by either party. Party A should return Party B the remaining
rental deposit, rental after the force majeure, and other expenses that Party B has prepaid within 10 working days from the date of termination of
the Contract after deducting the relevant expenses according to Clause 13 of the Contract without interest, as long as Party B pays all the expenses
payable by Party B before the force majeure which is regulated by the Contract and the supplementary agreements.
14-2
The above “force majeure” means any unforeseen event beyond the reasonable control of one party and which is unavoidable despite reasonable
care is given by the party, including but not limited to, earthquake, typhoon, plague, flood, fire, storms, tidal waves or other natural disasters,
declared or undeclared war, riots and so on.
8
15. Terminate the Contract
15-1
Both Parties agree that one party may be written notice to the other party to terminate the Contract under the following situations, and the party
breaching the Contract shall pay liquidated damages which is triple the monthly rent at that time to the other party. If the party breaching the
Contract also cause damages to the other party, and if the liquidated damages are insufficient to meet the damages, the balance still needs to be
made up.
(1) Party A fails to deliver the House on time and still cannot deliver the House 30 days after the written notice from Party B;
(2) The house delivered by Party A does not meet the contract stipulated in Annex Ⅱ of the Contract, resulting in the failure to realize the purpose
of the lease; or the House delivered by Party A is defective and endangers the safety of Party B;
(3) Party B fails to obtain the written consent of Party A to change the use of the House;
(4) Party B causes damage to the main structure of the House or other irreparable damage;
(5) Party B, without the written consent of Party A and the approval of the relevant department, arbitrarily changed the nature of the production
and use involved in the property planning;
(6) Party B fails to obtain the written consent of Party A and permission from the safety production supervision, fire control and other relevant
departments to add or modify special equipment or to produce, manage, transport, store, use or dispose of hazardous chemicals;
(7) Party B renders part or all of the House to any third party without authorization, or uses it in combination with any third party, or transfers the
House to others for rent or exchanges with other people’s houses;
(8) Party B has not paid the rent over 30 days, and still cannot pay the rent 30 days after the written notice from Party A.
15-2
Due to the breach of item (8) of the preceding paragraph, the Party A has the right to retain all the articles in the House until Party B pays all the
money (including the liquidated damages) to Party A.
15-3
Both Parties agree that the Contract is terminated under the following situations, and neither of them should be responsible for the termination.
(1) The land use rights within the occupied area of the House are recovered early according to law;
(2) The House is requisitioned according to law because of public interests;
(3) The House is included in the scope of the permit for house demolition due to urban construction;
(4) The House is damaged, lost or has been identified as a dangerous house;
(5) Party A has informed Party B that the mortgage has been set before the rental, and is now being disposed of.
9
16. Statements and Guarantees
a)
Party A hereby states and guarantees as follows:
(1) Party A has all the necessary authorizations to formally and effectively sign and perform the Contract and possess all the necessary powers
and capabilities to lease the House to Party B in accordance with applicable laws.
(2) Party A’s signing and performance of the Contract shall not constitute a violation of the applicable law or any contract signed by Party A with
any third party.
(3) Party A guarantees that the House has been built and in good condition in accordance with applicable laws (including but not limited to safety
and health related laws and regulations) and has legal ownership over it.
b)
Party B hereby states and guarantees as follows:
(1) Party B has all the necessary authorizations to formally and effectively sign and perform the Contract.
(2) Party B has legal business qualification. During the renewal of the Contract, Party B will engage in business activities in accordance with the
scope of its business license, and its business activities must comply with the relevant provisions of national laws and regulations.
(3) Party B promises not to disclose any information involved in the Contract to any third party, including but not limited to the rental price. If
Party B’s behavior leaks any of above mentioned information, Party A reserves the right to retroactively indemnify Party B.
17. Safe Production
17-1
Party B shall strictly comply with the safety management code of the park including the Notice on Enterprise Safety Management in Shanghai
Pudong Software Park (see Annex Ⅲ for details) and shall be fully responsible for its own safety management. Party B shall immediately inform
Party A in an effective manner once a safety accident has occurred, and provide a written report after the incident, while trying its best to avoid or
reduce the casualties or property damage. If the circumstances of the accident are serious and have caused or may cause casualties, Party B shall
also directly report to the relevant government department in accordance with the law.
17-2
During the rental term of the Contract, Party A shall have the right to recourse to Party B and terminate the Contract if Party B produces safety
accident in the area of Shanghai Pudong Software Park. If the safety accidents cause loss of Party A, Party B should compensate Party A.
17-3
Party B’s safety records shall be used as a reference for Party B’s priority rights such as renewal and extension of lease (if any).
10
18. Other Terms
18-1
The Contract takes effect immediately after both parties have signed and sealed the contract.
18-2
The unaccomplished matters of the Contract may be concluded by the supplementary agreements or terms between Party A and Party B. The
supplementary agreement, the terms and the supplements to the Contract are an integral part of the Contract. The written words in the Contract
and its supplementary terms, agreements and the space in the appendix have the same effect as the printed language.
18-3 When both parties sign the Contract, they shall clearly understand their respective rights, obligations and responsibilities and are willing to fulfill
their obligations strictly according to the Contract. If one party violates the Contract, the other party is entitled to claim according to the Contract.
18-4
Party A and Party B shall settle their disputes through negotiation during the performance of the Contract. If they fail to reach a consensus through
negotiation, both parties agree to choose the following method (2) to settle in accordance with the laws of the People’s Republic of China:
(1) submitted to China International Economic and Trade Arbitration Commission Shanghai Branch for arbitration;
(2) bring a lawsuit to the people’s court where the House is located.
18-5
18-6
18-7
The Contract has four copies with the Annex, and Party A, Party B, the business department, the tax department each hold a copy. All of them
have the same effect.
All fees and taxes related to the registration of the Contract (including but not limited to stamp duty) should be borne by both parties in accordance
with the regulations of the People’s Republic of China and Shanghai.
Party B is obliged to cooperate with Party A to complete all forms of non-profitable research activities for the purpose of industry research,
including but not limited to questionnaires, interviews with business executives, and collection of economic data. Party A will not disclose any
information or data provided by Party B for other purpose other than industry research and will not disclose any trade secrets to any third party
which is not related to industrial research.
11
Annex I
Plan of the House
12
the existing decoration of the House, ancillary facilities and equipment status, and the decoration and additional facilities which Party A allows Party B to
do in writing
Annex II
13
Annex III
Notice of Shanghai Pudong Software Park Park Enterprise Security Management
According to Production Safety Law of the People’s Republic of China, Regulations on the Reporting, Investigation and Handling of Work Safety
Accidents, Regulations on Production Safety of Shanghai, for further strengthen the security management of Shanghai Pudong Software Park, effectively
protect the life of the park personnel and property safety, we will inform about the safety management in the park as follows:
1.
Safety Management Responsibilities of Companies in the Park
The company in the park should be responsible for the work of safety management, including the area that the company leased, in the process of
working, employee’s safety management during working or work-related experiences, and take the responsibility.
1. The park enterprise assigns the safety commissioner as the first safety liaison and is in charge of the safety work in the leased area and liaises
with Shanghai Pudong Software Park Co., Ltd. (hereinafter referred to as “Pu soft”). If there is a change of position in the safety
commissioner, the job successor automatically becomes the first safety liaison or the park shall assign another person and informed in writing
to Pu Soft.
2. Strictly abide by the laws, regulations and rules related to safety and possess the qualifications and conditions for safety production required
for the operation of the business and industry.
3. Pursuant to the written approval by Pu soft company, if a company can sublease or sublet the office, it shall conclude a safety management
agreement with the sub-tenant on the basis of the contents of this circular with a clear emphasis on safety responsibilities and management
requirements.
2.
Safety Requirements of Daily Operation
1. Establish safety management rules and systems with safety responsibility system as the core. Strengthen safety education and management of
suppliers. Enhance daily education and training of employees in safety work. Provide safety management personnel and equipment. In
accordance with the relevant regulations and establish safety standards emergency rescue and evacuation plan.
2. The renovations within the scope of renter and equipment installation should comply with the relevant provisions, norms and standards of
safety and fire safety. According to national and local regulations, construction and equipment installation needs to be reviewed and accepted.
3. The facilities and equipment must pass inspection, tests and acceptance, and should be operated by trained and qualified people. Those people
who are engaged in special operations must have the appropriate qualifications. The equipment and operations personnel should be reviewed
annually in accordance with related regulations.
14
4. Don’t produce, store toxic, harmful, flammable, explosive materials.
5. Loading and unloading of goods in the designated area, do a good job of on-site safety supervision and support.
6.
It is strictly forbidden to lodge staff in the office area of Shanghai Pudong Software Park.
7. The risk of accidents or insecurity should be self-examination and timely rectification. Cooperate with Pu soft company and the property
management unit for safety inspection and rectification.
3.
Requirements of Fire Safety
1. Actively involved in the fire drill and cooperate with Pu soft company and property management units.
2. Equip fire extinguisher in line with the provisions in their own rented area. Set in line with the provisions of the requirements, identify the
obvious emergency evacuation diagram. Always keep the evacuation routes and entrances and exits open.
3. Smoking is strictly forbidden in non-smoking areas. It is forbidden to use open flame in violation of regulation.
4.
It is forbidden to block, close, occupy the evacuation routes and entrances and exits.
4.
Requirements of Security and Traffic Safety
1.
Improve staff’s awareness of personal safety, property safety and traffic safety. Properly store their valuables such as cash and securities, and
set up more reliable safety precautions to prevent theft.
2. The motor vehicles owned by their employees or their employees’ relatives shall strictly follow the traffic lights’ instruction and traffic signs’
instruction to drive. Parking in the line with norms and regulations.
If any unexpected incident or accident occurs, including but not limited to safety production, anti-crime, traffic or public security, it shall be reported to Pu
soft as soon as possible. In the case of emergencies, it shall be reported directly to the police, fire department, rescue department and other departments
immediately, afterwards be reported to Pu soft company.
15
Rental Contract for Shanghai Pudong Software Park Guo Shoujing Park
Exhibit 10.11
NO:ZL(R)20210069
Both parties to this contract:
Party A (Lessor): Shanghai Pudong Software Park Co., Ltd.
Party B (Lessee): ChinaLink Professional Services Co., Ltd.
According to Contract Law of the People’s Republic of China and Regulations of Shanghai Municipality on House Leasing, both parties conclude the
contract on the basis of equality, voluntariness, fairness, honesty and credibility, for consenting that Party B should lease the house that Party A can lease
according to law.
Section 1.
1-1
1-2
1-3
1-4
The house which is rented to Party B by Party A is located in Room 18201/18202/18203/18204/18205/18206/18207/18208, Building 18, Guo
Shoujing Road No.498, Zhang Jiang High Tech Park, Pudong, Shanghai (hereinafter referred to as “the House”). The building area of the House is
1259.94 square meters. The House should be used for research and development and office. The structure of the House is reinforced concrete
structure. The plan of the house is shown in Annex I (of this contract).
Party A establishes a leasing relationship with Party B as the real estate owner of the House. Party A has told Party B and Party B has fully known
that the House has been mortgaged before the contract is signed.
The following (if any) is shown in Annex II and/or supplementary agreements of the Contract: the scope of use, conditions and requirements of
public or shared parts of the House, the existing decoration of the House, ancillary facilities and equipment status, and the contents, standards,
related matters of the decoration and additional facilities which Party A allows Party B to do in writing. Both parties agree that all attachments and
supplementary agreements should be a basis for acceptance of housing delivery and return when the Contract is terminated or released.
When the Contract is signed, the House has accepted and used by Party B, and Party B confirm that the House can fit the purpose and acquirement
of rental at the beginning of the tenancy term. On the basis of Party B’s occupancy of the House, Party A does not have to perform any further
duty to deliver the House to Party B.
2. Rental Purposes
2-1
2-2
Party B has fully known the House’s properties and uses and Party B promises to Party A that the House will only be used for research and
development and office and Party B will abide by the state and the city regulations on the use of housing and property management.
Party B promises that the above-mentioned purpose of the use will not be changed during the rental term unless such change gets Party A’s written
consent and is approved by the relevant departments according to relative regulations.
3. Renewal Term
3-1
3-2
The Contract is a renewal contract based on the original contract (No. ZL(R)20190043) which was signed for renting the House.
The renewal term is from July 1st, 2021 (hereinafter referred to as “lease date”) to June 30th, 2024 (hereinafter referred to as “terminal date”). The
rent will be counted from July 1st, 2021 (hereinafter referred to as “rent date”) to terminal date.
4. Rent and Payment Methods
4-1
Both Parties agree that the unit rental price is counted according to the daily construction area per square meter.
From July 1st, 2021 to July 15th, 2021, rent free
From July 16st, 2021 to June 30th, 2022, the unit rental price is RMB 3.86 yuan
From July 1st, 2022 to June 30th, 2023, the unit rental price is RMB 3.98 yuan
From July 1st, 2023 to June 30th, 2024, the unit rental price is RMB 4.08 yuan
(The above unit rental prices are tax-inclusive prices)
4-2
Party B should pay the rent for the first month no later than the rent date. The days for calculating the rent for the first mouth is started form the
rent date to the last day of the mouth. The monthly rent will be calculated and paid according to the calendar days of the month (the monthly rent
calculation formula is: housing construction area ╳ unit rental price ╳ the calendar days of the month. The monthly rental amount is rounded to
one decimal place). Party B should pay the rent to Party A before the 10th of each month (in case of national legal holidays postponed to the next
working day). The last month’s rent should be calculated from the first day of last month to the terminal day. If the days of the last month are less
than 10, the last month’s rent should be paid before the terminal date. If the days of the last month are not less than 10, the last month’s rent should
be paid before the10th day of the month (in case of national legal holidays postponed to the next working day). Party A should issue the
corresponding rental invoice to Party B within 3 working days after receiving the rent of the month.
2
4-3
Party A should issue the corresponding rental invoice to Party B within 3 working days after receiving the rent of the month. In the term of the
Contract, if the invoice type or tax rate changes due to the change of taxation policies of the state and government, Party B agrees to adjust the
price of rent and deposit according to the latest tax rate during the remaining lease. At that time, Party A will give Party B a formal notice, and
both Parties should sign up supplementary agreements.
4-4
Party B pays the rent to Party A’s following account by check or transfer:
Shanghai Pudong Software Park Co., Ltd.
1001194909004601783
ICBC Shanghai Zhangjiang sub branch
4-5
The rent is denominated and settled in RMB. In any case that the rent needs to be denominated and settled in other currency (the currency should
be accepted by Chinese banks and convertible into RMB), the actual amount of RMB exchanged by the bank designated by Party A shall prevail.
Relevant fees due to the payment (such as bank charges) should be borne by Party B.
4-6
Party A may entrust a property management company to assist in collecting the rent.
5. Rental Deposit and Other Fees
5-1
Both Parties agree that Party B shall pay rental deposit to Party A within 5 working days after signing the Contract. The amount of the deposit is
equivalent to the rent for the three months (90 days) of the highest unit price within the lease term, which is RMB 462,650 yuan. Party B has paid
RMB 437,703 yuan for rental deposit under the original contract, and it will be automatically converted to the deposit under the Contract after the
Contract becomes effective. The margin of the deposit is RMB 24,947 yuan, and Party B shall pay it to Party A within 5 working days after
signing the Contract. Party A shall issue a receipt to Party B after receiving the deposit. If Party B fails to pay the lease deposit in full to Party A in
accordance with the provisions of this contract, Party B shall pay Party A late payment fee of 0.3% of the outstanding amount per day, until the
full payment is completed. If Party B delays or fails to pay more than 15 working days, Party A has the right to rescind the contract.
During the term of this contract, Party B shall, due to breach of contract, pay liquidated damages and/or damages to Party A in accordance with
the provisions of this contract, and Party B shall separately pay Party A liquidated damages and/or damages, and shall not have the right to request
Party A to deduct from the above deposit. Party A shall have the right (without any obligation) to deduct such liquidated damages and / or
damages from Party B’s rental deposit and notify Party B in writing of the amount of the deduction and margin supplement. Party B should pay
Party A to complement the margin within 5 working days after accepting the notice from Party A.
3
Within 10 working days after the termination of the lease, Party A will refund Party B the balance of deposit to offset the fees (with no interest)
which Party B should bear under the Contract (including but not limited to the monthly rent payable by Party B, property management fees,
energy consumption, Party B’s liquidated damages and / or compensation for damages). However, if Party B uses the House for the registration of
Party B’s residence, Party B shall, within 30 days from the date of the termination of the lease, complete the cancellation or alteration registration,
and deliver the copy of the registration approval to Party A for record. Party A shall return the lease deposit to Party B according to the above term
after that.
Besides the house rent and property management fees, Party B shall bear the costs of energy consumption (electricity, water and gas),
communication expenses, rental fees for equipment and facilities incurred for its own use. Party A shall install separate meter for Party B’s energy
consumption and collect the fees from Party B according to the meter reading before transferring it to the offices of utilities. Party A may entrust
property management companies to assist in collecting the above fees.
Both parties agree that the property management company entrusted by Party A (hereinafter referred to as “the management company”) is
responsible for the property management of the House. At the time of signing the Contract, the management company is Shanghai Puyuan
Property Management Co., Ltd., which will be responsible for the property equipment operation, daily management and services of the House.
Party B shall pay the property management fee. Party B shall sign the Property Management Agreement with the property management company
prior to the transfer of the House. Property management fee and payment method of the House shall be implemented in accordance with the
Property Management Agreement signed by Party B and the property management company.
5-2
5-3
6. Housing Requirements and Maintenance Responsibilities
6-1
6-2
During the rental term, Party A promises that the House and its ancillary public facilities would be in normal usable and safe condition. If Party B
finds that there is any damage or malfunction of the House or its ancillary public facilities (other than Party B’s decoration and equipment), Party
B shall notice Party A and / or the management company to repair. Party A and / or the management company shall conduct inspection or repair in
48 hours after receiving the written notice from Party B and repair it within the period agreed on by both parties or within a reasonable period. If
Party A shall assume the responsibility for maintenance but Party A fails to repair it overdue, Party B may take the maintenance for it and
reasonable maintenance expenses shall be borne by Party A.
During the rental term, Party B shall fair use and take good care of the House and its affiliated public facilities, and take various preventive
measures to make the House safe from rain, wind or other natural causes. Party B shall assume maintenance responsibility for the improper or
unreasonable use of Party B which results in the damage or failure of the House and its affiliated public facilities. If Party B refuses to assume
responsibility for maintenance, Party A can take the maintenance on behalf of Party B, and reasonable maintenance costs borne by Party B. The
maintenance of non-public facilities which is owned by Party B can be entrusted to the property management companies, and maintenance costs
borne by Party B.
4
6-3
6-4
6-5
Party B shall strictly follow the applicable laws, regulations, rules and regulations of China and use the House in accordance with the contractual
purposes, especially not to use the House in any unreasonable or unethical way. Party B will not use the House in any way that invalidates or
increases the risk of insurance. Party B shall ensure that the business activities engaged in using the House have obtained the business license
issued by the government administration for industry and commerce and guarantee that legal registration and permission shall be kept throughout
the lease period.
During the rental term, Party A reserves the right to publish or authorize others to advertise, improve or add public facilities in other proper places
where is not exclusively for Party B. Party A shall not affect Party B’s normal use of the House and Party B’s Normal business.
Party B agrees to guarantee that Party A and / or Party A’s personnel shall be exempt from Party B’s personal injury and / or property damage, and
Party A and Party A’s personnel shall also be exempt from the third party’s claims and litigation caused by Party B.
7. Decoration and Accretion
7-1
7-2
Party B shall be responsible for the second decoration of the House. Party B’s decoration plan (including marking on the building facade or roof or
other public parts of the House) shall be subject to Party A’s approval and Party A’s written consent. Party B shall not, without prior written
consent of Party A, carry out any unauthorized activities or allow any other person to carry out any unauthorized alteration or addition of the
House and its decoration, ancillary facilities and equipment (including but not limited to trunk lines, drainage, firefighting, indoor and outdoor
appearances and existing installations). If such decoration needs the approval of the government department, Party B shall obtain the approval
before construction.
During renovating the House, Party B shall not damage the building’s facade or carry out any internal structural alterations that may affect the
service life and safety of the House, including but not limited to the demolition and alteration of the bearing beam walls. If Party B needs to
change the structure of the house or modify the ancillary facilities and equipment of the house, etc., in addition to the written consent of Party A,
Party B shall pay the structural restoration fee deposit in accordance with the “Relevant Charges for Second Renovation of Leased Office of
Shanghai Pudong Software Park”, otherwise Party B shall not carry out construction.
5
7-3
7-4
7-5
During the rental term, the decoration belongs to Party B, and its responsibility for maintenance is also borne by Party B, unless the Parties agree
otherwise. After the expiry of the rental term (including any early termination of the Contract attributable to Party B), Party B is obliged to remove
the decoration extras and restore the house to the pre-lease status (except for natural losses). If Party B does not move on schedule, Party A can
take the behalf of the removal, and the cost borne by Party B or deducted the cost from the deposit unless Party A agrees that Party B shall retain
decoration remnants when returning the house.
Party A’s written consent to the decoration of Party B shall not be construed as Party A’s obligation or responsibility to Party B’s decoration and its
consequences. Party B shall guarantee that its decoration and other facilities for its own addition are safe and will not cause any potential safety
hazard for the House or its users. Party B shall assume complete legal, technical and economic responsibility for its own decoration and its
consequences.
Party A shall have the right to request Party B immediately to take all necessary measures to solve such safety problems if Party A finds any
potential safety hazard caused by Party B’s decoration and attachment actions during and after the lease and whether or not Party A agrees to such
decoration and attachment plan, until Party A unilaterally lift the lease. Party B entrusts the contractor to renovate the house. If it is not the cause
of Party A, which violates the laws and regulations of China, and the relevant provisions of construction, fire control and safety management, or
causes property damage, Party B and the contractor shall take the responsibility.
8. Enter and Check
8-1
8-2
During the lease, in order to ensure that the house and its ancillary facilities are properly accessible and safe, Party A and / or the management
company shall have the right to send staff to enter the house for reasonable inspection, maintenance and repair, but Party A and / or the
management company shall notify Party B at least 1 working day in advance (except: emergency situation and situation that Party A cannot be
foreseen or controlled). Party B should be cooperated with inspection, maintenance and repair, but Party A should minimize the impact on the use
of the House by Party B.
If Party B renounces the right of renewal, or terminates this contract prematurely according to the Contract, or Party A and Party B fail to agree on
whether to renew or not, Party B agrees that Party A has the right to accompany the interested subsequent tenants to visit the House within the
time agreed upon by both parties within 6 months prior to the termination, but Party A should give advanced notice to Party B.
6
9. Sublet, Mix, Transfer and Exchange
9-1
9-2
Without the prior written consent of Party A, Party B shall not sublet part or whole of the House to any third party in any form (including but not
limited to contracting, pooling affiliates, establishing affiliates, etc.) during the rental term, or mixed-use the House with any third party, or
transfer the House to others for rent, or exchange with others.
If Party B sublets part or whole of the House to any third party during the rental term, or uses it in combination with any third party, or transfers
the House to others for rent, or exchanges with other people’s rented houses in accordance with a separate written agreement between Party A and
Party B, Party B shall still be liable for the behavior of actual user of the House and the consequences during the rental term.
10. Priority Renewal Rights
10-1
If the lease of the Contract expires and Party B needs to continue leasing the House, Party B shall submit a written request for renewal to Party A
at least four months before the expiry of the rental term of the Contract, and re-sign the rental contract with the consent of Party A. Under the
same conditions, Party B shall enjoy the priority of renewal of the whole of the House, except as otherwise stipulated by laws and regulations. If
Party B submits to Party A only a written request for renewal of the part of the House, Party B will not enjoy the priority of renewal. If Party B
lately requests for the renewal of a written request, it shall be deemed that Party B renounces the priority of renewal.
10-2
After Party A agrees with Party B’s renewal and renewal conditions, both parties shall conclude a rental contract for the renewal of the House 3
months before the expiry date of the Contract. If Party B fails to sign the renewal contract with Party A overdue, it shall be deemed that Party B
renounces the priority of renewal. The renewal rent is determined according to the renewal contract.
11. Return
11-1
Party B shall return the House to Party A no later than the expiry date of the lease or the date on which the Contract is terminated prematurely.
11-2
Before Party B returns the House to Party A, Party B shall clean the House so that the House is in good condition and can be rented. The House
which is returned by Party B shall be in conformity with the condition when the house was delivered (that is, it meets the requirements of Annex II
and / or other supplementary agreements). When the House is returned, it should be checked by Party A or / and the property management
company entrusted by Party A and the expenses should be settled.
7
11-3
11-4
Party B may retain the status quo of the House’s decoration if it has the written consent of Party A (permit that Party B may produce some natural
wear and tear due to normal use) and move out of the House (hereinafter referred to as “move out of the House”), otherwise, it should be
reinstated. If Party A shall agree in writing before Party B can retain the status quo of the House’s decoration, Party A shall have no obligation to
make any compensation or compensation for Party B’s construction or renovation of the House and its decoration and facilities. If the Contract is
terminated early due to Party A’s reason or because Party A breaches the Contract, Party B has no obligation to restore the status quo ante, and the
House will be returned according to the current status.
If Party B fails to return the house to Party A without the written consent of Party A or does not reach an agreement in writing with Party A on
renewing the term, Party B shall pay the overdue liquidated damages of the House which is 3 times the rent to Party A, and shall bear all the
energy, equipment, property management fees and all other expenses stipulated in the Contract during the period of occupation of the House. In
addition, if Party B fails to return the house to Party A 15 days after the expiry date of the lease or the early termination date of the Contract, Party
A has the right to release the house after written notice to Party B, Party A can (but does not have the obligation to) deposit it locally or
expeditiously and Party A has the right to collect the custody fee and removal fee from Party B in respect of the objects and has the right to sell,
transfer, discard or other ways which Party A deems it appropriate, and use the proceeds (if any) for any payment that Party B owes Party A and
for any loss. In case of insufficient payment and compensation, Party A shall have the right to recover the balance from Party B.
12. Exemption for Party A
12-1
During the rental term, when Party B occupies the House and its ancillary facilities, public facilities, if Party B causes any loss of property,
damage and personal injury caused by any of the following circumstances, Party B hereby agree, not because of Party A’s intention or gross
negligence, Party A does not bear any responsibility:
(1) Any loss or damage due to expropriation, acquisition, confiscation, nationalization or any force majeure caused by state or government
agencies;
8
(2) Any loss or damage caused by theft, robbery and other criminal cases;
(3) No water, electricity, telephone, fax, air-conditioning and other services to the House at any time or any public facilities in the House,
including the planned maintenance and inspection of public facilities by a third party entrusted by Party A, are not operated and it is not due
to Party A’s reasons;
(4) Party B’s losses and damages caused by other lessees or third parties;
(5) Party B’s losses and damages which is not caused by Party A’s intentional or gross negligence (Party A and / or the security guards and
watchman’s security services provided to the House do not constitute Party A’s liability to the House, personnel, and property).
13. Breach of the Contract and Liability for Breach of Contract
13-1
Party A’s default
(1) Party A shall compensate for the loss of Party B due to Party A’s transfer of property right caused by Party A’s setting up a new mortgage to
the House during the rental term as stipulated in this contract.
(2) During the rental term, Party A fails to perform the repair and maintenance responsibilities as stipulated in the Contract in time, resulting in
damage to the House or property, or personal injury to Party B’s personnel, sub-contractors, agents, employees, and decorators due to the
structural problems of the House, Party A should be responsible for compensation.
(3) During the rental term, except the exempt situation regulated by the Contract, laws or regulations, if Party A decides to terminate this contract
or take the House back early without authorization, Party A should give a written notice to Party B 6 months early. In this case, in addition to
returning the deposit to Party B, Party A should also pay liquidated damages which is amount to the monthly rent at that time to Party B. If
Party A informs Party B 3 months early but less than 6 months, Party A should pay liquidated damages which is twice the monthly rent at that
time to Party B. If Party A does not inform Party B 3 months early, Party A should pay liquidated damages which is triple the monthly rent at
that time to Party B.
9
13-2
Party B’s default
(1) If Party B overdue payment of rent, deposit, equipment rental fee, energy consumption fee, property management fee or other relevant
expenses payable, Party B shall pay overdue fine which is 0.3% of the amount of overdue payment per day. If overdue 30 days, Party A has
the right to interrupt the water, electricity and other energy supply, until Party B pays all the expenses. And Party B should bear the cost of re-
connection.
(2) If Party B fails to obtain the written consent of Party A to renovates the House or additional facilities beyond the written consent of Party A,
Party A has the right to request Party B to restore the original state of the House. Party B shall be responsible for indemnification if Party B
causes irreparable damage to the House or Party A suffers losses (including but not limited to fines, damages, etc.) due to the aforesaid acts of
Party B.
(3) Party B or any person expressly or implicitly authorized by Party B to enter the House or parking space shall be regarded as Party B’s act. If
such act causes damage or loss of personal or property to Party A or building, Party B shall jointly and severally liable for compensation.
(4) During the rental term, except the exempt situation regulated by the Contract, if Party B decides to terminate this contract early without
authorization and Party B gives a written notice to Party A 3 months early, Party B should pay liquidated damages which is amount to the
monthly rent at that time to Party A. If Party B does not inform Party A 3 months early, Party B should pay liquidated damages which is triple
the monthly rent at that time to Party A. Party A may deduct the above liquidated damages from the remaining balance of the rental deposit
that Party B has already paid, and the insufficient part will be delivered separately by Party B.
Retirement refers to the behavior that Party B decides to terminate the lease relationship early for its own reasons, limited to a written
statement.
(5) If Party B registers the House as its domicile, and Party B fails to complete the registration of alteration or cancellation within 30 days from
the date of termination of the tenancy or provide the copy of certificate of registration to Party A for the record, Party B shall pay Party A
liquidated damages which is amount to the monthly rent at that time.
(6) Party A has right to request Party B to compensate Party A for the losses suffered thereby, if Party B takes the following actions:
(1) Intentional or negligent act of Party B and its employees and contractors on any part of the building or the House;
10
(2) Party B violates or fails to comply with any applicable provisions of the Contract;
(3) Party B, its employees and other acts of the contractor will affect the normal operation and management of the building by Party A and
the property management company unless Party B provides reasonable explanations within 24 hours after receiving the written notice
from Party A.
14. The Force Majeure
14-1
If either the Property or any part of the Building is destroyed or is not suitable for research and development and office during the lease period due
to Force Majeure, either party shall be entitled to notify the other in writing of the termination of the Contract, and neither party shall pursue the
default responsibility. The Contract is terminated from the day when notice is given by either party. Party A should return Party B the remaining
rental deposit, rental after the force majeure, and other expenses that Party B has prepaid within 10 working days from the date of termination of
the Contract after deducting the relevant expenses according to Clause 13 of the Contract without interest, as long as Party B pays all the expenses
payable by Party B before the force majeure which is regulated by the Contract and the supplementary agreements.
14-2
The above “force majeure” means any unforeseen event beyond the reasonable control of one party and which is unavoidable despite reasonable
care is given by the party, including but not limited to, earthquake, typhoon, plague, flood, fire, storms, tidal waves or other natural disasters,
declared or undeclared war, riots and so on.
15. Terminate the Contract
15-1
Both Parties agree that one party may be written notice to the other party to terminate the Contract under the following situations, and the party
breaching the Contract shall pay liquidated damages which is triple the monthly rent at that time to the other party. If the party breaching the
Contract also cause damages to the other party, and if the liquidated damages are insufficient to meet the damages, the balance still needs to be
made up.
(1) Party A fails to deliver the House on time and still cannot deliver the House 30 days after the written notice from Party B;
11
(2) The house delivered by Party A does not meet the contract stipulated in Annex Ⅱ of the Contract, resulting in the failure to realize the purpose
of the lease; or the House delivered by Party A is defective and endangers the safety of Party B;
(3) Party B fails to obtain the written consent of Party A to change the use of the House;
(4) Party B causes damage to the main structure of the House or other irreparable damage;
(5) Party B, without the written consent of Party A and the approval of the relevant department, arbitrarily changed the nature of the production
and use involved in the property planning;
(6) Party B fails to obtain the written consent of Party A and permission from the safety production supervision, fire control and other relevant
departments to add or modify special equipment or to produce, manage, transport, store, use or dispose of hazardous chemicals;
(7) Party B renders part or all of the House to any third party without authorization, or uses it in combination with any third party, or transfers the
House to others for rent or exchanges with other people’s houses;
(8) Party B has not paid the rent over 30 days, and still cannot pay the rent 30 days after the written notice from Party A.
15-2
Due to the breach of item (8) of the preceding paragraph, the Party A has the right to retain all the articles in the House until Party B pays all the
money (including the liquidated damages) to Party A.
15-3
Both Parties agree that the Contract is terminated under the following situations, and neither of them should be responsible for the termination.
(1) The land use rights within the occupied area of the House are recovered early according to law;
(2) The House is requisitioned according to law because of public interests;
(3) The House is included in the scope of the permit for house demolition due to urban construction;
(4) The House is damaged, lost or has been identified as a dangerous house;
(5) Party A has informed Party B that the mortgage has been set before the rental, and is now being disposed of.
12
16. Statements and Guarantees
a)
Party A hereby states and guarantees as follows:
(1) Party A has all the necessary authorizations to formally and effectively sign and perform the Contract and possess all the necessary powers
and capabilities to lease the House to Party B in accordance with applicable laws.
(2) Party A’s signing and performance of the Contract shall not constitute a violation of the applicable law or any contract signed by Party A with
any third party.
(3) Party A guarantees that the House has been built and in good condition in accordance with applicable laws (including but not limited to safety
and health related laws and regulations) and has legal ownership over it.
b)
Party B hereby states and guarantees as follows:
(1) Party B has all the necessary authorizations to formally and effectively sign and perform the Contract.
(2) Party B has legal business qualification. During the renewal of the Contract, Party B will engage in business activities in accordance with the
scope of its business license, and its business activities must comply with the relevant provisions of national laws and regulations.
(3) Party B promises not to disclose any information involved in the Contract to any third party, including but not limited to the rental price. If
Party B’s behavior leaks any of above mentioned information, Party A reserves the right to retroactively indemnify Party B.
17. Safe Production
17-1
Party B shall strictly comply with the safety management code of the park including the Notice on Enterprise Safety Management in Shanghai
Pudong Software Park (see Annex Ⅲ for details) and shall be fully responsible for its own safety management. Party B shall immediately inform
Party A in an effective manner once a safety accident has occurred, and provide a written report after the incident, while trying its best to avoid or
reduce the casualties or property damage. If the circumstances of the accident are serious and have caused or may cause casualties, Party B shall
also directly report to the relevant government department in accordance with the law.
13
17-2
During the rental term of the Contract, Party A shall have the right to recourse to Party B and terminate the Contract if Party B produces safety
accident in the area of Shanghai Pudong Software Park. If the safety accidents cause loss of Party A, Party B should compensate Party A.
17-3
Party B’s safety records shall be used as a reference for Party B’s priority rights such as renewal and extension of lease (if any).
18. Other Terms
18-1
The Contract takes effect immediately after both parties have signed and sealed the contract.
18-2
The unaccomplished matters of the Contract may be concluded by the supplementary agreements or terms between Party A and Party B. The
supplementary agreement, the terms and the supplements to the Contract are an integral part of the Contract. The written words in the Contract
and its supplementary terms, agreements and the space in the appendix have the same effect as the printed language.
18-3 When both parties sign the Contract, they shall clearly understand their respective rights, obligations and responsibilities and are willing to fulfill
their obligations strictly according to the Contract. If one party violates the Contract, the other party is entitled to claim according to the Contract.
18-4
Party A and Party B shall settle their disputes through negotiation during the performance of the Contract. If they fail to reach a consensus through
negotiation, both parties agree to choose the following method (2) to settle in accordance with the laws of the People’s Republic of China:
(1) submitted to China International Economic and Trade Arbitration Commission Shanghai Branch for arbitration;
(2) bring a lawsuit to the people’s court where the House is located.
18-5
18-6
18-7
The Contract has four copies with the Annex, and Party A, Party B, the business department, the tax department each hold a copy. All of them
have the same effect.
All fees and taxes related to the registration of the Contract (including but not limited to stamp duty) should be borne by both parties in accordance
with the regulations of the People’s Republic of China and Shanghai.
Party B is obliged to cooperate with Party A to complete all forms of non-profitable research activities for the purpose of industry research,
including but not limited to questionnaires, interviews with business executives, and collection of economic data. Party A will not disclose any
information or data provided by Party B for other purpose other than industry research and will not disclose any trade secrets to any third party
which is not related to industrial research.
14
Annex I
Plan of the House
15
the existing decoration of the House, ancillary facilities and equipment status, and the decoration and additional facilities which Party A allows Party B to
do in writing
Annex II
16
Annex III
Notice of Shanghai Pudong Software Park Park Enterprise Security Management
According to Production Safety Law of the People’s Republic of China, Regulations on the Reporting, Investigation and Handling of Work Safety
Accidents, Regulations on Production Safety of Shanghai, for further strengthen the security management of Shanghai Pudong Software Park, effectively
protect the life of the park personnel and property safety, we will inform about the safety management in the park as follows:
1.
Safety Management Responsibilities of Companies in the Park
The company in the park should be responsible for the work of safety management, including the area that the company leased, in the process of
working, employee’s safety management during working or work-related experiences, and take the responsibility.
1. The park enterprise assigns the safety commissioner as the first safety liaison and is in charge of the safety work in the leased area and liaises
with Shanghai Pudong Software Park Co., Ltd. (hereinafter referred to as “Pu soft”). If there is a change of position in the safety
commissioner, the job successor automatically becomes the first safety liaison or the park shall assign another person and informed in writing
to Pu Soft.
2. Strictly abide by the laws, regulations and rules related to safety and possess the qualifications and conditions for safety production required
for the operation of the business and industry.
3. Pursuant to the written approval by Pu soft company, if a company can sublease or sublet the office, it shall conclude a safety management
agreement with the sub-tenant on the basis of the contents of this circular with a clear emphasis on safety responsibilities and management
requirements.
2.
Safety Requirements of Daily Operation
1. Establish safety management rules and systems with safety responsibility system as the core. Strengthen safety education and management of
suppliers. Enhance daily education and training of employees in safety work. Provide safety management personnel and equipment. In
accordance with the relevant regulations and establish safety standards emergency rescue and evacuation plan.
2. The renovations within the scope of renter and equipment installation should comply with the relevant provisions, norms and standards of
safety and fire safety. According to national and local regulations, construction and equipment installation needs to be reviewed and accepted.
3. The facilities and equipment must pass inspection, tests and acceptance, and should be operated by trained and qualified people. Those people
who are engaged in special operations must have the appropriate qualifications. The equipment and operations personnel should be reviewed
annually in accordance with related regulations.
17
4. Don’t produce, store toxic, harmful, flammable, explosive materials.
5. Loading and unloading of goods in the designated area, do a good job of on-site safety supervision and support.
6.
It is strictly forbidden to lodge staff in the office area of Shanghai Pudong Software Park.
7. The risk of accidents or insecurity should be self-examination and timely rectification. Cooperate with Pu soft company and the property
management unit for safety inspection and rectification.
3.
Requirements of Fire Safety
1. Actively involved in the fire drill and cooperate with Pu soft company and property management units.
2. Equip fire extinguisher in line with the provisions in their own rented area. Set in line with the provisions of the requirements, identify the
obvious emergency evacuation diagram. Always keep the evacuation routes and entrances and exits open.
3. Smoking is strictly forbidden in non-smoking areas. It is forbidden to use open flame in violation of regulation.
4.
It is forbidden to block, close, occupy the evacuation routes and entrances and exits.
4.
Requirements of Security and Traffic Safety
1.
Improve staff’s awareness of personal safety, property safety and traffic safety. Properly store their valuables such as cash and securities, and
set up more reliable safety precautions to prevent theft.
2. The motor vehicles owned by their employees or their employees’ relatives shall strictly follow the traffic lights’ instruction and traffic signs’
instruction to drive. Parking in the line with norms and regulations.
If any unexpected incident or accident occurs, including but not limited to safety production, anti-crime, traffic or public security, it shall be reported to Pu
soft as soon as possible. In the case of emergencies, it shall be reported directly to the police, fire department, rescue department and other departments
immediately, afterwards be reported to Pu soft company.
18
Exhibit 10.12
Housing lease Contract
(Office space project)
Date of contract. Year Month Day
Party A: 【Dalian Software Park Rong Yuan Development Co. 】
Registered office.【Room 202H, 2/F, Jinhuai Building, No. 33 Hongchuan East Road, Dalian Hi-Tech Industrial Park, Liaoning Province】
Tel.【0411-84756943】 Fax 【116023】 Postcode. 【 】
Party B: 【CLPS Dalian Co., Ltd. 】
Registered office.【Room #01-01/02/03/04, 1st Floor, No. 1, Huixian Park, Qixianling, Dalian Hi-Tech Industrial Park, Liaoning Province, China】
Tel.【13898687842】 Fax 【 】 Postcode.【 】
The two parties, A and B, in accordance with the laws and regulations in force in the People’s Republic of China, enter into this contract after friendly
consultation regarding the lease of Party A’s premises by Party B.
1. Basic overview of the house
Chapter 1 Leasehold
1.1 Party B voluntarily leases the premises owned by Party A (hereinafter referred to as “the premises”), the basic overview of which is set out in the
“Basic Information Sheet of the Contract” attached to this contract; Party A guarantees that the facilities provided are in good condition.
1.2 Party A guarantees that the property right of the house is clear and free from disputes. In case of any property right disputes or other debts related to
Party A, Party A shall be responsible for clearing them up; Party A shall be responsible for compensating for any losses caused to Party B.
2. Use of the house
2.1 The premises rented by Party B shall be used only for the purpose of conducting business in the relevant industry as agreed in the “Basic Information
Form of the Contract” annexed to the Contract, and shall not be used for other purposes without the written consent of Party A. Party B shall not sublet or
sublet the premises in whole or in part to a third party or exchange the premises with a third party.
1
2.2 Party B shall apply for and bear the costs of all approvals, licences and other permits required for the operation of its business in the premises. Party B
guarantees that all business activities undertaken by it in the premises will obtain all business permits and other formalities issued by the government
administration for industry and commerce, and that it will maintain legal registration and permits throughout the lease period.
3. Handover of the house
3.1 Conditions of handover of the house
The conditions of handover of the house are detailed in the Basic Information Sheet of the contract annexed to the contract and are subject to the
actual conditions at the time of handover.
Party B confirms that it has inspected the house on site before signing this contract, and has fully understood and approved of the current state of the
interior and exterior of the house, its designed use and the then condition of its ancillary facilities and ancillary properties, and has no objection to them.
3.2 Check-in handover process
3.2.1 Party B shall send an application for occupation to Party A at least 2 working days before the commencement date of the lease as agreed in the
contract, and Party A shall arrange personnel to hand over the leased premises together with Party B in accordance with the handover conditions upon
receipt of the application, and the handover shall be completed before the commencement date of the lease; if Party B fails to make any payment as agreed
before the occupation, Party A shall have the right to refuse to go through the occupation procedures to deliver the premises to it and shall not be liable for
any breach of contract.
3.2.2 When there is no objection to the handover, the representatives of A and B shall sign and confirm on the Notice of Occupancy respectively, and the
handover of the house key or access card shall be carried out after the signature (in case of renewal of the tenancy agreement, the two parties shall no
longer handle the handover process of occupancy, and the handover shall prevail at the initial occupancy).
3.2.3 If the handover is actually used by you or is not completed by the Lease Commencement Date for your reasons, the handover will be deemed to be
complete, i.e. the Premises will be deemed to meet the necessary standards and to have been delivered to you in good order on the Lease Commencement
Date and the Lease Term will commence.
2
3.3 Check-out acceptance process
3.3.1 When withdrawing from the premises, Party B shall submit an application for withdrawal to Party A within the time limit required by Party A 7 days
prior to the expiry of the lease term or early termination of the contract, and Party A shall arrange personnel to inspect and hand over the premises together
with Party B before the expiry of the lease term or early withdrawal date in accordance with the handover conditions stipulated in Clause 3.1 of this
contract.
3.3.2 Party B shall ensure that the original decoration (including the ceiling) and facilities of the Premises are intact (except for natural damage) and that
the condition of the room is restored to its original condition as agreed in the original condition restoration standards in the Contract Basic Information
Form attached to this Agreement. In the event of any other damage or interruption to our rental, Party B shall compensate Party A for all losses, including
but not limited to the occupation fee of the premises during the restoration period, liquidated damages, agency fees or other losses incurred as a result of the
delay in delivery of the premises by Party A to the new tenant. The costs required for restoration shall be paid by Party B at its own expense or, if entrusted
to Party A for completion, the relevant costs shall be paid to Party A.
If Party B fails to return the premises to Party A as agreed in this contract, Party A shall have the right to restore the premises to its original condition
at its own expense and all costs arising therefrom shall be borne by Party B. Party A shall also have the right not to remove but to retain some or all of the
improvements made by Party B and the aforesaid facilities and equipment owned by Party B. In such case, Party B shall be deemed to have relinquished its
ownership of such improvements, facilities and equipment and Party B shall not be entitled to claim any compensation or indemnity in respect of such
improvements, facilities and equipment retained by Party A. You shall not be entitled to claim any compensation or indemnity in respect of such
improvements, facilities and equipment retained by us.
3.3.3 When Party B withdraws from the premises, all fees payable must be settled; if Party B has registered for business and industry in the rented
premises, Party B shall change the address of the business and industry registration to another place within 10 days after the termination of this contract and
report the approval or certificate from the relevant government authorities to Party A for backup.
3.3.4 After acceptance, all keys or access cards of the rooms will be returned to Party A after the representatives of Party A and Party B respectively sign
and confirm on the Notice of Check-out.
4.1 Lease term
4.1.1 The term of the lease is detailed in the Basic Information Sheet of the Contract annexed hereto.
Chapter 2 Term of Lease
4.1.2 If Party B does not move in on time for reasons other than Party A’s handover, the lease term shall commence on the contractual commencement date.
4.1.3 If Party A transfers the premises during the lease period, it shall give Party B two months’ notice in advance and guarantee the continued performance
of this contract. Party B shall have the right of first refusal under the same conditions, but Party B shall have no right of first refusal if Party A transfers the
whole building (where Party B leases the premises). If Party B exercises its right of first refusal, it shall give a written reply within five days from the date
of receipt of the notice, failing which it shall be deemed to have waived its right of first refusal.
4.2 Lease renewals
4.2.1 If Party B needs to continue to lease the premises after the expiry of the lease term, it shall submit an application for renewal of the lease to Party A in
writing two months before the expiry of the lease term; if Party B fails to notify Party A on time, Party A shall have the right to deal with it in accordance
with Party B’s non-renewal of the lease.
4.2.2 Party A shall reply to Party B’s application for lease renewal within 10 working days upon receipt of such application. Upon mutual agreement, Party
B shall sign a lease renewal contract one month before the expiry of the lease; if the contract is not signed on time, Party A shall have the right to deal with
it in accordance with Party B’s non-renewal of the lease.
3
4.2.3 The parties agree that if the renewal of the lease is agreed, the parties may sign the Annexed Basic Information Form only and this contract shall
continue to be valid during the renewal period; matters relating to the payment of fees during the renewal period and any amendments to this contract may
be added to the Basic Information Form with the corresponding terms and conditions, which shall take precedence over the terms of this contract.
4.2.4 If Party B does not intend to renew the lease, or if the parties fail to sign a renewal contract within one month before the expiry of the lease term,
Party A shall have the right to enter into an intention or contract to lease the Leased Premises with a third party, and shall have the right to carry out the
leasing of the Leased Premises to Party B. Party B may, at any reasonable time upon prior notice, allow the new lessee or user of the Leased Premises to
survey the site and carry out the necessary inspection of the premises, and Party B shall You shall co-operate.
4.3 Surrender of rent
4.3.1 Upon expiry, termination or early termination of the contract, Party B shall move out of the premises as scheduled and in accordance with the agreed
standard. If Party B fails to move out of the premises on time, Party A may grant a grace period of three working days; if Party B still fails to move out
within the grace period, Party B shall pay double the rent and the occupation fee of the property fee standard according to the actual number of days of stay,
and Party A may take any measures to exercise the ownership and right to use the leased premises, and has the right to replace the keys of the leased
premises and prohibit Party B and its associated third parties from re-entering the leased premises; for For the renovation of the leased premises and the
articles, equipment and facilities left by Party B and its associated third parties, they are deemed to have been abandoned by Party B and Party A has the
right to dispose of them by itself, and Party B shall not claim any rights and incur any costs against Party A as a result. The costs incurred (including but
not limited to attorney’s fees, construction costs for restoration of the original condition, relocation costs, clearance costs, auction costs, storage costs, etc.)
shall be borne by Party B. If the proceeds from the disposal are not sufficient to cover the costs payable by Party B, Party A shall have the right of recourse
against Party B.
4.3.2 Upon expiry, cancellation or early termination of the contract, both parties shall go through the procedures for handing over and acceptance of the rent
and settlement of expenses in accordance with the requirements of this contract; the date when the premises are inspected and accepted by Party A and the
Notice of Withdrawal is issued shall be the official withdrawal date of Party B.
5. Rent, property management fees and other fees and payment methods
Chapter 3: Rental and other fees and payment methods
4
5.1 Rates for rent, etc.
Party A is a general taxpayer. The amount and method of payment of rent, property management fees and other charges are detailed in the Annex
“Basic Information Sheet of the Contract” and the prices stated therein are all tax inclusive.
5.2 Performance bond
5.2.1 The standard and amount of payment of the performance deposit are set out in the Annex “Basic Information Sheet of the Contract”. Party B shall pay
the deposit to Party A together with the first installment of rent and property management fee; Party A shall issue a receipt for receipt for Party B upon
receipt of the performance deposit.
5.2.2 In the case of a renewal contract, Party B has paid the corresponding performance deposit. If there is no change in the rent and property charges, Party
B may not pay the performance deposit; if there is a change in the rent and property charges, the renewal contract will be executed as agreed.
5.2.3 The performance bond is a security deposit delivered by Party B to guarantee the performance of Party B’s obligations under this Agreement. Party A
shall have the right not to apply it against the rent, property charges, liquidated damages and any other expenses (including but not limited to losses
incurred by Party A or third parties as a result of Party B) owed by Party B. Party A shall have the right to choose to recover the relevant outstanding
amount and liquidated damages directly from Party B. If Party A adopts to set off all or part of the performance bond against the amount owed by Party B
to Party A, Party B shall make payment to Party A within 5 working days upon receipt of Party A’s notice to re-fill the original amount of the performance
bond, and if the performance bond is insufficient to set off, Party A shall have the right to continue to recover the outstanding portion from Party B, or else
bear the liability for default in respect of overdue fees in accordance with Clause 11.1 of this Agreement.
5.2.4 Upon expiry of the lease term or early termination of the contract, Party B shall pay all the fees payable under this contract and complete the check-
out and acceptance process as agreed in this contract, and Party A shall return the performance deposit to Party B without interest within 30 days from the
date Party A takes over the leased premises and accepts the premises. In case of late return, Party A shall pay to Party B a late payment of 0.1% of the total
performance deposit on a daily basis.
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5.3 Payment methods
5.3.1 Rent and property management fees
5.3.1.1 Party B shall pay the rent and property management fee to Party A’s account as agreed in the Basic Information Form of the Contract.
5.3.1.2 If there is any change to the account number specified by us, we shall notify you in writing at least 14 days in advance of the next payment date;
you shall not be liable for any failure to receive payment on time as a result of our failure to properly comply with the aforesaid notification obligations.
5.3.2 Water and electricity charges in the leased area
5.3.2.1 Water and electricity charges in the leased area shall be collected by Party A on behalf of Party B according to the actual occurrence of Party B. The
property management company hired by Party A shall issue an itemized breakdown to Party B. The meter will be read on the 20th of each month and the
bill will be paid by the 20th of the following month.
5.3.2.2 In the event that the government adjusts the water and electricity tariff during the lease period, the adjusted standard will be implemented according
to the corresponding range. Party A shall give written notice of the adjusted standard to Party B. The adjusted water and electricity tariffs shall take effect
in the month in which Party A gives written notice.
5.3.2.3 Charges in the event of a meter failure are based on the average of the water and electricity bills for each month from one month prior to the failure
to four months prior to the failure.
5.3.2.4 Costs incurred for the use of air-conditioning, heating, etc., required outside the contracted hours shall be as agreed in the Contract Annex “Basic
Information Sheet for Contracts”.
5.3.3 Communication fee: To be paid by Party B to the relevant communication operation service provider.
5.3.4 Taxes: All kinds of taxes and fees incurred as a result of this contract shall be handled by both parties in accordance with the relevant provisions of
the tax law of the People’s Republic of China.
5.4 During the lease period, Party A may reasonably adjust the property management fee due to changes in government policies, the market and other
reasons and the increase or decrease of property service content, but shall negotiate with Party B on the standard of the property management fee.
6
6. Contents of property services
Chapter 4 Property Services and Asset Maintenance
6.1 During the lease period, Party A or the property management company entrusted by Party A shall be responsible for the property service work of the
house, and the contents of the property service are detailed in the Annex of the contract “Contract Basic Information Form”.
6.2 During the term of the lease, Party B is responsible for the cleaning and the fire and security work in the leased premises as well as the property work
which is not part of the above property services.
6.3 During the lease period, Party B shall manage the contents of the premises by itself.
7. Property Covenants
7.1 During the lease period, we are obliged to coordinate the relationship between Party B and the property management company responsible for the
management of the common areas.
7.2 Upon occupation, Party B shall provide the property management company engaged by Party A with the contact numbers of three main contacts for
backup in case of emergency or other situations.
7.3 During the lease period, for the sake of safety, when Party B needs to move office furniture and computers and other items out of the building, it should
register with Party A’s property management department in advance.
7.4 Party A shall have the right to change the name of the building in which the leased premises are located (hereinafter referred to as “the Building”) as
necessary, provided that Party B is notified in writing or by public notice 30 days in advance.
7.5 A unified standard signage system will be set up in the lobby of the main entrance of the building. When Party B moves in, Party A will provide Party
B with the production and installation of the signage once free of charge (limited to Party B’s first move-in), and the name of the signage will be limited to
the name and room number recorded in this contract; without Party A’s written consent, Party B shall not post, set up or hang LOGO, drape or other
signage outside its leased area and conduct related You shall not post, install, hang logos, drapes or other signs or conduct related promotional activities
outside the leased area without our written consent.
7
7.6 In order to ensure the safety of electricity consumption, a 10-hour power outage will be carried out once every two years for the building’s electricity
equipment in accordance with the Electricity Law, and Party A will notify Party B 60 calendar days before the day of the power outage.
7.7 In order to ensure the normal operation of the air conditioning, there will be 15 days of equipment maintenance days each year during the winter-
summer and summer-winter switchover periods, during which the operation of the building’s air conditioning system will cease; Party A will notify Party B
7 calendar days in advance.
7.8 During the lease period, Party B should pay attention to property and personal safety, and Party B is the first responsible person and the ultimate
responsibility bearer of fire safety. All responsibilities for personal injuries or fire accidents not due to Party A shall be borne by Party B; Party B shall
compensate for any losses caused to Party A.
8. Maintenance and repair of the house
8.1 Party A shall be responsible for the maintenance and repair of natural damage to the house and ancillary facilities. Party A’s responsibility for the
maintenance of the house shall be limited to the original structure of the house, the power supply lines and the common parts of the house without
alteration by Party B.
8.2 The maintenance obligations and the maintenance costs of the parts decorated and renovated by Party B, the equipment and facilities and property
added by Party B shall be borne by Party B. Party B shall ensure that they are in a suitable and safe condition and shall not endanger the personal and
property safety of the rented premises, the building and other users.
8.3 During the lease period, Party B shall promptly notify Party A or the property management company of any damage or malfunction to the premises and
ancillary facilities, and Party A shall not be liable for any loss caused to Party A as a result of untimely notification by Party B.
8.4 Party A shall, upon receipt of the above notice, carry out maintenance after judging the responsibility according to the actual situation; if the damage or
fault is within the scope of Party B’s maintenance responsibility or if it is within the scope of Party A’s maintenance but caused by Party B’s improper use
or intentional damage, Party B shall carry out timely repair and notify Party A or the property management company; if Party B refuses to carry out repair
within three calendar days upon receipt of Party A’s supervisory notice, Party A may carry out repair on behalf of Party B at Party B shall bear the cost.
8
8.5 The party responsible for maintenance shall compensate the other party for direct economic loss if delayed maintenance or improper maintenance
causes damage to the other party.
9. Renovation and alteration of the house
9.1 In addition to the provisions of this Contract, if Party B needs to install additional ancillary facilities and equipment, it shall obtain prior written consent
from Party A and, if it is required to report to the relevant authorities for approval, it shall also submit to the relevant authorities for approval before
proceeding.
9.2 With the written consent of Party A and the approval of the relevant government authorities (if required), Party B may carry out secondary decoration
of the premises according to its business needs, but shall comply with Party A’s regulations on secondary decoration and relevant national regulations and
bear all costs incurred in the decoration (including the costs of alteration and increase of fire-fighting facilities, etc.), while Party A has the right to
supervise the decoration process of Party B. Party A has the right to stop Party B from violating the national regulations and this contract, and to request
Party B to compensate for the losses caused to Party A as a result.
9.3 Party B shall be responsible for the fire-fighting examination and inspection of the decoration of the rented area and shall not use the premises before
obtaining fire-fighting acceptance and other formalities; if Party B carries out decoration or alteration without fire-fighting examination and inspection or
obtains other formalities or uses the unexamined premises, all responsibilities arising therefrom shall be borne by Party B and Party B shall fully
compensate for any losses caused to Party A.
9.4 The per capita floor area of the office area before and after Party B’s renovation shall not be less than 10 square metres and the weight of the articles in
the area shall not exceed the floor load-bearing standard of 200 kilograms per square metre. If Party B violates the above standard, all consequences shall
be borne by Party B and Party B shall fully compensate for any losses caused to Party A.
9.5 In view of the different occupation times of the tenants in this building, in order to ensure the working environment of the tenants who occupy the
building first, the decoration period shall be specified by Party A or the property management company, and Party B and the decoration contractor shall
apply again in special circumstances; Party B shall carry out the construction work in a manner consistent with this contract and the relevant property
management regulations, and shall not use the common passageway of the floor or the area outside the scope of the tenancy as a pile of building materials
or tools without the consent of Party A. The use of the common passageway and the area outside the leased area shall not be used for stacking building
materials or tools without our consent.
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10. Entry inspection and adjacency
10.1 Entry work checks
10.1.1 Party B agrees that Party A or the property management company may enter the parts of the building leased by Party B for maintenance, sanitation,
burglary, disaster prevention, ambulance or other management purposes or for the maintenance of adjacent tenants; normally, Party A shall give 24 hours’
notice to Party B.
10.1.2 Party A or the property management company shall be accompanied by Party B’s personnel to enter the premises. In case of emergency and if Party
B cannot be contacted, Party A or the property management company shall have the right to enter the premises to deal with the emergency and shall not be
liable for any loss caused to Party B as a result, but shall explain the emergency to Party B afterwards.
10.1.3 In the event of the above, Party B shall support and cooperate with the work of Party A or the property management company; Party A or the
property management company shall minimise the impact on Party B.
10.2 Adjacency
10.2.1 Party B shall not do or tolerate any act which may cause a nuisance or disturbance to us or to neighbouring occupiers.
10.2.2 If a dispute arises between Party B and a neighbouring tenant, Party A shall be obliged to co-ordinate.
10.2.3 In the event of a dispute between adjacent tenants caused by Party B, Party A shall have the right of recourse against Party B if the adjacent tenants
bring proceedings against it and Party A is named as a defendant or third party and is held liable.
10.2.4 If, during the term of the lease, any rectification request is made by any government authority in respect of the renovation (including but not limited
to fire safety facilities) of the adjoining unit of the Premises, Party B shall provide all necessary assistance and cooperation as required by Party A or the
property company to comply with such rectification request; if Party B suffers any loss as a result, Party B shall, with the assistance of Party A, negotiate
with the occupants of the adjoining unit to settle the compensation issue We shall not be liable in any way for such damages. You shall not refuse or delay
to provide such assistance or cooperation on the ground that you have not yet reached agreement with the occupants of the adjoining unit.
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Chapter 5 Liability for breach of contract, dispute resolution
11. Liability for breach of contract
11.1 Late Payment of Fees
11.1.1 During the lease period, if Party B fails to pay the rent, property charges, utilities, performance bond or other relevant charges payable as agreed in
the contract, Party B shall pay to Party A a late payment fee of 0.1% of the overdue charges for each day of delay without prejudice to other rights or
remedies of Party A. The late payment fee shall be calculated from the date on which each of the above charges is payable until Party B has paid all the
aforementioned charges in full. The late payment period shall commence on the date on which each of the above fees is payable and shall continue until all
of the aforementioned fees, principal, late payment and other related fees are paid.
11.1.2 Party B shall not move the assets in the leased premises without Party A’s consent unless Party B has paid the rent and other charges in accordance
with the contract. If Party B fails to pay the appropriate fees on time even after a reminder has been sent to it by Party A, Party B agrees that Party A may
take the following remedial measures to protect Party A’s interests, namely
(1) Party A has the right to terminate the functions of the premises rented by Party B, including but not limited to termination of the provision of water,
electricity, air-conditioning, lift, access to the premises and other functions until Party B has paid in full in accordance with the contract, and all economic
losses that may be incurred by Party B as a result shall be borne by Party B. Party B shall be responsible for all costs incurred in reconnecting the above-
mentioned functions and shall pay the normal rent and property charges during the period of disconnection.
(2) Move all the assets in Party B’s house to Party A’s asset pool and if Party B pays the full cost, Party A will return Party B’s assets; if Party B does not
pay the full cost within fifteen days, Party A has the right to dispose of Party B’s assets.
11.1.3 In the event that Party B defaults on the payment of rent, property charges, utilities, performance bond or any other fees payable (not paid in full) for
more than 60 days in aggregate, Party A shall have the right to unilaterally terminate the contract and repossess the Premises and Party B shall pay to Party
A all outstanding amounts due under this contract (including outstanding fees and corresponding late payment fees) for the period of actual use of the
Premises, 20% of the total rent and You shall also pay 20% of the total rent and property charges for the remaining tenancy period, and indemnify us for
any loss suffered by us as a result (including but not limited to legal fees, court costs, rent, management and air-conditioning fees and other costs that we
could have collected under this contract during the vacancy period, as well as the investment leasing costs incurred in leasing the premises to a new tenant,
etc.), and the performance deposit received by us shall not be refunded.
11.2 Early termination of contract
During the term of the lease, unless otherwise agreed herein, neither party may unilaterally terminate this contract without statutory or agreed reason.
Either party may unilaterally terminate the contract if the following conditions are met and confirmed and agreed to by the other party: (1) a written
application is made to the other party at least 90 days in advance; (2) liquidated damages are paid to the other party at 20% of the total rent and property
charges for the remaining tenancy period; (3) all costs incurred and agreed to be payable under this contract are settled before the date of surrender.
The Parties further clarify that the following two circumstances shall not be subject to this Clause 11.2: (1) if Party B needs to terminate this
Agreement early due to expansion of the lease (i.e. leasing a larger area of premises in the development and management zone of Party A and a lease
contract has been actually signed), Party A and Party B shall discuss the operation procedure separately; (2) if Party B needs to change the subject of the
lease and Party A agrees in writing, Party A and Party B may jointly negotiate (2) If Party B needs to change the subject of the lease and Party A agrees in
writing, Party A and Party B may mutually agree to terminate this contract early and assign the remaining term and rights and obligations to the new
subject of the lease, provided that Party B proves that the new subject of the lease is an associated company of Party B and provides an unlimited joint and
several liability guarantee for the continued performance of this lease by the new subject of the lease.
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11.3 Other serious non-compliance
In the event of any serious breach of contract by Party B as stipulated in the following clauses or other circumstances of termination as agreed in this
contract, Party A shall have the right, in addition to exercising its rights under the law, to unilaterally terminate this contract and require Party B to pay 20%
of the total rent and property charges for the remaining term of the lease, and to compensate Party A for any loss suffered as a result (including but not
limited to legal fees, litigation costs, vacant premises (including but not limited to attorney’s fees, court costs, rent, management and air-conditioning fees
and other costs that Party A could have collected under the provisions of this contract during the period of vacancy, as well as the investment leasing costs
incurred in leasing the premises to a new tenant, etc.) and the security deposit received by Party A shall not be refunded.
11.3.1 if Party B is 30 days overdue in the occupation procedures from the commencement date of the lease (including failure to pay the down payment or
security deposit, failure to hand over the premises to Party A, etc.).
11.3.2 if Party B demolishes or renovates the Premises (including ancillary facilities) or changes the use of the Premises without the written consent of
Party A.
11.3.3 if Party B engages in any illegal or unlawful activity in the premises.
11.3.4 if Party B’s conduct seriously violates relevant national standards or regulations, causing serious impact on the environment of the Park or other
customers, or if Party A requests Party B to rectify the situation within a specified period and Party B still fails to do so within the period limited by Party
A.
11.3.5 without our written consent, Party B sublets the premises, transfers the tenancy of the premises or exchanges the respective tenancy with others, or
increases or changes the registered business in breach of contract.
11.3.6 Any other material breach of this Agreement by Party B.
11.4 Waiver of rights
Where Party A understands that a breach of contract has occurred and accepts the rent, this shall not be deemed to be a waiver of Party A’s right to
pursue the breach. If Party A waives any of its rights under the terms and conditions of this contract, such waiver shall only be made on the basis of Party
A’s written seal and any payment of rent or other sums by Party B which is not in full, even if Party A accepts the payment in full, shall not be deemed to
be Party A’s consent to Party B’s payment in reduced amount, nor shall it affect Party A’s right to recover the shortfall in rent or arrears, nor its right to take
other measures as provided for in this contract or by law.
12. Applicable law and dispute resolution
12.1 The laws of the People’s Republic of China shall apply to this Contract.
12.2 Disputes arising from the performance of this contract shall be settled by friendly consultation between the parties; if consultation fails, both parties
may sue in the People’s Court where the house is located.
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13. Force majeure
Chapter 6 Other Agreements
13.1 Force majeure as referred to in this contract refers to flood, typhoon of grade 8 or above, earthquake, war, change in government planning and other
events that are unforeseeable, insurmountable and beyond the control of either party to the contract. The party proposing force majeure must inform the
other party 24 hours after the end of the force majeure and produce a documentary proof from the relevant local government department within 15 days
after the occurrence of the force majeure.
13.2 In the event of a force majeure event causing damage to the leased property which cannot be used normally, Party A shall repair the property as soon
as possible and shall be exempt from paying rent during the repair period, and shall continue to calculate the rent after the leased property is restored to use,
and the validity of the contract shall be postponed accordingly; in the event of a force majeure event causing damage to the leased property which cannot be
repaired, both parties shall have the right to terminate the contract without assuming any responsibility.
13.3 If force majeure ceases or its effects are naturally removed, the contract shall continue to be performed from that date and its validity shall be extended
accordingly.
13.4 The party who suffers an event of force majeure shall take effective measures to prevent the extension of the damage, failing which it shall be liable
for the extended portion of the damage.
14. Confidentiality
Neither party shall disclose to third parties the contents of this contract and the trade secrets of the other party known to it in the course of the
conclusion and performance of this contract, whether or not this contract is concluded and performed, and this clause shall survive the termination of this
contract.
15. Notification
The usual form of notice to be given by either party in fulfilling its obligations under this contract shall be in writing.
Notice given by one party to the other in the course of the execution of this contract shall be deemed to be valid service of notice when served in
writing by hand, courier, post (including registered or EMS), fax, e-mail or conspicuously posted at the door of the leased premises. The date of service of
the notice shall be determined in accordance with the following principles.
(1) Dedicated, courier: delivery is deemed to take place on the day it is handed over to a dedicated person or courier.
(2) By post: delivery is deemed to take place on the third calendar day of dispatch by registered post or EMS.
(3) Fax, e-mail: delivery is deemed to occur at the same time as the fax machine or e-mail shows successful delivery.
(4) Posting at the door: service is deemed to be effected by the third calendar day of posting.
From the date of actual delivery to the date of completion of the surrender procedures, the address of the premises leased by Party B shall be Party B’s
contact address. In the event that Party A’s relevant notice cannot be served directly to Party B (including and not limited to Party B’s whereabouts
unknown or refusal to accept), Party A shall be deemed to have served the notice if it is sent to such address by courier or EMS, and the date of signature or
refusal shall be the date of service.
During the term of this contract, if one party changes its contact address, telephone number, fax number or addressee in the Contract Basic
Information Form attached to this contract, it shall notify the other party in writing within 3 days of the change, otherwise the responsibility and
consequences of any resulting non-delivery or undeliverability shall be borne by that party.
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16. Declaration of the Parties
Both parties have full civil capacity at the time of signing this contract, and both parties have fully negotiated and informed each other about the terms
and conditions involving their respective rights and obligations and reached a consensus; both parties are willing to perform in accordance with the
agreement of this contract, and the party in breach is willing to accept the other party’s breach of contract to pursue.
17. Integrity of the contract
This contract and its annexes are the final and complete contract between the parties in respect of the lease of the premises and supersede all previous
or contemporaneous understandings and agreements reached between the parties in this regard. This contract shall not be amended without the written
consent of both parties; any matters not covered by this contract shall be settled by separate negotiations between Party A and Party B and a supplementary
agreement shall be signed, which shall have the same legal effect as this contract.
18. In this contract, unless the context otherwise requires, the following interpretation shall apply.
18.1 The numbering of entries in this contract and their headings are for convenience of reference only and shall have no effect in the interpretation of this
contract.
18.2 The Annexes hereto shall be an integral part hereof; references to “clauses”, “paragraphs” and “annexes” hereto shall be construed as clauses,
paragraphs and annexes hereto. The term “this Contract” shall include the Annexes hereto and such modifications thereafter as the Parties may from time to
time agree in writing.
18.3 references to “this Contract” or any of its terms or to any other document shall be construed as including the version in force at that time as modified,
varied, updated or supplemented.
18.4 The Chinese language shall be the dominant language for the writing, interpretation and explanation of this contract; in the event of different
interpretations of the text in different languages, the Chinese text of the contract shall prevail.
19. This contract is made in oneRampant One copy to be executed by Party A II Party A and Party B II The contract shall take effect after it has
been signed or sealed by both parties.
20. The annexes to this contract include the following: Annexes.[1. “Basic Information Form of the Contract”, 2. “Schedule of Rental Property Fee
Payment”, 3. “Standard for Restoration of Original Condition”; if the content of the annexes is inconsistent with the main contract, the content of the
annexes shall prevail in execution.]
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IN WITNESS WHEREOF the parties have entered into the following.
Party A: (seal)
Party B: (seal)
Legal representative/authorised representative:
Legal representative/authorized representative:
Head of Operations:
2021.11.12
Head of Operations.
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Annexes.
Lessees
Contact
number
Contact
address
Lease of
premises
House use
Lease term
Rental unit
price
Unit price of
property
charges
Unit price of
electricity
Unit price of
water
Communication
Fee
Water,
electricity and
heating costs
outside Party
B’s leased area
Secondary
renovation
costs
Air
conditioning
delay charges
Car park
management
fee
Electricity
Capacity
Increase
Charges
Basic Contract Information Form
CLPS Dalian Co., Ltd.
041182410800/13898687842
Email
Postcode
Room #01-01/02/03/04, 1st Floor, No. 1, Huixian Park, Qixianling, Dalian Hi-Tech Industrial Park, Liaoning Province
5/F, #501-503/504-506/507, 30 Cuitao Street, High-tech Park
Building area
1388.45 sqm
Business office use in software-related industries
2021-12-31 to 2024-12-30
Rental and other rates
1.60RMB/calendar day*sqm, rent does not include electricity and communication costs.
RMB 1.00/calendar day*sqm
RMB1.05/kWh, and in case of government adjustment of electricity tariff during the lease period, the standard will be implemented
according to the corresponding adjusted range.
RMB4.60/t, if the government adjusts the water price during the lease period, the standard will be implemented according to the
corresponding adjusted range.
Payable by Party B to the relevant communications operator
Included in rent and property management fees
Prior to the commencement of the renovation by Party B, Party A will charge the following renovation management fees based on
the leased floor area of Party B.
Renovation deposit (refundable) RMB20/m2 , renovation management fee (non-refundable) RMB5/m2 , temporary electricity fee
(refundable) RMB5/m2, temporary water fee (non-refundable) RMB1/m2.
Refrigeration: RMB300/hour
Heating: RMB100/hour
The car park charges of the building will apply.
If the demand for electricity in the leased room of Party B exceeds the design standard of the building, Party B may apply to Party A
for additional capacity at a charge of RMB300/KW, and Party B shall pay the additional capacity fee in one go before the
construction of the additional capacity. Party B’s capacity increase plan shall be approved by Party A before construction, and Party
B shall be responsible for the capacity increase construction and bear the construction cost.
16
Performance bond
Rent and property
management fees
Total amount
Rent and property
management fees
Payment methods
The total amount of rent and property charges for 90 calendar days shall be paid by Party B to Party A together
with the down payment, i.e. (in capital letters): Three hundred and twenty thousand, eight hundred and ninety-
seven dollars and thirty cents (RMB324,897.30)
1. The total amount of rent and property management fee payable (in capital letters) is: $3,956,527.11 (RMB
3,956,527.11)
2. Discount during the lease period: Three hundred and eighty thousand, four hundred and thirty-five dollars and
thirty cents (RMB 380,435.30)
3. The actual total amount of rent and property management fees payable (in capital letters) is: $3,576,091.81
(RMB 3,576,091.81)
The total amount of rent (in capital letters) is: Two Million Five Hundred and Fifty Thousand Three Hundred and
Fifty Dollars and One Cent (RMB 2,054,350.61)
The total amount of property charges (in capital letters) is: One Million Five Hundred and Twenty Two Thousand
Seven Hundred and Forty One Yuan and Two Cents (RMB 1,521,741.20)
Prepaid on a [every three months] payment cycle, i.e.
1, 2021-11-18 before the payment (capital): one hundred and twenty-two thousand two hundred and ninety-five
yuan and eighty cents (¥ 622,905.18 yuan);
The total amount of rent (in capital letters) is one hundred and seventy-one thousand one hundred and ninety-nine
yuan and four cents (RMB 171,196.04);
The total amount of property charges (in capital letters) is: one hundred and twenty-two thousand, one hundred
and eighty-one yuan and eighty cents (RMB 126,811.84); the period of representation is: 2021-12-31 to 2022-03-
27; the
performance guarantee (in capital letters) is: three hundred and twenty-two thousand, one hundred and eighty-
nine yuan and three cents (RMB 324,897.30)
2. In addition to the first installment of rent and property charges, Party B shall pay to Party A the rent and
property charges for the next payment cycle before the end of each payment cycle, details of the payment
schedule and fee rates are set out in the Schedule of Payment of Rent and Property Charges in Annex II.
Party A shall provide Party B with a valid invoice for the same amount within 15 calendar days after confirming
receipt of the full rent and property management fee for the respective representative period. If Party B pays by
telegraphic transfer, the time of acknowledgement of receipt of the rent and property management fee shall be the
date when the bank issues the telegraphic transfer voucher.
Account: Received by: CLPS Dalian Co., Ltd.
Bank of Account: ICBC Dalian Friendship Square Sub-branch
Account number: 3400203419300134615
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Existing facilities and finishes in the house
Central air conditioning
Concrete floor
Light fittings, switches, sockets
Wall Wall
Sky Shed
Communication facilities
Good
Good
Good
Emulsion paint and glass textures, good
Good
Voice and network access available
Property Services
1、 Security services: regular tour management of security in the outside areas of the building; 24-hour monitoring and management of fire fighting and
surveillance facilities.
2、 Cleaning services: daily cleaning of public areas outside the building and outside Party B’s leased area within the building; greening of public areas;
disinfection and pest control inside and outside the building; external curtain wall cleaning.
3、 Maintenance and repair: maintenance and management of public facilities and equipment in the building.
4、 Business services: mail collection and delivery, newspaper subscriptions.
5、 Ancillary services: heating services are provided from 8:00 am to 18:00 pm Monday to Friday during the heating period set by the government, except
for statutory holidays, and central air-conditioning delivery and cooling services are provided from 8:00 am to 18:00 pm Monday to Friday during the
period from 15 May to 15 September each year.
6、Other services: Party B enjoys the production of the company name on the water sign in the hall during the lease period when it first moves in.
Refer to Annex III of this Agreement: Standards for Restoration to Original Condition
In-situ restoration standards
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Remark
On the basis of compliance with the terms and conditions of this contract, both parties hereby confirm the following additional concessions.
Party A has the right to grant Party B corresponding concessions (including but not limited to renovation period, rent-free period, etc.)
according to its own commercial judgment and operational needs. Party B shall not be entitled to any preferential terms granted by Party A. In
addition to the liability for breach of contract as stipulated in Chapter 11 of this contract, Party B shall also pay to Party A the full amount of the
preferential terms enjoyed before the termination of the contract.
On the basis of compliance with the terms and conditions of this contract, both parties, after friendly consultation, agree to make the following
amendments and adjustments to the contents of the contract.
The last sentence of Article 1.2 shall be amended to read: Party A shall be responsible for compensating for any damage caused to Party B. If
the contract cannot continue to be performed, Party A shall pay Party B liquidated damages at 20% of the total rent and property charges for the
remaining term of the lease.
The first paragraph of Article 3.3.2 shall be amended to read: Party B shall ensure that the original decoration (including the ceiling) and
facilities of the premises are intact (except for natural damage). If at the end of the lease term Party B finds an interested tenant who agrees to
lease the premises in accordance with the current state of the premises (i.e. the condition that has not been restored after renovation by Party B),
Party B does not need to restore the premises to its original state and can directly handle the handover procedures with Party A and the third
party in accordance with the current state of the premises at that time, and the three parties will sign a separate agreement and agree in such
agreement that the third party will restore the room to the condition as set out in Annex III to this contract, “Standards for Restoration to
Original State”, upon surrender of the lease. Standards for Restoration to Original Condition”.
4.1.2 Add at the end of clause 4.1.2: If Party B is unable to move in on time due to Party A, the term of the lease shall be extended accordingly.
If Party B is late in moving in for [15] days due to the aforesaid reasons, Party B shall have the right to unilaterally terminate this contract and
request Party A to return all the rent and property management fees paid by Party B and pay Party B liquidated damages at the rate of 0.1% per
day on the basis of such fees, with the liquidated damages being calculated from the date of actual payment of such fees by Party B to Party A to
the date of actual return of such fees by Party A to Party B. The liquidated damages shall be calculated from the date of actual payment of such
fees by Party B to the date of actual return of such fees by Party A to Party B.
Article 4.2.2 is amended to read: Party A shall reply to Party B’s application for renewal of the lease within 10 working days upon receipt of
the application, and if both parties agree to renew the lease, both parties shall sign a renewal contract one month before the expiry of the lease.
Party A shall sign a supplementary renewal contract with Party B as soon as possible.
The first sentence of Article 4.2.4 is amended to read: If Party B does not intend to renew the lease, or if for reasons attributable to Party B,
the parties fail to sign a renewal contract one month before the expiry of the lease.
Article 7.8 is amended to read: During the lease period, Party B shall pay attention to property and personal safety, Party B is the first
responsible person for fire safety and the ultimate responsibility bearer, notwithstanding the foregoing agreement, Party A shall ensure that the
fire safety facilities of the house itself meet the statutory safety standards, and any personal and property safety accident caused by the fault of
Party B shall be borne by Party B itself, and any personal and property safety accident caused by the fault of Party A shall be borne by Party A
itself. If both parties are at fault, they shall be held responsible according to their respective degrees of fault, and if both parties are not at fault,
they shall be held responsible in accordance with the provisions of the law. Any loss caused to Party A shall be compensated.
The first sentence of Article 9.4 should read: Party A proposes that Party B’s office area before and after renovation should be not less than
10 square metres of floor space per person. The date of service of the notice in the case of article 15 (1) and (2) is amended to read: “Service is
deemed to have taken place on the date of signature by the addressee.
19
Annex II.
Projects
Payment
Period
Payable
Deadline
Duration of
representation
Start
Stop
Rent
payable
Property
fees payable
Rental Property Fee Payment Schedule
Compliance Guarantee
Rent Property Fee
Total
1
1
2
3
4
5
6
7
8
9
10
11
12
-
2021-11-18
2021-12-31
2024-12-30
-
-
2021-11-18
2022-03-01
2022-06-01
2022-09-01
2022-12-01
2023-03-01
2023-06-01
2023-09-01
2023-12-01
2024-03-01
2024-06-01
2024-09-01
2021-12-31
2022-03-28
2022-06-28
2022-09-28
2022-12-28
2023-03-28
2023-06-28
2023-09-28
2023-12-28
2024-03-28
2024-06-28
2024-09-28
2022-03-27
2022-06-27
2022-09-27
2022-12-27
2023-03-27
2023-06-27
2023-09-27
2023-12-27
2024-03-27
2024-06-27
2024-09-27
2024-12-30
171,196.04
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
171,195.87
126,811.84
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
126,811.76
Fees
payable
Subtotal
324,897.30
622,905.18
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
298,007.63
-
-
-
2,054,350.61
1,521,741.20
3,576,091.81
20
Annex III.
一、 Civil, renovation component.
In-situ restoration standards
1. Flooring: removal of carpets (floor coverings, flooring, partitions, etc.), removal of ground penetrations, etc., restoration to concrete floors
and ensuring that the floors are level and free of glue stains.
2. Walls: surface potholes and holes filled in, large white walls need to be treated as a whole and restored to a white wall with a neat, even
colour and no run-off etc.
3. Shed surface: flat keel, neat and undamaged mineral wool board (mineral wool board using the original brand of the building or a brand of
the same grade).
4. Other: doors and windows should be removed, and doors and windows should be opened, closed and locked properly, and the glass should
be clean and tidy; changes to the building’s architecture and structure should be restored to the original state of the building.
二、 Electrical section.
1. The grille lights that are displaced are restored to their original position in the building (with reference to the original drawings of the
building, the replacement grille lights are restored to the original brand of the building or to a brand of the same grade), the installation is
smooth and the fluorescent tubes are bright and neat.
2. The hangers of the relocated grilles are secure, properly fixed and free from looseness and shaking.
3.
roof and wall strong and weak power lines finishing, to ensure that the lines are in the line groove, line pipe, no exposed lines, line pipe,
line groove fixed well, across the earth wire connection is secure and reasonable.
4. Ensure that the wiring in the distribution box is regular, the air switch is normal and tidy, and the distribution box meets the requirements of
the building.
5. Wall switches (relocated switches restored to the building’s original position) are in working order and tidy.
三、 Air conditioning section.
1. Displacement of fan coils (ceiling-mounted multi-connector panels), restoration of air outlet positions to the original position in the
building (refer to the original drawings of the building) and ensuring that the return air outlet filters are clean.
2. Displacement of the three-speed switch to its original position in the building (the replacement three-speed switch is restored to the original
brand of the building or to a brand of the same grade) and to ensure that its various control switches are in order and that the panel is tidy.
3. The fan coil motor starts, stops and changes speed normally, without any unusual noise.
四、 Firefighting section.
1. Restore the building to its original position after spraying has been moved to meet fire protection requirements, free from dirt and leaks.
2. Modified fire protection pipework to meet fire protection requirements, with reasonable hanger configurations, firm and free from leaks.
3. The smoke sensor is relocated and restored to its original position in the building (the new additional smoke sensor is removed and restored
to the original logic of the original fire mainframe in the building) to meet the fire protection requirements, and the smoke signal and
feedback is normal.
4. The layout of the room after restoration meets the requirements of the fire code.
Note: The above standard descriptions are subject to the original drawings of the building if they are not exhaustive.
21
22
23
Exhibit 10.17
No:98842022280035
SPD BANK
contract for loans of working capital
Borrower: ChinaLink Professional Services Co., Ltd.
Principal business address：2nd floor, building 18, No. 498, GuoShouJing Road, Pudong New Area, Shanghai
contract for loans of working capital
The contact：Lisa Wu
Fax：/
Lender：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Principal business address：No.509 Jinqiao Road, Pudong New Area, Shanghai
The contact：Lin Xie
Whereas;
Tell：021-31268010
Email：lisa.wu@clpsglobal.com
Tell：021-58994702
the borrower applies to the lender for working capital loan due to capital turnover needs; Upon review, the Lender agrees to release the loan in
accordance with the terms and conditions of this Contract. In order to clarify the rights and obligations of both parties, both parties hereby enter into this
Contract for compliance with the relevant laws, regulations and rules of the People's Republic of China through mutual agreement.
At the same time, the borrower and the lender confirm the following principal terms (please select in the box below according to the situation, tick X if
not selected);
☒ This contract, as the number of a/financing bottle degree of agreement (hereinafter referred to as the credit line agreement) affiliated with the
financing documents signed, this contract comes into force, all its terms and conditions are incorporated into the financing credit agreement, and as a part
of (if the borrower have previously signed the melt line agreement, should choose the project, and indicate the credit line agreement number);
þ This contract is an independent credit document signed between the borrower and the lender (this item should be selected if the borrower and the
lender have not signed the financing line agreement);
☒ The guarantor has been informed that the purpose of the loan under this contract is to repay the loan under the original contract name: Date of
signing: No: .(Select this item if the purpose of borrowing is to repay the old or renew the loan)
The Part One Commercial terms
1. Types of Loans: þ Short-term working capital loans ； ☐ mid-term liquidity loan,
2.
3.
4.
loan amount under this contract is RMB(currency) 10 million
the specific use of loan under this contract as follows: payroll
the time limit for the loan under this contract (in the following box, please, don't choose to play x)
þ since 26th Jan 2022 to 25th Jan 2023.
☒ From the date of first withdrawal _/ year（or/ months）
The actual withdrawal date and repayment date shall be the date recorded on the ious (loan certificate) issued by the lender and the borrower. The last
repayment date shall not exceed the loan term agreed herein. The loan (loan certificate) is an integral part of this contract.
5．The interest rate of the loan under this Contract is (please tick V in the box below and x if not)
þ (1) the RMB loans Interest Rate :
Each loan under this Contract shall be issued according to the loan market quoted APR (term) -1 BPS published by The National Inter-Bank Lending
Center at the end of the day prior to the actual date of loan issuance. If the calculated interest rate is less than 0%, it shall be implemented as 0%. (The
quoted market interest rate is the annual interest rate, which can be found through the National Inter-bank Lending Center and the website of the People's
Bank of China)
After each loan is issued, if the quoted interest rate of the loan market is adjusted during the loan term, the loan interest rate (please put a in the box
below and x in case of non-I):
þ Fixed interest rate without adjustment;
☒ Since interest rates adjust interest rates to adjust interest rates before a complex day by day the national interbank funding center published in this
article the contract term loan market quotation rate (LPR) as the base, the way of fixed interest rate floating point and calculating constant, specific interest
rates adjust below (please v is selected in the following box, does not escape the x) :
☒ The interest rate is adjusted by year, and the interest rate adjustment day is the corresponding day of the actual loan issuing date in the corresponding
month of the next Gregorian calendar year. If there is no corresponding day of the actual loan issuing date in the corresponding month of the next
Gregorian calendar year, the interest rate adjustment day is the last day of the actual loan issuing date in the corresponding month of the next Gregorian
calendar year:
☒ Adjust the interest rate according to year, the interest rate adjustment date is January 1 of each year；
☒ Adjust the interest rate according to the interest settlement date, and the interest rate adjustment day is the next day of the interest settlement date；
☒ Quarterly adjustment of interest rate, interest rate adjustment day for the end of each quarter on a monthly basis,；
☒ interest rate adjustment day for a monthly/daily
☒ other agreement (specific interest rate adjustment day),
☒ (2) interest rate of foreign currency loan;
each loan under this Contract will be issued at the rate of ___(LIBORAHIBORSIBOR) published by the Lender on the date of disbursement plus/BPS.
☒ After each loan under this joint venture is issued, the loan interest rate shall be adjusted by .
☒ Fixed rate, that is, the interest rate is not adjusted.
6. The method of loan settlement under this Contract is (please check the box below/tick X if not selected):
☒ On a monthly basis, the settlement date is the second +(20) day of each month；
þ Quarterly, then the settlement date is the twentieth (20th) day of the last month of each quarter:
☒ Other methods:
And each repayment interest under this contract is clear with this.
7. Penalty interest rate under the Contract is:
(1)
(2)
This overdue penalty interest rate shall be applied at the loan execution rate applicable on the date of penalty interest collection plus 30 %.
If the loan is not used in accordance with the purpose agreed herein, the penalty interest rate will be calculated and the loan execution interest
rate applied on the penalty interest date shall be charged plus 50%.
8. The drawdown period of the loan under the Contract is from Jan 26, 2022 to Jan 31st, 2022. The first withdrawal shall be made before Jan 31st, 2022.
9. The withdrawal plan for the loan under this Contract is as follows (please select √ in the box below, tick X if you do not select)
the withdrawal plan is shown in the table below：
NO
1
The withdrawal date
On withdrawals
☒ Other withdrawal plans: one-time withdraw.
10. The repayment plan of the loan under this Contract is as follows (Please tick √ in the box below, if not, tick x)
NO
1
Repayment date
Reimbursement amount
☒ Other withdrawal plans: one-time withdraw.
11. Liquidated damages for loan repayment in advance; Equivalent to 0% or RMB(currency) 0 the actual amount of loan repaid in advance
12. The principal amount of loan repayment in advance shall not be less than RMB(currency) 0
13. Account opening (select one of the following modes for RMB loans, select the special account mode for foreign currency loans, and mark X for those
not selected)
þ Unsegregated account mode：
(1) The general settlement account opened by the borrower with the lender is:
Bank：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name：ChinaLink Professional Services Co., Ltd.
Bank account number: 98840078801600002917
(2) the borrower's fund recovery account opened with the lender is:
Bank：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name：ChinaLink Professional Services Co., Ltd.
Bank account number: 98840078801600002917
☒ Special Account mode
(1) The special account for working capital loan opened by the borrower with the lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
(2) The general settlement account opened by the borrower with the lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
(3) The Borrower's fund recovery account opened with the Lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
14. Entrusted Payment by the Lender: if the payment object is clear and the single managed payment amount exceeds (currency amount) the loan fund
payment, the entrusted payment method of the Lender shall be
15. The guarantors and security contracts providing security for the debt hereunder include but are not limited to：
☒ The guarantor ____/_________ 《guaranty contract》NO[ ]
☒ The mortgagor ____/_________ 《Mortgage contract》NO[ ]
☒ The pledger ____/_________ 《Pledger contract》NO[ ]
☒ Other guarantee ____/_________
16. Breach of contract liquidated damages. It is equivalent to zero percent of the principal amount borrowed or__ / .
17. Annexes to this contract include:
(1) 《Application for withdrawal》
(2) 《________/______________ 》
(3) 《________/______________ 》
(4) 《________/______________ 》
(5) 《________/______________ 》
18. Other matters agreed upon by both parties
None / .
19. This Contract is made in three originals, one held by the borrower and two held by the lender, each of which has the same legal effect.
(End of Part I)
The Part Two General terms
Article 1 borrowing
1.The Borrower irrevocably agrees and confirms that the Lender has the right to change due to laws, regulations and policies, or to be restricted by the
macro-monetary or financial regulatory policies of the government, or to be subject to market conditions. The borrower may suspend, reduce or cancel the
loan and notify the borrower if the conditions for granting the loan are adjusted or increased in consideration of its capital position and financial cost, its
own business needs, the borrower's performance ability or financial condition, or other major changes occur.
2. The compensation hereunder shall be used in accordance with the loan purposes agreed herein. The Borrower shall not misappropriate or occupy the
loan for fixed asset investment, equity investment, etc., or use the loan in fields and purposes prohibited by the state or other activities inconsistent with
working capital loan purposes
Article 2 borrowing rate and interest calculation method
1. Unless otherwise agreed herein, the loan interest hereunder shall be calculated and collected in accordance with the actual amount of
withdrawal and the number of days occupied by the Lender from the date of loan issuance. Occupied days include the first day, excluding the
last day. Daily interest = monthly interest rate /30, monthly interest rate = annual interest rate 12.
2. The Lender has the right to pay the unpaid principal of the loan due to the Borrower (the term "due" in this Contract includes the case where
the Lender declares the loan to be due early), and the overdue penalty interest shall be calculated and collected according to the retroactive
interest rate agreed herein according to the actual overdue days from the overdue date until the principal and interest of the borrower are paid
off
3.
If the borrower fails to use the loan funds for the agreed purposes, the lender shall have the right to use the amount of loan box for breach of
contract. Since the date of breach, the penalty interest shall be calculated and collected according to the penalty interest rate for
misappropriation agreed herein according to the actual days of breach until the borrower pays off the principal and interest.
4. The Lender shall, from the date on which the borrower fails to pay the interest on time (including the normal total interest, overdue penalty
interest and misappropriated penalty interest), compound the interest according to the overdue penalty interest rate agreed herein according to
the actual overdue days.
5.
Interest rate market paralysis If there is no APPLICABLE LPR (applicable in RMB) or LIBOR/HIBORSIBOR (applicable in foreign currency)
interest rate on the quoted date of the relevant interest period after the loan is issued under this Contract, the Borrower shall negotiate with the
Lender to determine an alternative interest rate; If no agreement can be reached within five (5) banking business days from the commencement
of the negotiation, the borrower shall repay the principal and interest of the loan in full within thirty (30) banking business days from the date
of such agreement.
1. before the first withdrawal, the borrower shall meet the following conditions:
Article 3 withdrawal
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) This contract and the corresponding guarantee contract (if any) have been signed and remain valid, and the security right has been effectively
established;
(3) Submit the borrower's current valid business license, articles of association and recent financial statements on the withdrawal date (including
but not limited to the annual financial report and current statements audited by certified public accountants in the previous year):
(4) Submit the loan resolution made by the borrower’s board of directors / shareholders’ meeting or other institutions with the same effect, the letter
of authorization from the legal representative to the authorized representative and the original signature sample of the legal representative and authorized
representative;
(5) The borrower has opened relevant accounts with the lender according to the lender’s requirements;
(6) The borrower has performed its obligations under the contract without any event of default under the contract;
(7) Other documents or conditions required by the lender.
2. except for the first withdrawal, the borrower shall meet the following conditions before each withdrawal:
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) The representations and warranties made by the borrower under this contract shall remain valid;
(3) The borrower has performed its obligations under the contract without any event of default under the contract;
(4) Other documents or conditions required by the lender.
3. withdrawal
(1) the borrower shall make a one-time withdrawal or installment withdrawal in accordance with the withdrawal plan agreed in the contract, and
submit a withdrawal application (see Annex 1 or annex 2 of the contract for the format) to the lender three (3) banking days before the expiration of each
withdrawal date to go through the withdrawal procedures;
(2) If the borrower needs to postpone or change the withdrawal date, it shall obtain the consent of the lender three (3) banking days before the
expiration of the withdrawal date, and the lender has the right to require the borrower to pay the interest loss suffered by the lender (interest loss: the
interest of the delayed withdrawal period and the interest of demand deposit in the same period);
(3) If the borrower requests to cancel all or part of the undrawn loan, it shall apply to the lender three (3) banking business days before the
determined withdrawal date or the termination date of the withdrawal period, and the cancellation can be carried out only with the consent of the lender;
(4) If the borrower fails to handle the withdrawal procedures within the specified withdrawal date or withdrawal period and fails to apply for
postponement of withdrawal, the lender has the right to cancel the undrawn loan:
The lender has the right to waive one or more of the above withdrawal conditions without affecting any right enjoyed by the Lender under this
contract
Article 4 account opening and management
1. When signing this contract, the borrower shall have opened a general settlement account and capital return account (see part I of this contract) at
the lender, as well as a special working capital loan account (if any) agreed by both parties. The borrower agrees that the lender shall monitor the aforesaid
account of the borrower.
2. If no special working capital loan account is opened, the general settlement account is used to calculate the loan fund issuance and loan fund
payment applied by the borrower at the lender.
If a special working capital loan account is opened, the special working capital loan account is used to calculate the loan fund issuance and loan
fund payment applied by the borrower at the lender, and the funds in the account bear interest according to the current deposit. The borrower agrees that in
addition to the seal reserved by the borrower, the special account for working capital loan shall also reserve the special seal for loan fund payment
supervision of the lender.
Without the written consent of the lender, the borrower shall not change the reserved seal of the special working capital loan account at will.
3. The borrower confirms that the fund return account is the income account and repayment reserve account under the contract. The borrower’s
income cash flow or the borrower’s overall cash flow shall be entered into the capital return account.
The borrower guarantees that the capital balance in the borrower’s repayment reserve account shall not be less than the amount of principal and
interest payable by the borrower in the current period on each principal and interest repayment date under the contract and within three (3) days before
it.The borrower agrees that on each principal and interest repayment date and within three (3) days before it, the lender has the right to restrict or refuse the
borrower’s external payment that will cause the fund balance in the repayment reserve account to be lower than the principal and interest payable in the
current period, so as to ensure that the fund balance in the repayment reserve account is sufficient to pay the principal and interest payable in the current
period.
The lender has the right to monitor the capital return account. In case of abnormal capital flow in the capital return account, the lender has the right
to find out the reasons from the borrower and take corresponding measures.
Article 5 Payment supervision
1. The borrower agrees that the lender has the right to manage and control the payment of the loan funds through the entrusted payment of the
lender or / and the independent payment of the borrower, so as to supervise the use of the loan funds according to the purpose agreed in the contract.
Entrusted payment by the lender means that the lender pays the loan funds through the borrower’s account to the borrower’s trading partner who
meets the purpose agreed in this contract according to the borrower’s withdrawal application and payment entrustment.
Autonomous payment by the borrower means that after the lender issues the loan funds to the borrower’s account according to the borrower’s
withdrawal application, the borrower will independently pay them to the borrower’s trading partner who meets the purpose agreed in the contract.
2. The borrower agrees that if the borrower and the lender have newly established a credit business relationship and the borrower’s credit status is
general, or the payment object is clear and the single payment amount exceeds the amount agreed in the contract (see part I of the contract), or other
circumstances recognized by the lender, the entrusted payment method of the lender shall be adopted.
If the entrusted payment method is adopted, the lender has the right to review whether the payment object, payment amount and other information
listed in the payment application provided by the borrower are consistent with the corresponding business contract and other supporting materials
according to the loan purpose agreed in the loan contract.
After approval, the lender shall pay the loan funds to the borrower’s trading partner through the borrower’s account.
3. When applying to the lender for external payment of loan funds, the borrower shall submit supporting materials meeting the lender’s
requirements, including but not limited to:
(1) documents certifying that the purpose of payment is in accordance with the purpose agreed in the contract:
(2) Business contracts and written documents that truly reflect the borrower’s payment obligations. For the expenses that must be paid without
signing the contract, the charging policy and standard approved by the competent department shall be provided;
(3) If the corresponding invoices or receipts cannot be obtained at the same time of payment, the borrower shall timely submit the corresponding
invoices or receipts for the use of funds after the completion of payment;
(4) Legal and valid payment voucher:
(5) Other documents required by the lender.
The lender has the right to waive one or more of the above supporting materials without affecting any rights enjoyed by the Lender under this
contract
4. If the special account for working capital loan is not opened, the borrower shall submit the withdrawal application to the lender three (3) banking
days before the proposed withdrawal date (see Annex 1 of the contract for the format), and propose whether to adopt the entrusted payment method of the
lender or the independent payment method of the borrower. The borrower confirms that the lender has the right to review whether the relevant information
of the borrower meets the payment conditions agreed in the contract, and has the right to decide the payment method of the corresponding loan.
If the special account for working capital loan is opened by the entrusted payment method of the lender, the borrower shall submit the payment
application with the reserved seal of the borrower of the special account for working capital loan (see Annex 3 of the contract for the format) to the lender
three (3) banking days before the payment date. The lender has the right to review whether the relevant information of the borrower meets the payment
conditions agreed in this contract. If the lender approves, it shall stamp the special seal for loan fund payment supervision on the payment voucher before
making external payment. If the borrower’s independent payment method is adopted, the borrower shall submit the payment application (see Annex 3 of
the contract for the format) and relevant materials to the lender three (3) banking days in advance. The lender has the right to review whether the relevant
materials submitted by the borrower meet the conditions agreed in the contract.If the lender approves, the borrower shall fill in the payment voucher (the
amount of each summary payment voucher shall not exceed the entrusted payment amount of the lender agreed in this contract).After review, the lender
shall affix the special seal for loan fund payment supervision on the summary payment voucher, and transfer the corresponding funds to the borrower’s
general settlement account.
5. If the borrower’s autonomous payment method is adopted, the borrower shall regularly summarize and report the autonomous payment of loan
funds to the lender every month. The lender has the right to verify whether the borrower’s loan payment meets the agreed purpose and payment method
through account analysis, voucher inspection, on-site investigation, etc.
6. The borrower confirms that it shall pay to the lender the remittance fee arising from the payment of funds. When the remittance fee occurs, the
lender has the right to deduct it directly according to the actual amount.
7. In the process of loan issuance and payment, if any of the following circumstances occurs to the borrower, the lender has the right to require the
borrower to supplement the withdrawal conditions and payment conditions, or change the loan payment method and stop the issuance and payment of loan
funds:
(1) declining credit status;
(2) The profitability of main business is not strong;
(3) Abnormal use of loan funds.
Article 6 repayment
1. the borrower shall timely and fully repay the principal, interest and relevant expenses of the loan according to the repayment plan agreed in the
contract. The borrower hereby irrevocably authorizes the lender to actively deduct the above amount from its account opened with the lender on the
maturity date of the loan or when the conditions agreed in the contract are met to repay the creditor’s rights of the lender.
2. If the borrower repays the loan in advance, it shall submit a written application to the lender and obtain the written consent of the lender before
the tenth (10th) banking business day before the expected repayment date. Without the prior written consent of the lender, the borrower shall still repay the
principal and interest according to the time limit and interest rate agreed in the contract.
The prepayment agreed by the lender shall be deemed as the prepayment of the loan. In this case, the lender also has the right to require the
borrower to pay certain liquidated damages in accordance with the contract (see part I of the contract).
In case of early repayment of the loan, the interest shall be calculated according to the actual number of days used by the borrower and returned
together with the principal; The principal amount of early repayment shall not be less than the limit agreed in part I of this contract; The principal returned
shall be offset against the loan principal in the reverse order of the repayment plan agreed in this contract.
3. If the borrower is unable to repay on schedule for justified reasons, it shall apply to the lender for loan extension before the thirtieth (30th)
banking business day of the repayment period agreed in this contract, and prepare necessary materials to go through relevant extension procedures. If the
loan under this contract is guaranteed, mortgaged or pledged, the guarantor, mortgagor and Pledgor shall also issue a written consent certificate. The lender
shall decide whether to agree to the extension. If the borrower does not apply for extension or the application for extension is not approved by the lender,
the loan shall be transferred to the overdue loan from the next day of the maturity date.
4. The borrower shall not withdraw any returned loan funds again.
Article 7 representations and warranties
The borrower makes the following representations and warranties to the lender, which are made at the time of signing this contract and remain valid
during the validity of this contract.
1. The borrower is an enterprise (institution) legal person and other economic organization established in accordance with its applicable law, with
independent legal personality, complete financial system and repayment ability, and has the right to conclude and perform this contract according to law.
2. The borrower has the right to sign this contract and has completed all authorizations and approvals of the board of shareholders, the board of
directors or other competent authorities required for signing this contract and performing its obligations under this contract. All terms of this contract are
the true intention of the borrower and are legally binding on the borrower.
3. The signing and performance of this contract shall not violate the laws that the borrower shall abide by (the laws under this contract include the
laws, regulations, rules, local regulations, judicial interpretations, etc., the same below), the relevant documents, judgments and rulings of the competent
authorities, nor the articles of association of the borrower or any contract it has signed Conflict with the agreement or any other obligations undertaken.
4. The borrower guarantees that all financial statements (if any) issued by it comply with the provisions of applicable laws and that the statements
truly, completely and fairly reflect the financial situation of the borrower.
5. In the process of signing and performing this contract, the borrower abides by the principle of honesty and trustworthiness, and all materials,
documents and information (including but not limited to business license, project approval documents, feasibility study report, self raised funds
implementation certificate, financial statements, etc.) provided to the lender, including itself and the guarantor, are true, effective and accurate Complete
without any concealment or omission.
6. The borrower guarantees to complete the filing, registration or other procedures required for the effectiveness and legal performance of this
contract.
7. Since the issuance of the latest audited financial statements, there has been no significant adverse change in the borrower’s operating and
financial conditions.
8. In business activities, strictly abide by laws and regulations, carry out various businesses in strict accordance with the provisions of the
borrower’s business license or the business scope approved according to law, go through the registration and annual inspection procedures on time, the
production and operation are legal and compliant, have the ability of sustainable operation and have a legal source of repayment.
9. Do not give up any due creditor’s rights, nor dispose of the existing main property free of charge or in other inappropriate ways.
10. The borrower has disclosed to the lender what it knows or should know and decided whether to grant the loan under this contract
Important facts and conditions (including but not limited to business status, financial status, external guarantee, etc.).
11. The borrower guarantees that it is in good credit condition and has no major bad record.
12. The borrower guarantees that there are no other circumstances or events that have or may have a material adverse impact on the borrower’s
performance ability.
The borrower and the lender agree as follows:
Article 8 covenants
1. The borrower guarantees to operate in accordance with the law, use the loan for the purpose agreed in this contract and not misappropriate it for
other purposes. The borrower shall regularly provide various relevant financial and accounting materials, including monthly and annual statements, as
required by the lender, and actively cooperate with the loan The borrower shall supervise the use of the loan and the operation of the borrower. The lender
may inspect and supervise the use of the loan in various ways at any time.
2. The borrower shall repay the principal and interest of the loan under the contract according to the time, amount, currency and interest rate
specified in the contract, application and loan (loan) certificate.
3. The borrower guarantees that once any event occurs or will occur that is sufficient to have a significant adverse impact on the financial condition
of the guarantor or its ability to perform the guarantee obligations, the borrower will timely provide a new guarantee approved by the lender.
4. The borrower promises that the borrower will not take the following actions without the written consent of the lender:
(1) Transfer (including sale, gift, debt repayment, exchange, etc.), mortgage, pledge or otherwise dispose of all or most of its major assets;
(2) Contracting, joint venture, major foreign investment, change of actual controller or major shareholder, shareholding reform, merger (merger),
joint venture (cooperation), division, equity transfer, substantial increase of debt financing, establishment of subsidiaries, property right transfer, capital
reduction, suspension of business, dissolution, application for bankruptcy Reorganization or cancellation and other acts that may affect the borrower’s
repayment ability;
(3) Provide the third party with a guarantee sufficient to have a material adverse impact on its financial condition or its ability to perform its
obligations under the contract;
(4) Paying off other long-term debts in advance and may have a significant adverse impact on the borrower’s ability to perform its obligations
under the contract;
(5) Sign contracts / agreements or undertake relevant obligations that have a significant adverse impact on the borrower’s ability to perform its
obligations under the contract.
5. The borrower promises that when the following events occur, the borrower will immediately notify the lender on the date of the event, and
deliver the original of the relevant notice to the lender (with official seal) within five (5) banking days from the date of the event:
(1) the occurrence of relevant events makes the representations and warranties made by the borrower in this contract untrue, inaccurate or invalid.
(2) The borrower or its controlling shareholder, actual controller or its affiliates are involved in litigation, arbitration or its assets are seized, sealed
up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge is involved in litigation, arbitration or
other coercive measures;
(3) The borrower’s legal representative or its authorized agent, principal, main financial principal, mailing address, enterprise name, office space
and other matters are changed;
(4) Being applied for reorganization or bankruptcy by other creditors or being revoked by the superior competent authority;
(5) other major adverse events that may affect the borrower’s solvency.
6. The borrower guarantees that it will not pay off other loans in priority in violation of the normal repayment order, and will not sign any contract
or agreement that will subordinate the loan under this contract now and in the future.
7. The borrower shall, as far as possible, repay and pay the principal and interest of the loan under the contract in the same currency. If the borrower
repays its debts in different currencies, the borrower shall, or authorize the lender, convert the funds in different currencies into the loan currency under the
contract according to the "deduction agreement". The expenses incurred shall be borne by the borrower. When the guarantor repays the debt on behalf of
the borrower in different currencies, the "deduction agreement" from the guarantee contract shall be borne by the borrower.
8. In case of specific circumstances or changes in the guarantee under this contract, the borrower shall timely provide other guarantees approved by
the lender as required by the lender. Such specific circumstances or specific changes include but are not limited to the guarantor’s suspension of production,
closure of business, dissolution, suspension of business for rectification, revocation or revocation of business license, application or application for
reorganization, bankruptcy, major changes in business or financial status, involvement in major litigation or arbitration cases, involvement of legal
representatives, directors, supervisors and key business managers The value of the collateral is reduced or may be reduced, or property preservation
measures such as sealing up are taken, there is a breach of contract under the guarantee contract, and it is required to terminate the guarantee contract.
9. The lender has the right to conduct on-site or off-site due diligence on the borrower, and carry out post loan inspection on the borrower’s
business status, financial status, external guarantee, use of loan funds and repayment. The borrower is obliged to actively cooperate with the lender in loan
payment management, post loan management and relevant inspection.
10. The lender has the right to recover the loan funds under this contract in advance according to the withdrawal of the borrower’s funds.
11. special agreements on group customers (applicable to group customers).
If the borrower of this contract is a group customer, the borrower hereby undertakes:
(1) the borrower shall timely report the related party transactions of more than 10% of the net assets of the actual trustee, including: ① the related
party relationships of all parties to the transaction ② Transaction items and nature ③ The amount of the transaction or the corresponding proportion
④ Pricing policy (including transactions with no amount or only symbolic amount).
(2) If the actual trustee has the following circumstances, it shall be deemed that the borrower has breached the contract, and the lender has the right
to unilaterally decide to cancel the unused credit of the customer, recover part or all of the used credit, or require the customer to increase the margin to
100%: ① providing false materials or concealing important business financial facts ② Changing the original purpose of the credit without the consent of
the lender, misappropriating the credit or using the bank credit to engage in illegal and illegal transactions ③ Taking advantage of false contracts with
related parties to obtain bank funds or credit by discounting or pledging creditor’s rights such as notes receivable and accounts receivable without actual
trade background ④ refusing to accept the lender’s supervision and inspection of its use of credit funds and relevant business and financial activities ⑤ In
case of major merger, acquisition and reorganization, the lender believes that it may affect the credit security ⑥ Intentionally evading bank creditor’s rights
through related party transactions.
12. special guarantees, commitments and agreements on green credit (applicable to borrowers whose construction, production and operation
activities of nuclear power plants, large hydropower stations, water conservancy projects, resource extraction projects, etc. may seriously change the
original state of the environment and the adverse environmental and social consequences are not easy to eliminate, as well as oil processing, coking and
nuclear fuel import workers The construction, production and operation of chemical raw materials and chemical products will produce adverse
environmental and social consequences, but it is easy to eliminate them through slow-release measures)
(1) the borrower declares and guarantees that the management of environmental and social risks, including: ① the internal management documents
related to environmental and social risks comply with the requirements of laws and regulations and are effectively implemented; ② there are no major
litigation cases involving environmental and social risks;
(2) The borrower promises to accept the supervision of the lender and strengthen environmental and social risk management, including: ①
commitment to compliance of all behaviors and performances related to environmental and social risks ② Commit to establish and improve the internal
management system of environmental and social risks, and specify the responsibilities, obligations and punishment measures of relevant responsible
personnel of the borrower ③ Commit to establish and improve the emergency mechanism and measures for environmental and social risk emergencies
④ Commit to establish special departments and / or designate special personnel to be responsible for environmental and social risks ⑤ Promise to
cooperate with the lender or its recognized third party in the assessment and inspection of the borrower’s environmental and social risks ⑥ in the face of
strong doubts from the public or other stakeholders about the borrower’s performance in controlling environmental and social risks, promise to respond
appropriately or take other necessary actions ⑦ undertake to urge the borrower’s vital related parties to strengthen management and prevent the
environmental and social risks of related parties from infecting the borrower ⑧ undertake to perform other matters that the lender considers relevant to
controlling environmental and social risks
(3) The borrower promises to timely and fully inform the lender of various permits ① approvals and approvals related to environmental and social
risks in the process of commencement, construction, operation and shutdown ② Assessment and inspection of the borrower’s environmental and social
risks by the environmental and social risk regulatory authority or its recognized institutions ③ supporting construction and operation of environmental
facilities ④ Discharge and compliance of pollutants ⑤ Safety and health of employees ⑥ neighboring communities for the borrower Major complaints and
protests ⑦ Major environmental and social claims ⑧ Other lenders believe that it is related to environmental and social winds Skillfully Major
information related to insurance;
(4) If the borrower and the actual Credit Lender have the following circumstances, it shall be deemed that the borrower has an event of default
under this Contract: ① the borrower’s statement, guarantee and commitment on environmental and social risk management have not been seriously
fulfilled ② The borrower is punished by relevant government departments due to poor environmental and social risk management ③ the borrower is
strongly questioned by the public and / or the media due to poor environmental and social risk management ④ Other events of default related to
environmental and social risk management agreed between the lender and the borrower, including cross events of default;
In case of the above events of default of the borrower, the lender has the right to unilaterally decide: ① cancel the credit commitment already made
② Suspend the disbursement of the loan until the borrower takes rescue measures satisfactory to the lender ③ recover the allocated loan in advance
④ When the loan cannot be repaid, relevant mortgage and pledge rights and other punishment measures shall be exercised in advance ⑤ other punishment
measures agreed by the lender and the borrower.
13. As for the anti money laundering agreement, the borrower confirms and agrees that the lender has the right to conduct money laundering risk
assessment on the transactions involved under the contract in accordance with the applicable anti money laundering laws and regulations and internal
management requirements, and the lender has reasonable reasons to suspect that the borrower and / or the transactions under the contract are suspected of
participating in the UN Security Council, the financial action task force against money laundering, China In case of money laundering, terrorist financing
or (weapons of mass destruction) financing activities, or tax evasion recognized by the United States, the European Union and other international
organizations or countries, the lender has the right to take necessary control measures in accordance with the anti money laundering regulations of the
people’s Bank of China. At the same time, the lender has the right to directly restrict and suspend all or part of the business under this contract without
notifying the borrower, announce the early maturity of the loan, terminate this contract, and require the borrower to bear all losses caused to the lender.
14. The borrower agrees to irrevocably authorize the lender, without violating the prohibitive provisions of the regulations on the administration of
credit investigation industry and relevant laws and regulations, to collect information about all contracts / agreements / commitments signed between the
borrower and the lender in accordance with the collection requirements of the basic financial credit information database established by the state, Including
the performance information related to all the above contracts / agreements / commitments, as well as the basic enterprise information and other
information provided by the borrower, which shall be provided to the basic database of financial credit information established by the state for query and
use by qualified units; At the same time, the lender also has the right to query and use the credit information about the borrower in the basic financial credit
information database established by the state. The authorization covers all links of the lender’s necessary business management of the business under the
contract before and after the signing of the contract, and the validity period will expire with the actual termination of the contract.
15. The borrower hereby confirms that it has fully understood and understood the lender’s position against its employees seeking benefits in any
form by taking advantage of their positions, and undertakes to avoid such situations in accordance with the principle of integrity and fairness, and will not
provide any form of rebates, gifts, securities, valuables, various incentives, private expense compensation, private tourism High consumption Entertainment
Music and other improper interests.
Article 9 deduction agreement
1. The borrower agrees that when any debt related to the loan hereunder is due and payable, the lender has the right to directly deduct the funds in
the repayment reserve account opened by the borrower in Shanghai Pudong Development Bank Co., Ltd. to pay off the due and payable debt. If the funds
in the repayment reserve account are insufficient to pay off the debts, the lender has the right to deduct the funds in any other account opened by the
borrower in each branch of Shanghai Pudong Development Bank Co., Ltd.
2. The lender has the right to use the proceeds to repay the loan principal, interest or other expenses. If there are multiple claims unpaid at the same
time, the lender shall determine the repayment order of the claims.
3. if the deducted income is inconsistent with the currency to be repaid, it shall be handled in the following ways:
(1) if the currency of the loan is RMB, the loan principal strings T and 0 shall be paid off after the foreign exchange settlement is converted into
RMB according to the purchase price converted between the currency of the deduction and RMB published by the lender at the time of deduction
(2) If the loan currency is non RMB and the deduction currency is RMB, you shall purchase foreign exchange directly according to the selling price
of RMB exchange between the applicable loan currency published by the lender at that time and convert it into the loan currency, and then pay off your
past principal and interest.
(3) If the loan currency and the deduction currency are not RMB and are inconsistent, the loan principal and interest shall be paid off after the
foreign exchange settlement is converted into RMB according to the applicable deduction currency published by the lender at the time of deduction and the
purchase price converted into RMB, and then converted into the loan currency according to the loan currency published by the lender and the selling price
converted into RMB on the same day.
Article 10 proof of creditor’s rights
The lender shall, in accordance with its consistent business practice, maintain accounting accounts related to the business activities involved in this
contract on its accounting books to prove the loan amount of the lender. The effective certificate for the borrower to recognize the loan creditor’s rights
under this contract shall be subject to the accounting certificate or other effective supporting materials issued and recorded by the lender according to its
own business regulations.
Article 11 agreed service address
1. The lender confirms that the address listed on the first page of this contract is its effective service address. The notice sent by the borrower to the
lender directly or by mail under this contract shall be sent to the address listed on the first page of this contract until the lender announces the change of this
address. The borrower agrees that all notices it sends to the lender shall be deemed to have been served when actually received by the lender.
2. The borrower confirms that the address, fax, e-mail and other service information listed on the first page of this contract are its valid mailing or
e-service address. All kinds of non litigation notices and other documents under the contract, as well as letters, subpoenas, notices and other legal
documents issued to them in the process of any litigation (including any litigation procedures and execution procedures such as first instance, second
instance and retrial) arising from the contract, as long as they are mailed or sent by fax E-mail and other electronic service methods shall be deemed as
service when they are sent to the mailing or electronic service address listed on the first page of this contract, and the specific service date shall be subject
to the provisions on service date in the civil procedure law. The above change of mailing or electronic service address shall not have legal effect unless
notified to the lender in advance, and the service address confirmed in this contract shall still be deemed as a valid service address.
Article 12 events of default and handling
1. Event of default
Any of the following circumstances shall constitute a breach of contract by the borrower against the lender:
(1) Any statement and guarantee made by the borrower in this contract or any notice, authorization, approval, consent, certificate and other
documents made in accordance with or related to this contract are incorrect or misleading, or have been proved to be incorrect or misleading, or have been
proved to be invalid or revoked or have no legal effect.
(2) The borrower has violated "other matters agreed by both parties" (if any) in part I of the contract or any agreed matter in Article 8 of Part II.
(3) The borrower has a major cross default event, including but not limited to the borrower’s breach of any other loan contract and agreement
signed by it; Or the borrower fails to pay the debts under other loan contracts and agreements signed by it.
(4) The borrower’s investors withdraw funds, transfer assets or transfer equity without authorization.
(5) The guarantor has or will no longer have the ability to provide guarantee corresponding to the loan, or violates the guarantee documents signed
by it.
(6) The borrower suspends business, stops production, goes out of business, goes out of business for rectification, reorganization, liquidation, is
taken over or entrusted, is dissolved, the business license is revoked or cancelled or goes bankrupt.
(7) The financial condition of the borrower or the guarantor deteriorates, there are serious difficulties in operation, or events or circumstances that
have an adverse impact on its normal operation, financial condition or solvency.
(8) The borrower or its controlling shareholder, actual controller or its affiliates are involved in major litigation, arbitration, or its major assets are
seized, sealed up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge, directors, supervisors or
senior managers are involved in litigation Arbitration or other coercive measures adversely affect the borrower’s solvency.
(9) Failure to repay the principal and interest on schedule or use the loan for the agreed purpose.
(10) The loan funds are not paid in the agreed manner.
(11) the documents and information submitted for loan application are false and incorrect.
(12) It does not meet or exceed the constraints of relevant financial indicators agreed in the contract.
(13) On any principal and interest repayment date under the contract and within three (3) days before it, the capital balance in the repayment
reserve account is lower than the principal and interest repayment amount of the borrower in the current period.
(14) The capital flow in the general settlement account / capital return account is abnormal.
(15) The borrower has other acts in violation of this contract that are sufficient to hinder the normal performance of this contract, or other acts that
damage the legitimate interests of the lender.
2. Handling of breach of contract
(1) when one or more of the default circumstances listed in the current paragraph occur, the lender may take one or more of the following measures
at its discretion:
① require the borrower to correct within a time limit.
② cancel the unused loan of the borrower and stop issuing and paying the unused loan of the borrower.
③ declare that all or part of the loan principal under this contract will expire immediately in advance, and require the immediate repayment of part
or all of the loan, the settlement of the interest owed, and the immediate recourse to the guarantor or the borrower in various forms.
④ Penalty interest and compound interest shall be charged for overdue loans and misappropriated loans.
⑤ Deduct from any account opened by the borrower in each branch of Shanghai Pudong Development Bank Co., Ltd
⑥ Require the borrower to supplement the loan issuance and payment conditions, or change the loan payment method.
⑦ require the borrower to provide other guarantees approved by the lender.
⑧ other necessary measures stipulated by law.
(2) In addition to the above measures, the lender may also require the borrower to bear the liability for breach of contract and require the borrower
to pay liquidated damages (see part I of the contract for the calculation method of liquidated damages). If the liquidated damages are insufficient to make
up for the losses suffered by the lender, the borrower shall compensate the lender for all losses suffered thereby.
(3) If the borrower fails to repay the principal and pay interest in full and on time, it shall also bear all expenses paid by the lender for realizing the
creditor’s rights and security rights, including but not limited to collection expenses, litigation expenses, lawyer’s fees, travel expenses and various other
expenses payable.
Article 13 effectiveness, alteration and dissolution
1. this contract shall come into force after being signed (or sealed) and affixed with official seal by the legal representative of the borrower or its
authorized agent, and signed (or sealed) and affixed with official seal (or special seal for contract) by the legal representative (person in charge) of the
lender or its authorized agent, and shall be terminated after all creditor’s rights under this contract are paid off.
2. After the contract takes effect, neither party shall change or terminate the contract in advance without authorization. If the contract needs to be
changed or terminated, both parties shall reach a written agreement through consultation.
1. definition
Article 14 other provisions
(1) "all creditor’s rights" under this contract refers to the loan principal, interest, liquidated damages and various expenses incurred to realize the
creditor’s rights.
(2) The term "interest" under this contract includes interest, penalty interest and compound interest.
(3) The "bank business day" under this contract refers to the normal business day of the lender’s corporate business at the lender’s domicile,
excluding Saturdays, Sundays (except those open for business due to holiday adjustment) or other legal holidays.
2. Applicable law
This contract shall be governed by and construed in accordance with the laws of the people’s Republic of China (for the purpose of this contract,
the laws of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan are not included here).
3. Settlement of disputes
All disputes related to this contract shall be settled through friendly negotiation; If the negotiation fails, a lawsuit shall be filed with the people’s
Court of the place where the lender has its domicile. During the dispute period, each party shall continue to perform the terms not involved in the dispute.
4. Miscellaneous
(1) If matters not covered in this contract need to be supplemented, both parties may agree and record them in part I of this contract, or reach a
separate written agreement as an annex to this contract. The annexes to the contract (see part I of the contract) are an integral part of the contract and have
the same legal effect as the text of the contract.
(2) During the validity of this contract, the lender’s grace or delay in taking action for any breach of contract or other acts of the borrower shall not
damage, affect or restrict all rights or interests enjoyed by the lender as a creditor according to the law or this contract, nor shall it be regarded as the
lender’s recognition of the borrower’s breach of this contract, It shall not be deemed that the lender waives the right to take action against the borrower’s
existing or future default.
(3) The invalidity of one clause of the contract shall not affect the validity of other clauses of the contract. This contract is not valid for any reason
When effective, the borrower shall still bear the responsibility of repaying all debts owed to the Lender under this contract. In case of the above
circumstances, the lender has the right to immediately terminate the execution of this contract and recover all debts owed by the borrower under this
contract from the borrower immediately.
(4) The lender may transfer all or part of its rights and / or obligations under this contract, and in this case, the transferee shall enjoy and / or bear
the same rights and / or obligations as it should enjoy if it is a party to this contract. After receiving the lender’s notice on the transfer of creditor’s rights,
the borrower shall be liable to the transferee in accordance with the provisions of this contract.
(5) Unless otherwise specified in the contract, relevant terms and expressions in the annexes to the contract have the same meanings as those in the
contract.
(6) The headings under this contract are for convenience only and shall not be used as the basis for the contents under this heading.
(no text below this page)
(this page is the signature page without text)
This contract is signed by and between the borrower and the lender on Jan 26, 2022. The borrower confirms that when signing this contract, both
parties have explained and discussed all the terms in detail, both parties have no doubt about all the terms of the contract, and have an accurate
understanding of the legal meaning of the parties’ relevant rights and obligations and liability limitation or exemption terms. annihilation
Borrower (Official seal)
Legal representative or authorized agent (signature or seal)
Lender (Official seal or contract seal)
Legal representative / person in charge (authorized or sealed)
Exhibit 10.18
No:
SPD BANK
contract for loans of working capital
contract for loans of working capital
Borrower: ChinaLink Professional Services Co., Ltd.
Principal business address: 2nd floor, building 18, No. 498, GuoShouJing Road, Pudong New Area, Shanghai
The contact: Lisa Wu
Fax: /
Tell: 021-31268010
Email: lisa.wu@clpsglobal.com
Lender: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Principal business address: No.509 Jinqiao Road, Pudong New Area, Shanghai
The contact: Lin Xie
Whereas;
Tell: 021-58994702
the borrower applies to the lender for working capital loan due to capital turnover needs; Upon review, the Lender agrees to release the loan in
accordance with the terms and conditions of this Contract. In order to clarify the rights and obligations of both parties, both parties hereby enter into this
Contract for compliance with the relevant laws, regulations and rules of the People’s Republic of China through mutual agreement.
At the same time, the borrower and the lender confirm the following principal terms (please select in the box below according to the situation, tick
X if not selected);
☒ This contract, as the number of a/financing bottle degree of agreement (hereinafter referred to as the credit line agreement) affiliated with the
financing documents signed, this contract comes into force, all its terms and conditions are incorporated into the financing credit agreement, and as a part
of (if the borrower have previously signed the melt line agreement, should choose the project, and indicate the credit line agreement number);
☑ This contract is an independent credit document signed between the borrower and the lender (this item should be selected if the borrower and the
lender have not signed the financing line agreement);
☒ The guarantor has been informed that the purpose of the loan under this contract is to repay the loan under the original contract name: _____
Date of signing: _____ No: _____ .(Select this item if the purpose of borrowing is to repay the old or renew the loan)
(this
The Part One Commercial terms
1. Types of Loans: ☑ Short-term working capital loans; ☐mid-term liquidity loan,
2. loan amount under this contract is RMB(currency) 10 million
3. the specific use of loan under this contract as follows: payroll
4. the time limit for the loan under this contract (in the following box, please, don’t choose to play x)
þ since to .
☒ From the date of first withdrawal / year(or / months)
The actual withdrawal date and repayment date shall be the date recorded on the ious (loan certificate) issued by the lender and the borrower. The
last repayment date shall not exceed the loan term agreed herein. The loan (loan certificate) is an integral part of this contract.
5．The interest rate of the loan under this Contract is (please tick V in the box below and x if not)
þ (1) the RMB loans Interest Rate :
Each loan under this Contract shall be issued according to the loan market quoted APR (term) -1 BPS published by The National Inter-Bank
Lending Center at the end of the day prior to the actual date of loan issuance. If the calculated interest rate is less than 0%, it shall be implemented as 0%.
(The quoted market interest rate is the annual interest rate, which can be found through the National Inter-bank Lending Center and the website of the
People’s Bank of China)
After each loan is issued, if the quoted interest rate of the loan market is adjusted during the loan term, the loan interest rate (please put a in the box
below and x in case of non-I):
þ Fixed interest rate without adjustment;
☒ Since interest rates adjust interest rates to adjust interest rates before a complex day by day the national interbank funding center published in
this article the contract term loan market quotation rate (LPR) as the base, the way of fixed interest rate floating point and calculating constant, specific
interest rates adjust below (please v is selected in the following box, does not escape the x) :
☒ The interest rate is adjusted by year, and the interest rate adjustment day is the corresponding day of the actual loan issuing date in the
corresponding month of the next Gregorian calendar year. If there is no corresponding day of the actual loan issuing date in the corresponding month of the
next Gregorian calendar year, the interest rate adjustment day is the last day of the actual loan issuing date in the corresponding month of the next
Gregorian calendar year:
☒ Adjust the interest rate according to year, the interest rate adjustment date is January 1 of each year;
☒ Adjust the interest rate according to the interest settlement date, and the interest rate adjustment day is the next day of the interest settlement
date;
☒ Quarterly adjustment of interest rate, interest rate adjustment day for the end of each quarter on a monthly basis,;
☒ interest rate adjustment day for a monthly/daily
☒ other agreement (specific interest rate adjustment day),
☒ (2) interest rate of foreign currency loan;
each loan under this Contract will be issued ___ at the rate of ___(LIBORAHIBORSIBOR) published by the Lender on the date of disbursement
plus/BPS.
☒ After each loan under this joint venture is issued, the loan interest rate shall be adjusted by _____.
☒ Fixed rate, that is, the interest rate is not adjusted.
6. The method of loan settlement under this Contract is (please check the box below/tick X if not selected):
☒ On a monthly basis, the settlement date is the second +(20) day of each month;
☑ Quarterly, then the settlement date is the twentieth (20th) day of the last month of each quarter:
☒ Other methods:
And each repayment interest under this contract is clear with this.
7. Penalty interest rate under the Contract is:
(1)
(2)
This overdue penalty interest rate shall be applied at the loan execution rate applicable on the date of penalty interest collection plus 30 %.
If the loan is not used in accordance with the purpose agreed herein, the penalty interest rate will be calculated and the loan execution
interest rate applied on the penalty interest date shall be charged plus 50%.
8．The drawdown period of the loan under the Contract is from to . The first withdrawal shall be made before .
9. The withdrawal plan for the loan under this Contract is as follows (please select☑ in the box below, tick X if you do not select) the withdrawal plan is
shown in the table below:
NO
1
The withdrawal date
On withdrawals
☒ Other withdrawal plans: One-time Withdraw .
10. The repayment plan of the loan under this Contract is as follows (Please tick ☑ in the box below, if not, tick x)
NO
1
Repayment date
Reimbursement amount
☒ Other withdrawal plans: One-time Withdraw .
11. Liquidated damages for loan repayment in advance; Equivalent to 0% or RMB(currency) 0 the actual amount of loan repaid in advance
12. The principal amount of loan repayment in advance shall not be less than RMB( currency) 0
13. Account opening (select one of the following modes for RMB loans, select the special account mode for foreign currency loans, and mark X for those
not selected)
☑ Unsegregated account mode:
(1)
The general settlement account opened by the borrower with the lender is:
Bank: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name: ChinaLink Professional Services Co., Ltd.
Bank account number:98840078801600002917
(2)
the borrower’s fund recovery account opened with the lender is:
Bank: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name: ChinaLink Professional Services Co., Ltd.
Bank account number:98840078801600002917
☒ Special Account mode
(1)
The special account for working capital loan opened by the borrower with the lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
(2)
The general settlement account opened by the borrower with the lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
(3)
The Borrower’s fund recovery account opened with the Lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
14. Entrusted Payment by the Lender: if the payment object is clear and the single managed payment amount exceeds (currency amount) the loan fund
payment, the entrusted payment method of the Lender shall be
15. The guarantors and security contracts providing security for the debt hereunder include but are not limited to:
☒ The guarantor / 《guaranty contract》NO ☐
☒ The mortgagor / 《Mortgage contract》NO ☐
☒ The pledger / 《Pledger contract》NO ☐
☒ Other guarantee / 。
16. Breach of contract
liquidated damages. It is equivalent to zero percent of the principal amount borrowed or / .
17. Annexes to this contract include:
(1) 《Application for withdrawal》
(2) 《 / 》
(3) 《 / 》
(4) 《 / 》
(5) 《 / 》
18. Other matters agreed upon by both parties
None/ .
19. This Contract is made in three originals, one held by the borrower and two held by the lender, each of which has the same legal effect.
(End of Part I)
The Part Two General terms
Article 1 borrowing
1. The Borrower irrevocably agrees and confirms that the Lender has the right to change due to laws, regulations and policies, or to be restricted by the
macro-monetary or financial regulatory policies of the government, or to be subject to market conditions. The borrower may suspend, reduce or cancel the
loan and notify the borrower if the conditions for granting the loan are adjusted or increased in consideration of its capital position and financial cost, its
own business needs, the borrower’s performance ability or financial condition, or other major changes occur.
2. The compensation hereunder shall be used in accordance with the loan purposes agreed herein. The Borrower shall not misappropriate or occupy the
loan for fixed asset investment, equity investment, etc., or use the loan in fields and purposes prohibited by the state or other activities inconsistent with
working capital loan purposes
Article 2 borrowing rate and interest calculation method
1. Unless otherwise agreed herein, the loan interest hereunder shall be calculated and collected in accordance with the actual amount of withdrawal and the
number of days occupied by the Lender from the date of loan issuance. Occupied days include the first day, excluding the last day. Daily interest = monthly
interest rate /30, monthly interest rate = annual interest rate 12.
2. The Lender has the right to pay the unpaid principal of the loan due to the Borrower (the term “due” in this Contract includes the case where the Lender
declares the loan to be due early), and the overdue penalty interest shall be calculated and collected according to the retroactive interest rate agreed herein
according to the actual overdue days from the overdue date until the principal and interest of the borrower are paid off
3. If the borrower fails to use the loan funds for the agreed purposes, the lender shall have the right to use the amount of loan box for breach of contract.
Since the date of breach, the penalty interest shall be calculated and collected according to the penalty interest rate for misappropriation agreed herein
according to the actual days of breach until the borrower pays off the principal and interest.
4. The Lender shall, from the date on which the borrower fails to pay the interest on time (including the normal total interest, overdue penalty interest and
misappropriated penalty interest), compound the interest according to the overdue penalty interest rate agreed herein according to the actual overdue days.
5. Interest rate market paralysis
If there is no APPLICABLE LPR (applicable in RMB) or LIBOR/HIBORSIBOR (applicable in foreign currency) interest rate on the quoted date
of the relevant interest period after the loan is issued under this Contract, the Borrower shall negotiate with the Lender to determine an alternative interest
rate; If no agreement can be reached within five (5) banking business days from the commencement of the negotiation, the borrower shall repay the
principal and interest of the loan in full within thirty (30) banking business days from the date of such agreement.
1. before the first withdrawal, the borrower shall meet the following conditions:
Article 3 withdrawal
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) This contract and the corresponding guarantee contract (if any) have been signed and remain valid, and the security right has been effectively
established;
(3) Submit the borrower’s current valid business license, articles of association and recent financial statements on the withdrawal date (including
but not limited to the annual financial report and current statements audited by certified public accountants in the previous year):
(4) Submit the loan resolution made by the borrower’s board of directors / shareholders’ meeting or other institutions with the same effect, the letter
of authorization from the legal representative to the authorized representative and the original signature sample of the legal representative and authorized
representative;
(5) The borrower has opened relevant accounts with the lender according to the lender’s requirements;
(6) The borrower has performed its obligations under the contract without any event of default under the contract;
(7) Other documents or conditions required by the lender.
2. except for the first withdrawal, the borrower shall meet the following conditions before each withdrawal:
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) The representations and warranties made by the borrower under this contract shall remain valid;
(3) The borrower has performed its obligations under the contract without any event of default under the contract;
(4) Other documents or conditions required by the lender.
3. withdrawal
(1) the borrower shall make a one-time withdrawal or installment withdrawal in accordance with the withdrawal plan agreed in the contract, and
submit a withdrawal application (see Annex 1 or annex 2 of the contract for the format) to the lender three (3) banking days before the expiration of each
withdrawal date to go through the withdrawal procedures;
(2) If the borrower needs to postpone or change the withdrawal date, it shall obtain the consent of the lender three (3) banking days before the
expiration of the withdrawal date, and the lender has the right to require the borrower to pay the interest loss suffered by the lender (interest loss: the
interest of the delayed withdrawal period and the interest of demand deposit in the same period);
(3) If the borrower requests to cancel all or part of the undrawn loan, it shall apply to the lender three (3) banking business days before the
determined withdrawal date or the termination date of the withdrawal period, and the cancellation can be carried out only with the consent of the lender;
(4) If the borrower fails to handle the withdrawal procedures within the specified withdrawal date or withdrawal period and fails to apply for
postponement of withdrawal, the lender has the right to cancel the undrawn loan:
The lender has the right to waive one or more of the above withdrawal conditions without affecting any right enjoyed by the Lender under this
contract
Article 4 account opening and management
1 ..When signing this contract, the borrower shall have opened a general settlement account and capital return account (see part I of this contract) at the
lender, as well as a special working capital loan account (if any) agreed by both parties. The borrower agrees that the lender shall monitor the aforesaid
account of the borrower.
2. If no special working capital loan account is opened, the general settlement account is used to calculate the loan fund issuance and loan fund payment
applied by the borrower at the lender.
If a special working capital loan account is opened, the special working capital loan account is used to calculate the loan fund issuance and loan
fund payment applied by the borrower at the lender, and the funds in the account bear interest according to the current deposit. The borrower agrees that in
addition to the seal reserved by the borrower, the special account for working capital loan shall also reserve the special seal for loan fund payment
supervision of the lender.
Without the written consent of the lender, the borrower shall not change the reserved seal of the special working capital loan account at will.
3. The borrower confirms that the fund return account is the income account and repayment reserve account under the contract. The borrower’s income
cash flow or the borrower’s overall cash flow shall be entered into the capital return account.
The borrower guarantees that the capital balance in the borrower’s repayment reserve account shall not be less than the amount of principal and
interest payable by the borrower in the current period on each principal and interest repayment date under the contract and within three (3) days before
it.The borrower agrees that on each principal and interest repayment date and within three (3) days before it, the lender has the right to restrict or refuse the
borrower’s external payment that will cause the fund balance in the repayment reserve account to be lower than the principal and interest payable in the
current period, so as to ensure that the fund balance in the repayment reserve account is sufficient to pay the principal and interest payable in the current
period.
The lender has the right to monitor the capital return account. In case of abnormal capital flow in the capital return account, the lender has the right
to find out the reasons from the borrower and take corresponding measures.
Article 5 Payment supervision
1. The borrower agrees that the lender has the right to manage and control the payment of the loan funds through the entrusted payment of the lender or /
and the independent payment of the borrower, so as to supervise the use of the loan funds according to the purpose agreed in the contract.
Entrusted payment by the lender means that the lender pays the loan funds through the borrower’s account to the borrower’s trading partner who
meets the purpose agreed in this contract according to the borrower’s withdrawal application and payment entrustment.
Autonomous payment by the borrower means that after the lender issues the loan funds to the borrower’s account according to the borrower’s
withdrawal application, the borrower will independently pay them to the borrower’s trading partner who meets the purpose agreed in the contract.
2. The borrower agrees that if the borrower and the lender have newly established a credit business relationship and the borrower’s credit status is general,
or the payment object is clear and the single payment amount exceeds the amount agreed in the contract (see part I of the contract), or other circumstances
recognized by the lender, the entrusted payment method of the lender shall be adopted.
If the entrusted payment method is adopted, the lender has the right to review whether the payment object, payment amount and other information
listed in the payment application provided by the borrower are consistent with the corresponding business contract and other supporting materials
according to the loan purpose agreed in the loan contract.
After approval, the lender shall pay the loan funds to the borrower’s trading partner through the borrower’s account.
3. When applying to the lender for external payment of loan funds, the borrower shall submit supporting materials meeting the lender’s requirements,
including but not limited to:
(1) documents certifying that the purpose of payment is in accordance with the purpose agreed in the contract:
(2) Business contracts and written documents that truly reflect the borrower’s payment obligations. For the expenses that must be paid without
signing the contract, the charging policy and standard approved by the competent department shall be provided;
(3) If the corresponding invoices or receipts cannot be obtained at the same time of payment, the borrower shall timely submit the corresponding
invoices or receipts for the use of funds after the completion of payment;
(4) Legal and valid payment voucher:
(5) Other documents required by the lender.
The lender has the right to waive one or more of the above supporting materials without affecting any rights enjoyed by the Lender under this
contract
4. If the special account for working capital loan is not opened, the borrower shall submit the withdrawal application to the lender three (3) banking days
before the proposed withdrawal date (see Annex 1 of the contract for the format), and propose whether to adopt the entrusted payment method of the lender
or the independent payment method of the borrower. The borrower confirms that the lender has the right to review whether the relevant information of the
borrower meets the payment conditions agreed in the contract, and has the right to decide the payment method of the corresponding loan.
If the special account for working capital loan is opened by the entrusted payment method of the lender, the borrower shall submit the payment
application with the reserved seal of the borrower of the special account for working capital loan (see Annex 3 of the contract for the format) to the lender
three (3) banking days before the payment date. The lender has the right to review whether the relevant information of the borrower meets the payment
conditions agreed in this contract. If the lender approves, it shall stamp the special seal for loan fund payment supervision on the payment voucher before
making external payment. If the borrower’s independent payment method is adopted, the borrower shall submit the payment application (see Annex 3 of
the contract for the format) and relevant materials to the lender three (3) banking days in advance. The lender has the right to review whether the relevant
materials submitted by the borrower meet the conditions agreed in the contract.If the lender approves, the borrower shall fill in the payment voucher (the
amount of each summary payment voucher shall not exceed the entrusted payment amount of the lender agreed in this contract).After review, the lender
shall affix the special seal for loan fund payment supervision on the summary payment voucher, and transfer the corresponding funds to the borrower’s
general settlement account.
5. If the borrower’s autonomous payment method is adopted, the borrower shall regularly summarize and report the autonomous payment of loan funds to
the lender every month. The lender has the right to verify whether the borrower’s loan payment meets the agreed purpose and payment method through
account analysis, voucher inspection, on-site investigation, etc.
6. The borrower confirms that it shall pay to the lender the remittance fee arising from the payment of funds. When the remittance fee occurs, the lender has
the right to deduct it directly according to the actual amount.
7. In the process of loan issuance and payment, if any of the following circumstances occurs to the borrower, the lender has the right to require the
borrower to supplement the withdrawal conditions and payment conditions, or change the loan payment method and stop the issuance and payment of loan
funds:
(1) declining credit status;
(2) The profitability of main business is not strong;
(3) Abnormal use of loan funds.
Article 6 repayment
1. the borrower shall timely and fully repay the principal, interest and relevant expenses of the loan according to the repayment plan agreed in the contract.
The borrower hereby irrevocably authorizes the lender to actively deduct the above amount from its account opened with the lender on the maturity date of
the loan or when the conditions agreed in the contract are met to repay the creditor’s rights of the lender.
2. If the borrower repays the loan in advance, it shall submit a written application to the lender and obtain the written consent of the lender before the tenth
(10th) banking business day before the expected repayment date. Without the prior written consent of the lender, the borrower shall still repay the principal
and interest according to the time limit and interest rate agreed in the contract.
The prepayment agreed by the lender shall be deemed as the prepayment of the loan. In this case, the lender also has the right to require the
borrower to pay certain liquidated damages in accordance with the contract (see part I of the contract).
In case of early repayment of the loan, the interest shall be calculated according to the actual number of days used by the borrower and returned
together with the principal; The principal amount of early repayment shall not be less than the limit agreed in part I of this contract; The principal returned
shall be offset against the loan principal in the reverse order of the repayment plan agreed in this contract.
3. If the borrower is unable to repay on schedule for justified reasons, it shall apply to the lender for loan extension before the thirtieth (30th) banking
business day of the repayment period agreed in this contract, and prepare necessary materials to go through relevant extension procedures. If the loan under
this contract is guaranteed, mortgaged or pledged, the guarantor, mortgagor and Pledgor shall also issue a written consent certificate. The lender shall
decide whether to agree to the extension. If the borrower does not apply for extension or the application for extension is not approved by the lender, the
loan shall be transferred to the overdue loan from the next day of the maturity date.
4. The borrower shall not withdraw any returned loan funds again.
Article 7 representations and warranties
The borrower makes the following representations and warranties to the lender, which are made at the time of signing this contract and remain valid during
the validity of this contract.
1. The borrower is an enterprise (institution) legal person and other economic organization established in accordance with its applicable law, with
independent legal personality, complete financial system and repayment ability, and has the right to conclude and perform this contract according to law.
2. The borrower has the right to sign this contract and has completed all authorizations and approvals of the board of shareholders, the board of directors or
other competent authorities required for signing this contract and performing its obligations under this contract. All terms of this contract are the true
intention of the borrower and are legally binding on the borrower.
3. The signing and performance of this contract shall not violate the laws that the borrower shall abide by (the laws under this contract include the laws,
regulations, rules, local regulations, judicial interpretations, etc., the same below), the relevant documents, judgments and rulings of the competent
authorities, nor the articles of association of the borrower or any contract it has signed Conflict with the agreement or any other obligations undertaken.
4. The borrower guarantees that all financial statements (if any) issued by it comply with the provisions of applicable laws and that the statements truly,
completely and fairly reflect the financial situation of the borrower.
5. In the process of signing and performing this contract, the borrower abides by the principle of honesty and trustworthiness, and all materials, documents
and information (including but not limited to business license, project approval documents, feasibility study report, self raised funds implementation
certificate, financial statements, etc.) provided to the lender, including itself and the guarantor, are true, effective and accurate Complete without any
concealment or omission.
6. The borrower guarantees to complete the filing, registration or other procedures required for the effectiveness and legal performance of this contract.
7. Since the issuance of the latest audited financial statements, there has been no significant adverse change in the borrower’s operating and financial
conditions.
8. In business activities, strictly abide by laws and regulations, carry out various businesses in strict accordance with the provisions of the borrower’s
business license or the business scope approved according to law, go through the registration and annual inspection procedures on time, the production and
operation are legal and compliant, have the ability of sustainable operation and have a legal source of repayment.
9. Do not give up any due creditor’s rights, nor dispose of the existing main property free of charge or in other inappropriate ways.
10. The borrower has disclosed to the lender what it knows or should know and decided whether to grant the loan under this contract Important facts and
conditions (including but not limited to business status, financial status, external guarantee, etc.).
11. The borrower guarantees that it is in good credit condition and has no major bad record.
12. The borrower guarantees that there are no other circumstances or events that have or may have a material adverse impact on the borrower’s
performance ability.
The borrower and the lender agree as follows:
Article 8 covenants
1. The borrower guarantees to operate in accordance with the law, use the loan for the purpose agreed in this contract and not misappropriate it for other
purposes. The borrower shall regularly provide various relevant financial and accounting materials, including monthly and annual statements, as required
by the lender, and actively cooperate with the loan The borrower shall supervise the use of the loan and the operation of the borrower. The lender may
inspect and supervise the use of the loan in various ways at any time.
2. The borrower shall repay the principal and interest of the loan under the contract according to the time, amount, currency and interest rate specified in
the contract, application and loan (loan) certificate.
3. The borrower guarantees that once any event occurs or will occur that is sufficient to have a significant adverse impact on the financial condition of the
guarantor or its ability to perform the guarantee obligations, the borrower will timely provide a new guarantee approved by the lender.
4. The borrower promises that the borrower will not take the following actions without the written consent of the lender:
(1) Transfer (including sale, gift, debt repayment, exchange, etc.), mortgage, pledge or otherwise dispose of all or most of its major assets;
(2) Contracting, joint venture, major foreign investment, change of actual controller or major shareholder, shareholding reform, merger (merger),
joint venture (cooperation), division, equity transfer, substantial increase of debt financing, establishment of subsidiaries, property right transfer, capital
reduction, suspension of business, dissolution, application for bankruptcy Reorganization or cancellation and other acts that may affect the borrower’s
repayment ability;
(3) Provide the third party with a guarantee sufficient to have a material adverse impact on its financial condition or its ability to perform its
obligations under the contract;
(4) Paying off other long-term debts in advance and may have a significant adverse impact on the borrower’s ability to perform its obligations
under the contract;
(5) Sign contracts / agreements or undertake relevant obligations that have a significant adverse impact on the borrower’s ability to perform its
obligations under the contract.
5. The borrower promises that when the following events occur, the borrower will immediately notify the lender on the date of the event, and deliver the
original of the relevant notice to the lender (with official seal) within five (5) banking days from the date of the event:
(1) the occurrence of relevant events makes the representations and warranties made by the borrower in this contract untrue, inaccurate or invalid.
(2) The borrower or its controlling shareholder, actual controller or its affiliates are involved in litigation, arbitration or its assets are seized, sealed
up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge is involved in litigation, arbitration or
other coercive measures;
(3) The borrower’s legal representative or its authorized agent, principal, main financial principal, mailing address, enterprise name, office space
and other matters are changed;
(4) Being applied for reorganization or bankruptcy by other creditors or being revoked by the superior competent authority;
(5) other major adverse events that may affect the borrower’s solvency.
6. The borrower guarantees that it will not pay off other loans in priority in violation of the normal repayment order, and will not sign any contract or
agreement that will subordinate the loan under this contract now and in the future.
7. The borrower shall, as far as possible, repay and pay the principal and interest of the loan under the contract in the same currency. If the borrower repays
its debts in different currencies, the borrower shall, or authorize the lender, convert the funds in different currencies into the loan currency under the
contract according to the “deduction agreement”. The expenses incurred shall be borne by the borrower. When the guarantor repays the debt on behalf of
the borrower in different currencies, the “deduction agreement” from the guarantee contract shall be borne by the borrower.
8. In case of specific circumstances or changes in the guarantee under this contract, the borrower shall timely provide other guarantees approved by the
lender as required by the lender. Such specific circumstances or specific changes include but are not limited to the guarantor’s suspension of production,
closure of business, dissolution, suspension of business for rectification, revocation or revocation of business license, application or application for
reorganization, bankruptcy, major changes in business or financial status, involvement in major litigation or arbitration cases, involvement of legal
representatives, directors, supervisors and key business managers The value of the collateral is reduced or may be reduced, or property preservation
measures such as sealing up are taken, there is a breach of contract under the guarantee contract, and it is required to terminate the guarantee contract.
9. The lender has the right to conduct on-site or off-site due diligence on the borrower, and carry out post loan inspection on the borrower’s business status,
financial status, external guarantee, use of loan funds and repayment. The borrower is obliged to actively cooperate with the lender in loan payment
management, post loan management and relevant inspection.
10. The lender has the right to recover the loan funds under this contract in advance according to the withdrawal of the borrower’s funds.
11. special agreements on group customers (applicable to group customers).
If the borrower of this contract is a group customer, the borrower hereby undertakes:
(1) the borrower shall timely report the related party transactions of more than 10% of the net assets of the actual trustee, including: j the related
party relationships of all parties to the transaction k Transaction items and nature l The amount of the transaction or the corresponding proportion m Pricing
policy (including transactions with no amount or only symbolic amount).
(2) If the actual trustee has the following circumstances, it shall be deemed that the borrower has breached the contract, and the lender has the right
to unilaterally decide to cancel the unused credit of the customer, recover part or all of the used credit, or require the customer to increase the margin to
100%: j providing false materials or concealing important business financial facts k Changing the original purpose of the credit without the consent of the
lender, misappropriating the credit or using the bank credit to engage in illegal and illegal transactions l Taking advantage of false contracts with related
parties to obtain bank funds or credit by discounting or pledging creditor’s rights such as notes receivable and accounts receivable without actual trade
background m refusing to accept the lender’s supervision and inspection of its use of credit funds and relevant business and financial activities n In case of
major merger, acquisition and reorganization, the lender believes that it may affect the credit security o Intentionally evading bank creditor’s rights through
related party transactions.
12. special guarantees, commitments and agreements on green credit (applicable to borrowers whose construction, production and operation activities of
nuclear power plants, large hydropower stations, water conservancy projects, resource extraction projects, etc. may seriously change the original state of
the environment and the adverse environmental and social consequences are not easy to eliminate, as well as oil processing, coking and nuclear fuel import
workers The construction, production and operation of chemical raw materials and chemical products will produce adverse environmental and social
consequences, but it is easy to eliminate them through slow-release measures)
(1) the borrower declares and guarantees that the management of environmental and social risks, including: j the internal management documents
related to environmental and social risks comply with the requirements of laws and regulations and are effectively implemented; k there are no major
litigation cases involving environmental and social risks;
(2) The borrower promises to accept the supervision of the lender and strengthen environmental and social risk management, including: j
commitment to compliance of all behaviors and performances related to environmental and social risks k Commit to establish and improve the internal
management system of environmental and social risks, and specify the responsibilities, obligations and punishment measures of relevant responsible
personnel of the borrower l Commit to establish and improve the emergency mechanism and measures for environmental and social risk emergencies m
Commit to establish special departments and / or designate special personnel to be responsible for environmental and social risks n Promise to cooperate
with the lender or its recognized third party in the assessment and inspection of the borrower’s environmental and social risks o in the face of strong doubts
from the public or other stakeholders about the borrower’s performance in controlling environmental and social risks, promise to respond appropriately or
take other necessary actions p undertake to urge the borrower’s vital related parties to strengthen management and prevent the environmental and social
risks of related parties from infecting the borrower q undertake to perform other matters that the lender considers relevant to controlling environmental and
social risks
(3) The borrower promises to timely and fully inform the lender of various permits j approvals and approvals related to environmental and social
risks in the process of commencement, construction, operation and shutdown k Assessment and inspection of the borrower’s environmental and social risks
by the environmental and social risk regulatory authority or its recognized institutions l supporting construction and operation of environmental facilities m
Discharge and compliance of pollutants n Safety and health of employees o neighboring communities for the borrower Major complaints and protests p
Major environmental and social claims q Other lenders believe that it is related to environmental and social winds Skillfully Major information related to
insurance;
(4) If the borrower and the actual Credit Lender have the following circumstances, it shall be deemed that the borrower has an event of default
under this Contract: j the borrower’s statement, guarantee and commitment on environmental and social risk management have not been seriously fulfilled
k The borrower is punished by relevant government departments due to poor environmental and social risk management l the borrower is strongly
questioned by the public and / or the media due to poor environmental and social risk management m Other events of default related to environmental and
social risk management agreed between the lender and the borrower, including cross events of default;
In case of the above events of default of the borrower, the lender has the right to unilaterally decide: j cancel the credit commitment already made k
Suspend the disbursement of the loan until the borrower takes rescue measures satisfactory to the lender l recover the allocated loan in advance m When the
loan cannot be repaid, relevant mortgage and pledge rights and other punishment measures shall be exercised in advance n other punishment measures
agreed by the lender and the borrower.
13. As for the anti money laundering agreement, the borrower confirms and agrees that the lender has the right to conduct money laundering risk
assessment on the transactions involved under the contract in accordance with the applicable anti money laundering laws and regulations and internal
management requirements, and the lender has reasonable reasons to suspect that the borrower and / or the transactions under the contract are suspected of
participating in the UN Security Council, the financial action task force against money laundering, China In case of money laundering, terrorist financing
or (weapons of mass destruction) financing activities, or tax evasion recognized by the United States, the European Union and other international
organizations or countries, the lender has the right to take necessary control measures in accordance with the anti money laundering regulations of the
people’s Bank of China. At the same time, the lender has the right to directly restrict and suspend all or part of the business under this contract without
notifying the borrower, announce the early maturity of the loan, terminate this contract, and require the borrower to bear all losses caused to the lender.
14. The borrower agrees to irrevocably authorize the lender, without violating the prohibitive provisions of the regulations on the administration of credit
investigation industry and relevant laws and regulations, to collect information about all contracts / agreements / commitments signed between the
borrower and the lender in accordance with the collection requirements of the basic financial credit information database established by the state, Including
the performance information related to all the above contracts / agreements / commitments, as well as the basic enterprise information and other
information provided by the borrower, which shall be provided to the basic database of financial credit information established by the state for query and
use by qualified units; At the same time, the lender also has the right to query and use the credit information about the borrower in the basic financial credit
information database established by the state. The authorization covers all links of the lender’s necessary business management of the business under the
contract before and after the signing of the contract, and the validity period will expire with the actual termination of the contract.
15. The borrower hereby confirms that it has fully understood and understood the lender’s position against its employees seeking benefits in any form by
taking advantage of their positions, and undertakes to avoid such situations in accordance with the principle of integrity and fairness, and will not provide
any form of rebates, gifts, securities, valuables, various incentives, private expense compensation, private tourism High consumption Entertainment Music
and other improper interests.
Article 9 deduction agreement
1 ..The borrower agrees that when any debt related to the loan hereunder is due and payable, the lender has the right to directly deduct the funds in
the repayment reserve account opened by the borrower in Shanghai Pudong Development Bank Co., Ltd. to pay off the due and payable debt. If the funds
in the repayment reserve account are insufficient to pay off the debts, the lender has the right to deduct the funds in any other account opened by the
borrower in each branch of Shanghai Pudong Development Bank Co., Ltd.
2. The lender has the right to use the proceeds to repay the loan principal, interest or other expenses. If there are multiple claims unpaid at the same
time, the lender shall determine the repayment order of the claims.
3. if the deducted income is inconsistent with the currency to be repaid, it shall be handled in the following ways:
(1) if the currency of the loan is RMB, the loan principal strings T and 0 shall be paid off after the foreign exchange settlement is converted into
RMB according to the purchase price converted between the currency of the deduction and RMB published by the lender at the time of deduction
(2) If the loan currency is non RMB and the deduction currency is RMB, you shall purchase foreign exchange directly according to the selling price
of RMB exchange between the applicable loan currency published by the lender at that time and convert it into the loan currency, and then pay off your
past principal and interest.
(3) If the loan currency and the deduction currency are not RMB and are inconsistent, the loan principal and interest shall be paid off after the
foreign exchange settlement is converted into RMB according to the applicable deduction currency published by the lender at the time of deduction and the
purchase price converted into RMB, and then converted into the loan currency according to the loan currency published by the lender and the selling price
converted into RMB on the same day.
Article 10 proof of creditor’s rights
The lender shall, in accordance with its consistent business practice, maintain accounting accounts related to the business activities involved in this
contract on its accounting books to prove the loan amount of the lender. The effective certificate for the borrower to recognize the loan creditor’s rights
under this contract shall be subject to the accounting certificate or other effective supporting materials issued and recorded by the lender according to its
own business regulations.
Article 11 agreed service address
1. The lender confirms that the address listed on the first page of this contract is its effective service address. The notice sent by the borrower to the
lender directly or by mail under this contract shall be sent to the address listed on the first page of this contract until the lender announces the change of this
address. The borrower agrees that all notices it sends to the lender shall be deemed to have been served when actually received by the lender.
2. The borrower confirms that the address, fax, e-mail and other service information listed on the first page of this contract are its valid mailing or
e-service address. All kinds of non litigation notices and other documents under the contract, as well as letters, subpoenas, notices and other legal
documents issued to them in the process of any litigation (including any litigation procedures and execution procedures such as first instance, second
instance and retrial) arising from the contract, as long as they are mailed or sent by fax E-mail and other electronic service methods shall be deemed as
service when they are sent to the mailing or electronic service address listed on the first page of this contract, and the specific service date shall be subject
to the provisions on service date in the civil procedure law. The above change of mailing or electronic service address shall not have legal effect unless
notified to the lender in advance, and the service address confirmed in this contract shall still be deemed as a valid service address.
1. Event of default
Any of the following circumstances shall constitute a breach of contract by the borrower against the lender:
Article 12 events of default and handling
(1) Any statement and guarantee made by the borrower in this contract or any notice, authorization, approval, consent, certificate and other
documents made in accordance with or related to this contract are incorrect or misleading, or have been proved to be incorrect or misleading, or have been
proved to be invalid or revoked or have no legal effect.
(2) The borrower has violated “other matters agreed by both parties” (if any) in part I of the contract or any agreed matter in Article 8 of Part II.
(3) The borrower has a major cross default event, including but not limited to the borrower’s breach of any other loan contract and agreement
signed by it; Or the borrower fails to pay the debts under other loan contracts and agreements signed by it.
(4) The borrower’s investors withdraw funds, transfer assets or transfer equity without authorization.
(5) The guarantor has or will no longer have the ability to provide guarantee corresponding to the loan, or violates the guarantee documents signed
by it.
(6) The borrower suspends business, stops production, goes out of business, goes out of business for rectification, reorganization, liquidation, is
taken over or entrusted, is dissolved, the business license is revoked or cancelled or goes bankrupt.
(7) The financial condition of the borrower or the guarantor deteriorates, there are serious difficulties in operation, or events or circumstances that
have an adverse impact on its normal operation, financial condition or solvency.
(8) The borrower or its controlling shareholder, actual controller or its affiliates are involved in major litigation, arbitration, or its major assets are
seized, sealed up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge, directors, supervisors or
senior managers are involved in litigation Arbitration or other coercive measures adversely affect the borrower’s solvency.
(9) Failure to repay the principal and interest on schedule or use the loan for the agreed purpose.
(10) The loan funds are not paid in the agreed manner.
(11) the documents and information submitted for loan application are false and incorrect.
(12) It does not meet or exceed the constraints of relevant financial indicators agreed in the contract.
(13) On any principal and interest repayment date under the contract and within three (3) days before it, the capital balance in the repayment
reserve account is lower than the principal and interest repayment amount of the borrower in the current period.
(14) The capital flow in the general settlement account / capital return account is abnormal.
(15) The borrower has other acts in violation of this contract that are sufficient to hinder the normal performance of this contract, or other acts that
damage the legitimate interests of the lender.
2. Handling of breach of contract
(1) when one or more of the default circumstances listed in the current paragraph occur, the lender may take one or more of the following measures
at its discretion:
(1) require the borrower to correct within a time limit.
(2) cancel the unused loan of the borrower and stop issuing and paying the unused loan of the borrower.
(3) declare that all or part of the loan principal under this contract will expire immediately in advance, and require the immediate repayment of part
or all of the loan, the settlement of the interest owed, and the immediate recourse to the guarantor or the borrower in various forms.
(4) Penalty interest and compound interest shall be charged for overdue loans and misappropriated loans.
(5) Deduct from any account opened by the borrower in each branch of Shanghai Pudong Development Bank Co., Ltd
(6) Require the borrower to supplement the loan issuance and payment conditions, or change the loan payment method.
(7) require the borrower to provide other guarantees approved by the lender.
(8) other necessary measures stipulated by law.
(2) In addition to the above measures, the lender may also require the borrower to bear the liability for breach of contract and require the borrower to pay
liquidated damages (see part I of the contract for the calculation method of liquidated damages). If the liquidated damages are insufficient to make up for
the losses suffered by the lender, the borrower shall compensate the lender for all losses suffered thereby.
(3) If the borrower fails to repay the principal and pay interest in full and on time, it shall also bear all expenses paid by the lender for realizing the
creditor’s rights and security rights, including but not limited to collection expenses, litigation expenses, lawyer’s fees, travel expenses and various other
expenses payable.
Article 13 effectiveness, alteration and dissolution
1. this contract shall come into force after being signed (or sealed) and affixed with official seal by the legal representative of the borrower or its
authorized agent, and signed (or sealed) and affixed with official seal (or special seal for contract) by the legal representative (person in charge) of the
lender or its authorized agent, and shall be terminated after all creditor’s rights under this contract are paid off.
2. After the contract takes effect, neither party shall change or terminate the contract in advance without authorization. If the contract needs to be
changed or terminated, both parties shall reach a written agreement through consultation.
1 ..definition
Article 14 other provisions
(1) “all creditor’s rights” under this contract refers to the loan principal, interest, liquidated damages and various expenses incurred to realize the
creditor’s rights.
(2) The term “interest” under this contract includes interest, penalty interest and compound interest.
(3) The “bank business day” under this contract refers to the normal business day of the lender’s corporate business at the lender’s domicile,
excluding Saturdays, Sundays (except those open for business due to holiday adjustment) or other legal holidays.
2. Applicable law
This contract shall be governed by and construed in accordance with the laws of the people’s Republic of China (for the purpose of this contract,
the laws of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan are not included here).
3. Settlement of disputes
All disputes related to this contract shall be settled through friendly negotiation; If the negotiation fails, a lawsuit shall be filed with the people’s
Court of the place where the lender has its domicile. During the dispute period, each party shall continue to perform the terms not involved in the dispute.
4. Miscellaneous
(1) If matters not covered in this contract need to be supplemented, both parties may agree and record them in part I of this contract, or reach a
separate written agreement as an annex to this contract. The annexes to the contract (see part I of the contract) are an integral part of the contract and have
the same legal effect as the text of the contract.
(2) During the validity of this contract, the lender’s grace or delay in taking action for any breach of contract or other acts of the borrower shall not
damage, affect or restrict all rights or interests enjoyed by the lender as a creditor according to the law or this contract, nor shall it be regarded as the
lender’s recognition of the borrower’s breach of this contract, It shall not be deemed that the lender waives the right to take action against the borrower’s
existing or future default.
(3) The invalidity of one clause of the contract shall not affect the validity of other clauses of the contract. This contract is not valid for any reason
When effective, the borrower shall still bear the responsibility of repaying all debts owed to the Lender under this contract. In case of the above
circumstances, the lender has the right to immediately terminate the execution of this contract and recover all debts owed by the borrower under this
contract from the borrower immediately.
(4) The lender may transfer all or part of its rights and / or obligations under this contract, and in this case, the transferee shall enjoy and / or bear
the same rights and / or obligations as it should enjoy if it is a party to this contract. After receiving the lender’s notice on the transfer of creditor’s rights,
the borrower shall be liable to the transferee in accordance with the provisions of this contract.
(5) Unless otherwise specified in the contract, relevant terms and expressions in the annexes to the contract have the same meanings as those in the
contract.
(6) The headings under this contract are for convenience only and shall not be used as the basis for the contents under this heading.
(no text below this page)
(this page is the signature page without text)
This contract is signed by and between the borrower and the lender on March 9,2022. The borrower confirms that when signing this contract, both
parties have explained and discussed all the terms in detail, both parties have no doubt about all the terms of the contract, and have an accurate
understanding of the legal meaning of the parties’ relevant rights and obligations and liability limitation or exemption terms. annihilation
Borrower(Official seal)
Legal representative or authorized agent (signature or seal)
Lender (Official seal or contract seal)
Legal representative / person in charge (authorized or sealed)
Exhibit 10.19
No: 98842022280318
SPD BANK
contract for loans of working capital
Borrower: ChinaLink Professional Services Co., Ltd.
Principal business address: 2nd floor, building 18, No. 498, GuoShouJing Road, Pudong New Area, Shanghai
contract for loans of working capital
The contact: Lisa Wu
Fax: /
Tell: 021-31268010
Email: lisa.wu@clpsglobal.com
Lender: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Principal business address: No.509 Jinqiao Road, Pudong New Area, Shanghai
The contact: Lin Xie
Whereas;
Tell: 021-58994702
the borrower applies to the lender for working capital loan due to capital turnover needs; Upon review, the Lender agrees to release the loan in
accordance with the terms and conditions of this Contract. In order to clarify the rights and obligations of both parties, both parties hereby enter into this
Contract for compliance with the relevant laws, regulations and rules of the People’s Republic of China through mutual agreement.
At the same time, the borrower and the lender confirm the following principal terms (please select in the box below according to the situation, tick X if
not selected);
☒ This contract, as the number of a/financing bottle degree of agreement (hereinafter referred to as the credit line agreement) affiliated with the
financing documents signed, this contract comes into force, all its terms and conditions are incorporated into the financing credit agreement, and as a part
of (if the borrower have previously signed the melt line agreement, should choose the project, and indicate the credit line agreement number);
þ This contract is an independent credit document signed between the borrower and the lender (this item should be selected if the borrower and the
lender have not signed the financing line agreement);
☒ The guarantor has been informed that the purpose of the loan under this contract is to repay the loan under the original contract name: Date of
signing: No: .(Select this item if the purpose of borrowing is to repay the old or renew the loan)
2
1. Types of Loans: þ Short-term working capital loans ； ﲟ mid-term liquidity loan,
The Part One Commercial terms
2.
3.
4.
loan amount under this contract is RMB(currency) 10 million
the specific use of loan under this contract as follows: payroll
the time limit for the loan under this contract (in the following box, please, don’t choose to play x)
☑ since 21st June 2022 to 20th June 2023.
☒ From the date of first withdrawal / year（or / months）
The actual withdrawal date and repayment date shall be the date recorded on the ious (loan certificate) issued by the lender and the borrower. The last
repayment date shall not exceed the loan term agreed herein. The loan (loan certificate) is an integral part of this contract.
5. The interest rate of the loan under this Contract is (please tick V in the box below and x if not)
þ (1) the RMB loans Interest Rate :
Each loan under this Contract shall be issued according to the loan market quoted APR (term) -1 BPS published by The National Inter-Bank Lending
Center at the end of the day prior to the actual date of loan issuance. If the calculated interest rate is less than 0%, it shall be implemented as 0%. (The
quoted market interest rate is the annual interest rate, which can be found through the National Inter-bank Lending Center and the website of the People’s
Bank of China)
After each loan is issued, if the quoted interest rate of the loan market is adjusted during the loan term, the loan interest rate (please put a in the box
below and x in case of non-I):
þ Fixed interest rate without adjustment;
☒ Since interest rates adjust interest rates to adjust interest rates before a complex day by day the national interbank funding center published in this
article the contract term loan market quotation rate (LPR) as the base, the way of fixed interest rate floating point and calculating constant, specific interest
rates adjust below (please v is selected in the following box, does not escape the x) :
☒ The interest rate is adjusted by year, and the interest rate adjustment day is the corresponding day of the actual loan issuing date in the corresponding
month of the next Gregorian calendar year. If there is no corresponding day of the actual loan issuing date in the corresponding month of the next
Gregorian calendar year, the interest rate adjustment day is the last day of the actual loan issuing date in the corresponding month of the next Gregorian
calendar year:
☒ Adjust the interest rate according to year, the interest rate adjustment date is January 1 of each year；
☒ Adjust the interest rate according to the interest settlement date, and the interest rate adjustment day is the next day of the interest settlement date；
☒ Quarterly adjustment of interest rate, interest rate adjustment day for the end of each quarter on a monthly basis,；
3
☒ interest rate adjustment day for a monthly/daily
☒ other agreement (specific interest rate adjustment day),
☒ (2) interest rate of foreign currency loan;
each loan under this Contract will be issued __at the rate of ___(LIBORAHIBORSIBOR) published by the Lender on the date of disbursement
plus/BPS.
☒ After each loan under this joint venture is issued, the loan interest rate shall be adjusted by __.
☒ Fixed rate, that is, the interest rate is not adjusted.
6. The method of loan settlement under this Contract is (please check the box below/tick X if not selected):
☒ On a monthly basis, the settlement date is the second +(20) day of each month；
þ Quarterly, then the settlement date is the twentieth (20th) day of the last month of each quarter:
☒ Other methods:
And each repayment interest under this contract is clear with this.
7. Penalty interest rate under the Contract is:
(1) This overdue penalty interest rate shall be applied at the loan execution rate applicable on the date of penalty interest collection plus 30 %.
(2) If the loan is not used in accordance with the purpose agreed herein, the penalty interest rate will be calculated and the loan execution interest rate
applied on the penalty interest date shall be charged plus 50%.
8. The drawdown period of the loan under the Contract is from June 21, 2022 to June 30, 2022. The first withdrawal shall be made before June 30, 2022
9. The withdrawal plan for the loan under this Contract is as follows (please select √ in the box below, tick X if you do not select)
the withdrawal plan is shown in the table below:
NO
1
The withdrawal date
On withdrawals
☒ Other withdrawal plans: / .
10. The repayment plan of the loan under this Contract is as follows (Please tick √ in the box below, if not, tick x)
NO
1
Repayment date
Reimbursement amount
11. Liquidated damages for loan repayment in advance; Equivalent to 0% or RMB(currency) 0 the actual amount of loan repaid in advance
12. The principal amount of loan repayment in advance shall not be less than RMB(currency) 0
4
13. Account opening (select one of the following modes for RMB loans, select the special account mode for foreign currency loans, and mark X for those
not selected)
þ Unsegregated account mode:
(1) The general settlement account opened by the borrower with the lender is:
Bank: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name: ChinaLink Professional Services Co., Ltd.
Bank account number: 98840078801600002917
(2) the borrower’s fund recovery account opened with the lender is:
Bank: Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name: ChinaLink Professional Services Co., Ltd.
Bank account number:98840078801600002917
☒ Special Account mode
(1) The special account for working capital loan opened by the borrower with the lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
(2) The general settlement account opened by the borrower with the lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
(3) The Borrower’s fund recovery account opened with the Lender is:
Bank: / .
Bank account name: / .
Bank account number: / .
14. Entrusted Payment by the Lender: if the payment object is clear and the single managed payment amount exceeds (currency amount) __________ the
loan fund payment, the entrusted payment method of the Lender shall be
15. The guarantors and security contracts providing security for the debt hereunder include but are not limited to:
☒ The guarantor ____/_________ 《guaranty contract》NO[ ]
☒ The mortgagor ____/_________ 《Mortgage contract》NO[ ]
☒ The pledger ____/_________ 《Pledger contract》NO[ ]
☒ Other guarantee ____/_________
5
16. Breach of contract
liquidated damages. It is equivalent to zero percent of the principal amount borrowed or / .
17. Annexes to this contract include:
(1) 《Application for withdrawal》
(2) 《 ________/______________ 》
(3) 《 ________/______________ 》
(4) 《 ________/______________ 》
(5) 《 ________/______________ 》
18. Other matters agreed upon by both parties
None/ .
19. This Contract is made in three originals, one held by the borrower and two held by the lender, each of which has the same legal effect.
(End of Part I)
6
The Part Two General terms
Article 1 borrowing
1.The Borrower irrevocably agrees and confirms that the Lender has the right to change due to laws, regulations and policies, or to be restricted by the
macro-monetary or financial regulatory policies of the government, or to be subject to market conditions. The borrower may suspend, reduce or cancel the
loan and notify the borrower if the conditions for granting the loan are adjusted or increased in consideration of its capital position and financial cost, its
own business needs, the borrower’s performance ability or financial condition, or other major changes occur.
2. The compensation hereunder shall be used in accordance with the loan purposes agreed herein. The Borrower shall not misappropriate or occupy the
loan for fixed asset investment, equity investment, etc., or use the loan in fields and purposes prohibited by the state or other activities inconsistent with
working capital loan purposes
Article 2 borrowing rate and interest calculation method
1. Unless otherwise agreed herein, the loan interest hereunder shall be calculated and collected in accordance with the actual amount of
withdrawal and the number of days occupied by the Lender from the date of loan issuance. Occupied days include the first day, excluding the
last day. Daily interest = monthly interest rate /30, monthly interest rate = annual interest rate 12.
2. The Lender has the right to pay the unpaid principal of the loan due to the Borrower (the term “due” in this Contract includes the case where
the Lender declares the loan to be due early), and the overdue penalty interest shall be calculated and collected according to the retroactive
interest rate agreed herein according to the actual overdue days from the overdue date until the principal and interest of the borrower are paid
off
3.
If the borrower fails to use the loan funds for the agreed purposes, the lender shall have the right to use the amount of loan box for breach of
contract. Since the date of breach, the penalty interest shall be calculated and collected according to the penalty interest rate for
misappropriation agreed herein according to the actual days of breach until the borrower pays off the principal and interest.
4. The Lender shall, from the date on which the borrower fails to pay the interest on time (including the normal total interest, overdue penalty
interest and misappropriated penalty interest), compound the interest according to the overdue penalty interest rate agreed herein according to
the actual overdue days.
5.
Interest rate market paralysis
If there is no APPLICABLE LPR (applicable in RMB) or LIBOR/HIBORSIBOR (applicable in foreign currency) interest rate on the quoted
date of the relevant interest period after the loan is issued under this Contract, the Borrower shall negotiate with the Lender to determine an
alternative interest rate; If no agreement can be reached within five (5) banking business days from the commencement of the negotiation, the
borrower shall repay the principal and interest of the loan in full within thirty (30) banking business days from the date of such agreement.
7
1. before the first withdrawal, the borrower shall meet the following conditions:
Article 3 withdrawal
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) This contract and the corresponding guarantee contract (if any) have been signed and remain valid, and the security right has been effectively
established;
(3) Submit the borrower’s current valid business license, articles of association and recent financial statements on the withdrawal date (including
but not limited to the annual financial report and current statements audited by certified public accountants in the previous year):
(4) Submit the loan resolution made by the borrower’s board of directors / shareholders’ meeting or other institutions with the same effect, the letter
of authorization from the legal representative to the authorized representative and the original signature sample of the legal representative and authorized
representative;
(5) The borrower has opened relevant accounts with the lender according to the lender’s requirements;
(6) The borrower has performed its obligations under the contract without any event of default under the contract;
(7) Other documents or conditions required by the lender.
2. except for the first withdrawal, the borrower shall meet the following conditions before each withdrawal:
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) The representations and warranties made by the borrower under this contract shall remain valid;
(3) The borrower has performed its obligations under the contract without any event of default under the contract;
(4) Other documents or conditions required by the lender.
3. withdrawal
(1) the borrower shall make a one-time withdrawal or installment withdrawal in accordance with the withdrawal plan agreed in the contract, and
submit a withdrawal application (see Annex 1 or annex 2 of the contract for the format) to the lender three (3) banking days before the expiration of each
withdrawal date to go through the withdrawal procedures;
(2) If the borrower needs to postpone or change the withdrawal date, it shall obtain the consent of the lender three (3) banking days before the
expiration of the withdrawal date, and the lender has the right to require the borrower to pay the interest loss suffered by the lender (interest loss: the
interest of the delayed withdrawal period and the interest of demand deposit in the same period);
(3) If the borrower requests to cancel all or part of the undrawn loan, it shall apply to the lender three (3) banking business days before the
determined withdrawal date or the termination date of the withdrawal period, and the cancellation can be carried out only with the consent of the lender;
(4) If the borrower fails to handle the withdrawal procedures within the specified withdrawal date or withdrawal period and fails to apply for
postponement of withdrawal, the lender has the right to cancel the undrawn loan:
The lender has the right to waive one or more of the above withdrawal conditions without affecting any right enjoyed by the Lender under this
contract
8
Article 4 account opening and management
1 ..When signing this contract, the borrower shall have opened a general settlement account and capital return account (see part I of this contract) at
the lender, as well as a special working capital loan account (if any) agreed by both parties. The borrower agrees that the lender shall monitor the aforesaid
account of the borrower.
2.If no special working capital loan account is opened, the general settlement account is used to calculate the loan fund issuance and loan fund
payment applied by the borrower at the lender.
If a special working capital loan account is opened, the special working capital loan account is used to calculate the loan fund issuance and loan
fund payment applied by the borrower at the lender, and the funds in the account bear interest according to the current deposit. The borrower agrees that in
addition to the seal reserved by the borrower, the special account for working capital loan shall also reserve the special seal for loan fund payment
supervision of the lender.
Without the written consent of the lender, the borrower shall not change the reserved seal of the special working capital loan account at will.
3. The borrower confirms that the fund return account is the income account and repayment reserve account under the contract. The borrower’s
income cash flow or the borrower’s overall cash flow shall be entered into the capital return account.
The borrower guarantees that the capital balance in the borrower’s repayment reserve account shall not be less than the amount of principal and
interest payable by the borrower in the current period on each principal and interest repayment date under the contract and within three (3) days before
it.The borrower agrees that on each principal and interest repayment date and within three (3) days before it, the lender has the right to restrict or refuse the
borrower’s external payment that will cause the fund balance in the repayment reserve account to be lower than the principal and interest payable in the
current period, so as to ensure that the fund balance in the repayment reserve account is sufficient to pay the principal and interest payable in the current
period.
The lender has the right to monitor the capital return account. In case of abnormal capital flow in the capital return account, the lender has the right
to find out the reasons from the borrower and take corresponding measures.
Article 5 Payment supervision
1 ..The borrower agrees that the lender has the right to manage and control the payment of the loan funds through the entrusted payment of the
lender or / and the independent payment of the borrower, so as to supervise the use of the loan funds according to the purpose agreed in the contract.
Entrusted payment by the lender means that the lender pays the loan funds through the borrower’s account to the borrower’s trading partner who
meets the purpose agreed in this contract according to the borrower’s withdrawal application and payment entrustment.
Autonomous payment by the borrower means that after the lender issues the loan funds to the borrower’s account according to the borrower’s
withdrawal application, the borrower will independently pay them to the borrower’s trading partner who meets the purpose agreed in the contract.
2.The borrower agrees that if the borrower and the lender have newly established a credit business relationship and the borrower’s credit status is
general, or the payment object is clear and the single payment amount exceeds the amount agreed in the contract (see part I of the contract), or other
circumstances recognized by the lender, the entrusted payment method of the lender shall be adopted.
If the entrusted payment method is adopted, the lender has the right to review whether the payment object, payment amount and other information
listed in the payment application provided by the borrower are consistent with the corresponding business contract and other supporting materials
according to the loan purpose agreed in the loan contract.
After approval, the lender shall pay the loan funds to the borrower’s trading partner through the borrower’s account.
9
3. When applying to the lender for external payment of loan funds, the borrower shall submit supporting materials meeting the lender’s
requirements, including but not limited to:
(1) documents certifying that the purpose of payment is in accordance with the purpose agreed in the contract:
(2) Business contracts and written documents that truly reflect the borrower’s payment obligations. For the expenses that must be paid without
signing the contract, the charging policy and standard approved by the competent department shall be provided;
(3) If the corresponding invoices or receipts cannot be obtained at the same time of payment, the borrower shall timely submit the corresponding
invoices or receipts for the use of funds after the completion of payment;
(4) Legal and valid payment voucher:
(5) Other documents required by the lender.
The lender has the right to waive one or more of the above supporting materials without affecting any rights enjoyed by the Lender under this
contract
4. If the special account for working capital loan is not opened, the borrower shall submit the withdrawal application to the lender three (3) banking
days before the proposed withdrawal date (see Annex 1 of the contract for the format), and propose whether to adopt the entrusted payment method of the
lender or the independent payment method of the borrower. The borrower confirms that the lender has the right to review whether the relevant information
of the borrower meets the payment conditions agreed in the contract, and has the right to decide the payment method of the corresponding loan.
If the special account for working capital loan is opened by the entrusted payment method of the lender, the borrower shall submit the payment
application with the reserved seal of the borrower of the special account for working capital loan (see Annex 3 of the contract for the format) to the lender
three (3) banking days before the payment date. The lender has the right to review whether the relevant information of the borrower meets the payment
conditions agreed in this contract. If the lender approves, it shall stamp the special seal for loan fund payment supervision on the payment voucher before
making external payment. If the borrower’s independent payment method is adopted, the borrower shall submit the payment application (see Annex 3 of
the contract for the format) and relevant materials to the lender three (3) banking days in advance. The lender has the right to review whether the relevant
materials submitted by the borrower meet the conditions agreed in the contract.If the lender approves, the borrower shall fill in the payment voucher (the
amount of each summary payment voucher shall not exceed the entrusted payment amount of the lender agreed in this contract).After review, the lender
shall affix the special seal for loan fund payment supervision on the summary payment voucher, and transfer the corresponding funds to the borrower’s
general settlement account.
5.If the borrower’s autonomous payment method is adopted, the borrower shall regularly summarize and report the autonomous payment of loan
funds to the lender every month. The lender has the right to verify whether the borrower’s loan payment meets the agreed purpose and payment method
through account analysis, voucher inspection, on-site investigation, etc.
6.The borrower confirms that it shall pay to the lender the remittance fee arising from the payment of funds. When the remittance fee occurs, the
lender has the right to deduct it directly according to the actual amount.
7. In the process of loan issuance and payment, if any of the following circumstances occurs to the borrower, the lender has the right to require the
borrower to supplement the withdrawal conditions and payment conditions, or change the loan payment method and stop the issuance and payment of loan
funds:
(1) declining credit status;
(2) The profitability of main business is not strong;
(3) Abnormal use of loan funds.
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Article 6 repayment
1. the borrower shall timely and fully repay the principal, interest and relevant expenses of the loan according to the repayment plan agreed in the
contract. The borrower hereby irrevocably authorizes the lender to actively deduct the above amount from its account opened with the lender on the
maturity date of the loan or when the conditions agreed in the contract are met to repay the creditor’s rights of the lender.
2. If the borrower repays the loan in advance, it shall submit a written application to the lender and obtain the written consent of the lender before
the tenth (10th) banking business day before the expected repayment date. Without the prior written consent of the lender, the borrower shall still repay the
principal and interest according to the time limit and interest rate agreed in the contract.
The prepayment agreed by the lender shall be deemed as the prepayment of the loan. In this case, the lender also has the right to require the
borrower to pay certain liquidated damages in accordance with the contract (see part I of the contract).
In case of early repayment of the loan, the interest shall be calculated according to the actual number of days used by the borrower and returned
together with the principal; The principal amount of early repayment shall not be less than the limit agreed in part I of this contract; The principal returned
shall be offset against the loan principal in the reverse order of the repayment plan agreed in this contract.
3.If the borrower is unable to repay on schedule for justified reasons, it shall apply to the lender for loan extension before the thirtieth (30th)
banking business day of the repayment period agreed in this contract, and prepare necessary materials to go through relevant extension procedures. If the
loan under this contract is guaranteed, mortgaged or pledged, the guarantor, mortgagor and Pledgor shall also issue a written consent certificate. The lender
shall decide whether to agree to the extension. If the borrower does not apply for extension or the application for extension is not approved by the lender,
the loan shall be transferred to the overdue loan from the next day of the maturity date.
4. The borrower shall not withdraw any returned loan funds again.
Article 7 representations and warranties
The borrower makes the following representations and warranties to the lender, which are made at the time of signing this contract and remain valid
during the validity of this contract.
1.The borrower is an enterprise (institution) legal person and other economic organization established in accordance with its applicable law, with
independent legal personality, complete financial system and repayment ability, and has the right to conclude and perform this contract according to law.
2.The borrower has the right to sign this contract and has completed all authorizations and approvals of the board of shareholders, the board of
directors or other competent authorities required for signing this contract and performing its obligations under this contract. All terms of this contract are
the true intention of the borrower and are legally binding on the borrower.
3.The signing and performance of this contract shall not violate the laws that the borrower shall abide by (the laws under this contract include the
laws, regulations, rules, local regulations, judicial interpretations, etc., the same below), the relevant documents, judgments and rulings of the competent
authorities, nor the articles of association of the borrower or any contract it has signed Conflict with the agreement or any other obligations undertaken.
4.The borrower guarantees that all financial statements (if any) issued by it comply with the provisions of applicable laws and that the statements
truly, completely and fairly reflect the financial situation of the borrower.
5.In the process of signing and performing this contract, the borrower abides by the principle of honesty and trustworthiness, and all materials,
documents and information (including but not limited to business license, project approval documents, feasibility study report, self raised funds
implementation certificate, financial statements, etc.) provided to the lender, including itself and the guarantor, are true, effective and accurate Complete
without any concealment or omission.
6.The borrower guarantees to complete the filing, registration or other procedures required for the effectiveness and legal performance of this
contract.
7.Since the issuance of the latest audited financial statements, there has been no significant adverse change in the borrower’s operating and
financial conditions.
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8.In business activities, strictly abide by laws and regulations, carry out various businesses in strict accordance with the provisions of the
borrower’s business license or the business scope approved according to law, go through the registration and annual inspection procedures on time, the
production and operation are legal and compliant, have the ability of sustainable operation and have a legal source of repayment.
9.Do not give up any due creditor’s rights, nor dispose of the existing main property free of charge or in other inappropriate ways.
10.The borrower has disclosed to the lender what it knows or should know and decided whether to grant the loan under this contract
Important facts and conditions (including but not limited to business status, financial status, external guarantee, etc.).
11.The borrower guarantees that it is in good credit condition and has no major bad record.
12.The borrower guarantees that there are no other circumstances or events that have or may have a material adverse impact on the borrower’s
performance ability.
The borrower and the lender agree as follows:
Article 8 covenants
1.The borrower guarantees to operate in accordance with the law, use the loan for the purpose agreed in this contract and not misappropriate it for
other purposes. The borrower shall regularly provide various relevant financial and accounting materials, including monthly and annual statements, as
required by the lender, and actively cooperate with the loan The borrower shall supervise the use of the loan and the operation of the borrower. The lender
may inspect and supervise the use of the loan in various ways at any time.
2.The borrower shall repay the principal and interest of the loan under the contract according to the time, amount, currency and interest rate
specified in the contract, application and loan (loan) certificate.
3.The borrower guarantees that once any event occurs or will occur that is sufficient to have a significant adverse impact on the financial condition
of the guarantor or its ability to perform the guarantee obligations, the borrower will timely provide a new guarantee approved by the lender.
4.The borrower promises that the borrower will not take the following actions without the written consent of the lender:
(1) Transfer (including sale, gift, debt repayment, exchange, etc.), mortgage, pledge or otherwise dispose of all or most of its major assets;
(2) Contracting, joint venture, major foreign investment, change of actual controller or major shareholder, shareholding reform, merger (merger),
joint venture (cooperation), division, equity transfer, substantial increase of debt financing, establishment of subsidiaries, property right transfer, capital
reduction, suspension of business, dissolution, application for bankruptcy Reorganization or cancellation and other acts that may affect the borrower’s
repayment ability;
(3) Provide the third party with a guarantee sufficient to have a material adverse impact on its financial condition or its ability to perform its
obligations under the contract;
(4) Paying off other long-term debts in advance and may have a significant adverse impact on the borrower’s ability to perform its obligations
under the contract;
(5) Sign contracts / agreements or undertake relevant obligations that have a significant adverse impact on the borrower’s ability to perform its
obligations under the contract.
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5.The borrower promises that when the following events occur, the borrower will immediately notify the lender on the date of the event, and deliver
the original of the relevant notice to the lender (with official seal) within five (5) banking days from the date of the event:
(1) the occurrence of relevant events makes the representations and warranties made by the borrower in this contract untrue, inaccurate or invalid.
(2) The borrower or its controlling shareholder, actual controller or its affiliates are involved in litigation, arbitration or its assets are seized, sealed
up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge is involved in litigation, arbitration or
other coercive measures;
(3) The borrower’s legal representative or its authorized agent, principal, main financial principal, mailing address, enterprise name, office space
and other matters are changed;
(4) Being applied for reorganization or bankruptcy by other creditors or being revoked by the superior competent authority;(5) other major adverse
events that may affect the borrower’s solvency.
6.The borrower guarantees that it will not pay off other loans in priority in violation of the normal repayment order, and will not sign any contract
or agreement that will subordinate the loan under this contract now and in the future.
7.The borrower shall, as far as possible, repay and pay the principal and interest of the loan under the contract in the same currency. If the borrower
repays its debts in different currencies, the borrower shall, or authorize the lender, convert the funds in different currencies into the loan currency under the
contract according to the “deduction agreement”. The expenses incurred shall be borne by the borrower. When the guarantor repays the debt on behalf of
the borrower in different currencies, the “deduction agreement” from the guarantee contract shall be borne by the borrower.
8.In case of specific circumstances or changes in the guarantee under this contract, the borrower shall timely provide other guarantees approved by
the lender as required by the lender. Such specific circumstances or specific changes include but are not limited to the guarantor’s suspension of production,
closure of business, dissolution, suspension of business for rectification, revocation or revocation of business license, application or application for
reorganization, bankruptcy, major changes in business or financial status, involvement in major litigation or arbitration cases, involvement of legal
representatives, directors, supervisors and key business managers The value of the collateral is reduced or may be reduced, or property preservation
measures such as sealing up are taken, there is a breach of contract under the guarantee contract, and it is required to terminate the guarantee contract.
9.The lender has the right to conduct on-site or off-site due diligence on the borrower, and carry out post loan inspection on the borrower’s business
status, financial status, external guarantee, use of loan funds and repayment. The borrower is obliged to actively cooperate with the lender in loan payment
management, post loan management and relevant inspection.
10. The lender has the right to recover the loan funds under this contract in advance according to the withdrawal of the borrower’s funds.
11. special agreements on group customers (applicable to group customers).
If the borrower of this contract is a group customer, the borrower hereby undertakes:
(1) the borrower shall timely report the related party transactions of more than 10% of the net assets of the actual trustee, including: ① the related
party relationships of all parties to the transaction ② Transaction items and nature ③ The amount of the transaction or the corresponding proportion
④ Pricing policy (including transactions with no amount or only symbolic amount).
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(2) If the actual trustee has the following circumstances, it shall be deemed that the borrower has breached the contract, and the lender has the right
to unilaterally decide to cancel the unused credit of the customer, recover part or all of the used credit, or require the customer to increase the margin to
100%: ① providing false materials or concealing important business financial facts ② Changing the original purpose of the credit without the consent of
the lender, misappropriating the credit or using the bank credit to engage in illegal and illegal transactions ③ Taking advantage of false contracts with
related parties to obtain bank funds or credit by discounting or pledging creditor’s rights such as notes receivable and accounts receivable without actual
trade background ④ refusing to accept the lender’s supervision and inspection of its use of credit funds and relevant business and financial activities ⑤ In
case of major merger, acquisition and reorganization, the lender believes that it may affect the credit security ⑥ Intentionally evading bank creditor’s rights
through related party transactions.
12. special guarantees, commitments and agreements on green credit (applicable to borrowers whose construction, production and operation
activities of nuclear power plants, large hydropower stations, water conservancy projects, resource extraction projects, etc. may seriously change the
original state of the environment and the adverse environmental and social consequences are not easy to eliminate, as well as oil processing, coking and
nuclear fuel import workers The construction, production and operation of chemical raw materials and chemical products will produce adverse
environmental and social consequences, but it is easy to eliminate them through slow-release measures)
(1) the borrower declares and guarantees that the management of environmental and social risks, including: ① the internal management documents
related to environmental and social risks comply with the requirements of laws and regulations and are effectively implemented; ② there are no major
litigation cases involving environmental and social risks;
(2) The borrower promises to accept the supervision of the lender and strengthen environmental and social risk management, including: ①
commitment to compliance of all behaviors and performances related to environmental and social risks ② Commit to establish and improve the internal
management system of environmental and social risks, and specify the responsibilities, obligations and punishment measures of relevant responsible
personnel of the borrower ③ Commit to establish and improve the emergency mechanism and measures for environmental and social risk emergencies
④ Commit to establish special departments and / or designate special personnel to be responsible for environmental and social risks ⑤ Promise to
cooperate with the lender or its recognized third party in the assessment and inspection of the borrower’s environmental and social risks ⑥ in the face of
strong doubts from the public or other stakeholders about the borrower’s performance in controlling environmental and social risks, promise to respond
appropriately or take other necessary actions ⑦ undertake to urge the borrower’s vital related parties to strengthen management and prevent the
environmental and social risks of related parties from infecting the borrower ⑧ undertake to perform other matters that the lender considers relevant to
controlling environmental and social risks
(3) The borrower promises to timely and fully inform the lender of various permits ① approvals and approvals related to environmental and social
risks in the process of commencement, construction, operation and shutdown ② Assessment and inspection of the borrower’s environmental and social
risks by the environmental and social risk regulatory authority or its recognized institutions ③ supporting construction and operation of environmental
facilities ④ Discharge and compliance of pollutants ⑤ Safety and health of employees ⑥ neighboring communities for the borrower Major complaints and
protests ⑦ Major environmental and social claims ⑧ Other lenders believe that it is related to environmental and social winds Skillfully Major
information related to insurance;
(4) If the borrower and the actual Credit Lender have the following circumstances, it shall be deemed that the borrower has an event of default
under this Contract: ① the borrower’s statement, guarantee and commitment on environmental and social risk management have not been seriously
fulfilled ② The borrower is punished by relevant government departments due to poor environmental and social risk management ③ the borrower is
strongly questioned by the public and / or the media due to poor environmental and social risk management ④ Other events of default related to
environmental and social risk management agreed between the lender and the borrower, including cross events of default;
In case of the above events of default of the borrower, the lender has the right to unilaterally decide: ① cancel the credit commitment already made
② Suspend the disbursement of the loan until the borrower takes rescue measures satisfactory to the lender ③ recover the allocated loan in advance
④ When the loan cannot be repaid, relevant mortgage and pledge rights and other punishment measures shall be exercised in advance ⑤ other punishment
measures agreed by the lender and the borrower.
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13. As for the anti money laundering agreement, the borrower confirms and agrees that the lender has the right to conduct money laundering risk
assessment on the transactions involved under the contract in accordance with the applicable anti money laundering laws and regulations and internal
management requirements, and the lender has reasonable reasons to suspect that the borrower and / or the transactions under the contract are suspected of
participating in the UN Security Council, the financial action task force against money laundering, China In case of money laundering, terrorist financing
or (weapons of mass destruction) financing activities, or tax evasion recognized by the United States, the European Union and other international
organizations or countries, the lender has the right to take necessary control measures in accordance with the anti money laundering regulations of the
people’s Bank of China. At the same time, the lender has the right to directly restrict and suspend all or part of the business under this contract without
notifying the borrower, announce the early maturity of the loan, terminate this contract, and require the borrower to bear all losses caused to the lender.
14.The borrower agrees to irrevocably authorize the lender, without violating the prohibitive provisions of the regulations on the administration of
credit investigation industry and relevant laws and regulations, to collect information about all contracts / agreements / commitments signed between the
borrower and the lender in accordance with the collection requirements of the basic financial credit information database established by the state, Including
the performance information related to all the above contracts / agreements / commitments, as well as the basic enterprise information and other
information provided by the borrower, which shall be provided to the basic database of financial credit information established by the state for query and
use by qualified units; At the same time, the lender also has the right to query and use the credit information about the borrower in the basic financial credit
information database established by the state. The authorization covers all links of the lender’s necessary business management of the business under the
contract before and after the signing of the contract, and the validity period will expire with the actual termination of the contract.
15.The borrower hereby confirms that it has fully understood and understood the lender’s position against its employees seeking benefits in any
form by taking advantage of their positions, and undertakes to avoid such situations in accordance with the principle of integrity and fairness, and will not
provide any form of rebates, gifts, securities, valuables, various incentives, private expense compensation, private tourism High consumption Entertainment
Music and other improper interests.
Article 9 deduction agreement
1 ..The borrower agrees that when any debt related to the loan hereunder is due and payable, the lender has the right to directly deduct the funds in
the repayment reserve account opened by the borrower in Shanghai Pudong Development Bank Co., Ltd. to pay off the due and payable debt. If the funds
in the repayment reserve account are insufficient to pay off the debts, the lender has the right to deduct the funds in any other account opened by the
borrower in each branch of Shanghai Pudong Development Bank Co., Ltd.
2.The lender has the right to use the proceeds to repay the loan principal, interest or other expenses. If there are multiple claims unpaid at the same
time, the lender shall determine the repayment order of the claims.
3. if the deducted income is inconsistent with the currency to be repaid, it shall be handled in the following ways:
(1) if the currency of the loan is RMB, the loan principal strings T and 0 shall be paid off after the foreign exchange settlement is converted into
RMB according to the purchase price converted between the currency of the deduction and RMB published by the lender at the time of deduction
(2) If the loan currency is non RMB and the deduction currency is RMB, you shall purchase foreign exchange directly according to the selling price
of RMB exchange between the applicable loan currency published by the lender at that time and convert it into the loan currency, and then pay off your
past principal and interest.
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(3) If the loan currency and the deduction currency are not RMB and are inconsistent, the loan principal and interest shall be paid off after the
foreign exchange settlement is converted into RMB according to the applicable deduction currency published by the lender at the time of deduction and the
purchase price converted into RMB, and then converted into the loan currency according to the loan currency published by the lender and the selling price
converted into RMB on the same day.
Article 10 proof of creditor’s rights
The lender shall, in accordance with its consistent business practice, maintain accounting accounts related to the business activities involved in this
contract on its accounting books to prove the loan amount of the lender. The effective certificate for the borrower to recognize the loan creditor’s rights
under this contract shall be subject to the accounting certificate or other effective supporting materials issued and recorded by the lender according to its
own business regulations.
Article 11 agreed service address
1. The lender confirms that the address listed on the first page of this contract is its effective service address. The notice sent by the borrower to the
lender directly or by mail under this contract shall be sent to the address listed on the first page of this contract until the lender announces the change of this
address. The borrower agrees that all notices it sends to the lender shall be deemed to have been served when actually received by the lender.
2. The borrower confirms that the address, fax, e-mail and other service information listed on the first page of this contract are its valid mailing or
e-service address. All kinds of non litigation notices and other documents under the contract, as well as letters, subpoenas, notices and other legal
documents issued to them in the process of any litigation (including any litigation procedures and execution procedures such as first instance, second
instance and retrial) arising from the contract, as long as they are mailed or sent by fax E-mail and other electronic service methods shall be deemed as
service when they are sent to the mailing or electronic service address listed on the first page of this contract, and the specific service date shall be subject
to the provisions on service date in the civil procedure law. The above change of mailing or electronic service address shall not have legal effect unless
notified to the lender in advance, and the service address confirmed in this contract shall still be deemed as a valid service address.
Article 12 events of default and handling
1.Event of default
Any of the following circumstances shall constitute a breach of contract by the borrower against the lender:
(1) Any statement and guarantee made by the borrower in this contract or any notice, authorization, approval, consent, certificate and other
documents made in accordance with or related to this contract are incorrect or misleading, or have been proved to be incorrect or misleading, or have been
proved to be invalid or revoked or have no legal effect.
(2) The borrower has violated “other matters agreed by both parties” (if any) in part I of the contract or any agreed matter in Article 8 of Part II.
(3) The borrower has a major cross default event, including but not limited to the borrower’s breach of any other loan contract and agreement
signed by it; Or the borrower fails to pay the debts under other loan contracts and agreements signed by it.
(4) The borrower’s investors withdraw funds, transfer assets or transfer equity without authorization.
(5) The guarantor has or will no longer have the ability to provide guarantee corresponding to the loan, or violates the guarantee documents signed
by it.
(6) The borrower suspends business, stops production, goes out of business, goes out of business for rectification, reorganization, liquidation, is
taken over or entrusted, is dissolved, the business license is revoked or cancelled or goes bankrupt.
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(7) The financial condition of the borrower or the guarantor deteriorates, there are serious difficulties in operation, or events or circumstances that
have an adverse impact on its normal operation, financial condition or solvency.
(8) The borrower or its controlling shareholder, actual controller or its affiliates are involved in major litigation, arbitration, or its major assets are
seized, sealed up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge, directors, supervisors or
senior managers are involved in litigation Arbitration or other coercive measures adversely affect the borrower’s solvency.
(9) Failure to repay the principal and interest on schedule or use the loan for the agreed purpose.
(10) The loan funds are not paid in the agreed manner.
(11) the documents and information submitted for loan application are false and incorrect.
(12) It does not meet or exceed the constraints of relevant financial indicators agreed in the contract.
(13) On any principal and interest repayment date under the contract and within three (3) days before it, the capital balance in the repayment
reserve account is lower than the principal and interest repayment amount of the borrower in the current period.
(14) The capital flow in the general settlement account / capital return account is abnormal.
(15) The borrower has other acts in violation of this contract that are sufficient to hinder the normal performance of this contract, or other acts that
damage the legitimate interests of the lender.
2. Handling of breach of contract
(1) when one or more of the default circumstances listed in the current paragraph occur, the lender may take one or more of the following measures
at its discretion:
① require the borrower to correct within a time limit.
② cancel the unused loan of the borrower and stop issuing and paying the unused loan of the borrower.
③ declare that all or part of the loan principal under this contract will expire immediately in advance, and require the immediate repayment of part
or all of the loan, the settlement of the interest owed, and the immediate recourse to the guarantor or the borrower in various forms.
④ Penalty interest and compound interest shall be charged for overdue loans and misappropriated loans.
⑤ Deduct from any account opened by the borrower in each branch of Shanghai Pudong Development Bank Co., Ltd
⑥ Require the borrower to supplement the loan issuance and payment conditions, or change the loan payment method.
⑦ require the borrower to provide other guarantees approved by the lender.
⑧ other necessary measures stipulated by law.
(2) In addition to the above measures, the lender may also require the borrower to bear the liability for breach of contract and require the borrower
to pay liquidated damages (see part I of the contract for the calculation method of liquidated damages). If the liquidated damages are insufficient to make
up for the losses suffered by the lender, the borrower shall compensate the lender for all losses suffered thereby.
(3) If the borrower fails to repay the principal and pay interest in full and on time, it shall also bear all expenses paid by the lender for realizing the
creditor’s rights and security rights, including but not limited to collection expenses, litigation expenses, lawyer’s fees, travel expenses and various other
expenses payable.
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Article 13 effectiveness, alteration and dissolution
1. this contract shall come into force after being signed (or sealed) and affixed with official seal by the legal representative of the borrower or its
authorized agent, and signed (or sealed) and affixed with official seal (or special seal for contract) by the legal representative (person in charge) of the
lender or its authorized agent, and shall be terminated after all creditor’s rights under this contract are paid off.
2.After the contract takes effect, neither party shall change or terminate the contract in advance without authorization. If the contract needs to be
changed or terminated, both parties shall reach a written agreement through consultation.
1 ..definition
Article 14 other provisions
(1) “all creditor’s rights” under this contract refers to the loan principal, interest, liquidated damages and various expenses incurred to realize the
creditor’s rights.
(2) The term “interest” under this contract includes interest, penalty interest and compound interest.
(3) The “bank business day” under this contract refers to the normal business day of the lender’s corporate business at the lender’s domicile,
excluding Saturdays, Sundays (except those open for business due to holiday adjustment) or other legal holidays.
2. Applicable law
This contract shall be governed by and construed in accordance with the laws of the people’s Republic of China (for the purpose of this contract,
the laws of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan are not included here).
3.Settlement of disputes
All disputes related to this contract shall be settled through friendly negotiation; If the negotiation fails, a lawsuit shall be filed with the people’s
Court of the place where the lender has its domicile. During the dispute period, each party shall continue to perform the terms not involved in the dispute.
4.Miscellaneous
(1) If matters not covered in this contract need to be supplemented, both parties may agree and record them in part I of this contract, or reach a
separate written agreement as an annex to this contract. The annexes to the contract (see part I of the contract) are an integral part of the contract and have
the same legal effect as the text of the contract.
(2) During the validity of this contract, the lender’s grace or delay in taking action for any breach of contract or other acts of the borrower shall not
damage, affect or restrict all rights or interests enjoyed by the lender as a creditor according to the law or this contract, nor shall it be regarded as the
lender’s recognition of the borrower’s breach of this contract, It shall not be deemed that the lender waives the right to take action against the borrower’s
existing or future default.
(3) The invalidity of one clause of the contract shall not affect the validity of other clauses of the contract. This contract is not valid for any reason
When effective, the borrower shall still bear the responsibility of repaying all debts owed to the Lender under this contract. In case of the above
circumstances, the lender has the right to immediately terminate the execution of this contract and recover all debts owed by the borrower under this
contract from the borrower immediately.
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(4) The lender may transfer all or part of its rights and / or obligations under this contract, and in this case, the transferee shall enjoy and / or bear
the same rights and / or obligations as it should enjoy if it is a party to this contract. After receiving the lender’s notice on the transfer of creditor’s rights,
the borrower shall be liable to the transferee in accordance with the provisions of this contract.
(5) Unless otherwise specified in the contract, relevant terms and expressions in the annexes to the contract have the same meanings as those in the
contract.
(6) The headings under this contract are for convenience only and shall not be used as the basis for the contents under this heading.
(no text below this page)
(this page is the signature page without text)
This contract is signed by and between the borrower and the lender on June 21 ,2022. The borrower confirms that when signing this contract, both
parties have explained and discussed all the terms in detail, both parties have no doubt about all the terms of the contract, and have an accurate
understanding of the legal meaning of the parties’ relevant rights and obligations and liability limitation or exemption terms. annihilation
Borrower(Official seal)
Legal representative or authorized agent (signature or seal)
Lender (Official seal or contract seal)
Legal representative / person in charge (authorized or sealed)
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Exhibit 10.20
No: 98842022280249
SPD BANK
contract for loans of working capital
Borrower: ChinaLink Professional Services Co., Ltd.
Principal business address：2nd floor, building 18, No. 498, GuoShouJing Road, Pudong New Area, Shanghai
Contract for loans of working capital
The contact：Lisa Wu
Fax：/
Tell：021-31268010
Email：lisa.wu@clpsglobal.com
Lender：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Principal business address：No.509 Jinqiao Road, Pudong New Area, Shanghai
The contact：Lin Xie Tell：021-58994702
Whereas;
the borrower applies to the lender for working capital loan due to capital turnover needs; Upon review, the Lender agrees to release the loan in
accordance with the terms and conditions of this Contract. In order to clarify the rights and obligations of both parties, both parties hereby enter into this
Contract for compliance with the relevant laws, regulations and rules of the People’s Republic of China through mutual agreement.
At the same time, the borrower and the lender confirm the following principal terms (please select in the box below according to the situation, tick X if
not selected);
☒ This contract, as the number of a/financing bottle degree of agreement (hereinafter referred to as the credit line agreement) affiliated with the
financing documents signed, this contract comes into force, all its terms and conditions are incorporated into the financing credit agreement, and as a part
of (if the borrower have previously signed the melt line agreement, should choose the project, and indicate the credit line agreement number);
þ This contract is an independent credit document signed between the borrower and the lender (this item should be selected if the borrower and the
lender have not signed the financing line agreement);
☒ The guarantor has been informed that the purpose of the loan under this contract is to repay the loan under the original contract name: Date of
signing: No: .(Select this item if the purpose of borrowing is to repay the old or renew the loan)
2
1. Types of Loans: þ Short-term working capital loans ； ﲟ mid-term liquidity loan,
The Part One Commercial terms
2.
3.
4.
loan amount under this contract is RMB(currency) 10 million
the specific use of loan under this contract as follows: payroll
the time limit for the loan under this contract (in the following box, please, don’t choose to play x)
þ since 9th May 2022 to 8th May 2023.
☒ From the date of first withdrawal/ year（or / months）
The actual withdrawal date and repayment date shall be the date recorded on the ious (loan certificate) issued by the lender and the borrower. The last
repayment date shall not exceed the loan term agreed herein. The loan (loan certificate) is an integral part of this contract.
5．The interest rate of the loan under this Contract is (please tick V in the box below and x if not)
þ (1) the RMB loans Interest Rate :
Each loan under this Contract shall be issued according to the loan market quoted APR (term) -1 BPS published by The National Inter-Bank Lending
Center at the end of the day prior to the actual date of loan issuance. If the calculated interest rate is less than 0%, it shall be implemented as 0%. (The
quoted market interest rate is the annual interest rate, which can be found through the National Inter-bank Lending Center and the website of the People’s
Bank of China)
After each loan is issued, if the quoted interest rate of the loan market is adjusted during the loan term, the loan interest rate (please put a in the box
below and x in case of non-I):
þ Fixed interest rate without adjustment;
☒ Since interest rates adjust interest rates to adjust interest rates before a complex day by day the national interbank funding center published in this
article the contract term loan market quotation rate (LPR) as the base, the way of fixed interest rate floating point and calculating constant, specific interest
rates adjust below (please v is selected in the following box, does not escape the x) :
☒ The interest rate is adjusted by year, and the interest rate adjustment day is the corresponding day of the actual loan issuing date in the corresponding
month of the next Gregorian calendar year. If there is no corresponding day of the actual loan issuing date in the corresponding month of the next
Gregorian calendar year, the interest rate adjustment day is the last day of the actual loan issuing date in the corresponding month of the next Gregorian
calendar year:
☒ Adjust the interest rate according to year, the interest rate adjustment date is January 1 of each year；
☒ Adjust the interest rate according to the interest settlement date, and the interest rate adjustment day is the next day of the interest settlement date；
☒ Quarterly adjustment of interest rate, interest rate adjustment day for the end of each quarter on a monthly basis,；
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☒ interest rate adjustment day for a monthly/daily
☒ other agreement (specific interest rate adjustment day),
☒ (2) interest rate of foreign currency loan;
each loan under this Contract will be issued at the rate of ___(LIBORAHIBORSIBOR) published by the Lender on the date of disbursement plus/BPS.
☒ After each loan under this joint venture is issued, the loan interest rate shall be adjusted by .
☒ Fixed rate, that is, the interest rate is not adjusted.
6. The method of loan settlement under this Contract is (please check the box below/tick X if not selected):
☒ On a monthly basis, the settlement date is the second +(20) day of each month；
þ Quarterly, then the settlement date is the twentieth (20th) day of the last month of each quarter:
☒ Other methods:
And each repayment interest under this contract is clear with this.
7. Penalty interest rate under the Contract is:
(1)
(2)
This overdue penalty interest rate shall be applied at the loan execution rate applicable on the date of penalty interest collection plus 30 %.
If the loan is not used in accordance with the purpose agreed herein, the penalty interest rate will be calculated and the loan execution interest
rate applied on the penalty interest date shall be charged plus 50%.
8. The drawdown period of the loan under the Contract is from May 9, 2022 to May 29, 2022. The first withdrawal shall be made before May 29, 2022
9. The withdrawal plan for the loan under this Contract is as follows (please select√ in the box below, tick X if you do not select)
the withdrawal plan is shown in the table below：
NO
1
The withdrawal date
☒ Other withdrawal plans: ___/_______ ..
On withdrawals
10. The repayment plan of the loan under this Contract is as follows (Please tick √in the box below, if not, tick x)
NO
1
Repayment date
Reimbursement amount
11. Liquidated damages for loan repayment in advance; Equivalent to 0% or RMB(currency) 0 the actual amount of loan repaid in advance
12. The principal amount of loan repayment in advance shall not be less than RMB(currency) 0
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13. Account opening (select one of the following modes for RMB loans, select the special account mode for foreign currency loans, and mark X for those
not selected)
þ Unsegregated account mode：
(1) The general settlement account opened by the borrower with the lender is:
Bank：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name：ChinaLink Professional Services Co., Ltd.
Bank account number:98840078801600002917
(2) the borrower’s fund recovery account opened with the lender is:
Bank：Shanghai Pudong Development Bank Co., LTD. Jinqiao Branch
Bank account name：ChinaLink Professional Services Co., Ltd.
Bank account number:98840078801600002917
☒ Special Account mode
(1) The special account for working capital loan opened by the borrower with the lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
(2) The general settlement account opened by the borrower with the lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
(3) The Borrower’s fund recovery account opened with the Lender is:
Bank： _____/_________ .
Bank account name： _____/_________ .
Bank account number: _____/_________ .
14. Entrusted Payment by the Lender: if the payment object is clear and the single managed payment amount exceeds (currency amount) the loan fund
payment, the entrusted payment method of the Lender shall be
15. The guarantors and security contracts providing security for the debt hereunder include but are not limited to：
☒ The guarantor ____/_________ 《guaranty contract》NO[ ]
☒ The mortgagor ____/_________ 《Mortgage contract》NO[ ]
☒ The pledger ____/_________ 《Pledger contract》NO[ ]
☒ Other guarantee ____/_________
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16. Breach of contract
liquidated damages. It is equivalent to zero percent of the principal amount borrowed or _____/_________ .
17. Annexes to this contract include:
(1) 《Application for withdrawal》
(2) 《________/______________ 》
(3) 《________/______________ 》
(4) 《________/______________ 》
(5) 《________/______________ 》
18. Other matters agreed upon by both parties
None / .
19. This Contract is made in three originals, one held by the borrower and two held by the lender, each of which has the same legal effect.
(End of Part I)
6
The Part Two General terms
Article 1 borrowing
1. The Borrower irrevocably agrees and confirms that the Lender has the right to change due to laws, regulations and policies, or to be restricted by the
macro-monetary or financial regulatory policies of the government, or to be subject to market conditions. The borrower may suspend, reduce or cancel the
loan and notify the borrower if the conditions for granting the loan are adjusted or increased in consideration of its capital position and financial cost, its
own business needs, the borrower’s performance ability or financial condition, or other major changes occur.
2. The compensation hereunder shall be used in accordance with the loan purposes agreed herein. The Borrower shall not misappropriate or occupy the
loan for fixed asset investment, equity investment, etc., or use the loan in fields and purposes prohibited by the state or other activities inconsistent with
working capital loan purposes
Article 2 borrowing rate and interest calculation method
1. Unless otherwise agreed herein, the loan interest hereunder shall be calculated and collected in accordance with the actual amount of
withdrawal and the number of days occupied by the Lender from the date of loan issuance. Occupied days include the first day, excluding the
last day. Daily interest = monthly interest rate /30, monthly interest rate = annual interest rate 12.
2. The Lender has the right to pay the unpaid principal of the loan due to the Borrower (the term “due” in this Contract includes the case where
the Lender declares the loan to be due early), and the overdue penalty interest shall be calculated and collected according to the retroactive
interest rate agreed herein according to the actual overdue days from the overdue date until the principal and interest of the borrower are paid
off
3.
If the borrower fails to use the loan funds for the agreed purposes, the lender shall have the right to use the amount of loan box for breach of
contract. Since the date of breach, the penalty interest shall be calculated and collected according to the penalty interest rate for
misappropriation agreed herein according to the actual days of breach until the borrower pays off the principal and interest.
4. The Lender shall, from the date on which the borrower fails to pay the interest on time (including the normal total interest, overdue penalty
interest and misappropriated penalty interest), compound the interest according to the overdue penalty interest rate agreed herein according to
the actual overdue days.
5.
Interest rate market paralysis If there is no APPLICABLE LPR (applicable in RMB) or LIBOR/HIBORSIBOR (applicable in foreign currency)
interest rate on the quoted date of the relevant interest period after the loan is issued under this Contract, the Borrower shall negotiate with the
Lender to determine an alternative interest rate; If no agreement can be reached within five (5) banking business days from the commencement
of the negotiation, the borrower shall repay the principal and interest of the loan in full within thirty (30) banking business days from the date
of such agreement.
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1. before the first withdrawal, the borrower shall meet the following conditions:
Article 3 withdrawal
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) This contract and the corresponding guarantee contract (if any) have been signed and remain valid, and the security right has been effectively
established;
(3) Submit the borrower’s current valid business license, articles of association and recent financial statements on the withdrawal date (including
but not limited to the annual financial report and current statements audited by certified public accountants in the previous year):
(4) Submit the loan resolution made by the borrower’s board of directors / shareholders’ meeting or other institutions with the same effect, the letter
of authorization from the legal representative to the authorized representative and the original signature sample of the legal representative and authorized
representative;
(5) The borrower has opened relevant accounts with the lender according to the lender’s requirements;
(6) The borrower has performed its obligations under the contract without any event of default under the contract;
(7) Other documents or conditions required by the lender.
2. except for the first withdrawal, the borrower shall meet the following conditions before each withdrawal:
(1) submit the withdrawal application (see Annex 1 or annex 2 of the contract for the format), the completed loan (loan) voucher and other relevant
documents at the time and in the manner agreed in the contract;
(2) The representations and warranties made by the borrower under this contract shall remain valid;
(3) The borrower has performed its obligations under the contract without any event of default under the contract;
(4) Other documents or conditions required by the lender.
3. withdrawal
(1) the borrower shall make a one-time withdrawal or installment withdrawal in accordance with the withdrawal plan agreed in the contract, and
submit a withdrawal application (see Annex 1 or annex 2 of the contract for the format) to the lender three (3) banking days before the expiration of each
withdrawal date to go through the withdrawal procedures;
(2) If the borrower needs to postpone or change the withdrawal date, it shall obtain the consent of the lender three (3) banking days before the
expiration of the withdrawal date, and the lender has the right to require the borrower to pay the interest loss suffered by the lender (interest loss: the
interest of the delayed withdrawal period and the interest of demand deposit in the same period);
(3) If the borrower requests to cancel all or part of the undrawn loan, it shall apply to the lender three (3) banking business days before the
determined withdrawal date or the termination date of the withdrawal period, and the cancellation can be carried out only with the consent of the lender;
(4) If the borrower fails to handle the withdrawal procedures within the specified withdrawal date or withdrawal period and fails to apply for
postponement of withdrawal, the lender has the right to cancel the undrawn loan:
The lender has the right to waive one or more of the above withdrawal conditions without affecting any right enjoyed by the Lender under this
contract
8
Article 4 account opening and management
1. When signing this contract, the borrower shall have opened a general settlement account and capital return account (see part I of this contract) at
the lender, as well as a special working capital loan account (if any) agreed by both parties. The borrower agrees that the lender shall monitor the aforesaid
account of the borrower.
2. If no special working capital loan account is opened, the general settlement account is used to calculate the loan fund issuance and loan fund
payment applied by the borrower at the lender.
If a special working capital loan account is opened, the special working capital loan account is used to calculate the loan fund issuance and loan
fund payment applied by the borrower at the lender, and the funds in the account bear interest according to the current deposit. The borrower agrees that in
addition to the seal reserved by the borrower, the special account for working capital loan shall also reserve the special seal for loan fund payment
supervision of the lender.
Without the written consent of the lender, the borrower shall not change the reserved seal of the special working capital loan account at will.
3. The borrower confirms that the fund return account is the income account and repayment reserve account under the contract. The borrower’s
income cash flow or the borrower’s overall cash flow shall be entered into the capital return account.
The borrower guarantees that the capital balance in the borrower’s repayment reserve account shall not be less than the amount of principal and
interest payable by the borrower in the current period on each principal and interest repayment date under the contract and within three (3) days before
it.The borrower agrees that on each principal and interest repayment date and within three (3) days before it, the lender has the right to restrict or refuse the
borrower’s external payment that will cause the fund balance in the repayment reserve account to be lower than the principal and interest payable in the
current period, so as to ensure that the fund balance in the repayment reserve account is sufficient to pay the principal and interest payable in the current
period.
The lender has the right to monitor the capital return account. In case of abnormal capital flow in the capital return account, the lender has the right
to find out the reasons from the borrower and take corresponding measures.
Article 5 Payment supervision
1. The borrower agrees that the lender has the right to manage and control the payment of the loan funds through the entrusted payment of the
lender or / and the independent payment of the borrower, so as to supervise the use of the loan funds according to the purpose agreed in the contract.
Entrusted payment by the lender means that the lender pays the loan funds through the borrower’s account to the borrower’s trading partner who
meets the purpose agreed in this contract according to the borrower’s withdrawal application and payment entrustment.
Autonomous payment by the borrower means that after the lender issues the loan funds to the borrower’s account according to the borrower’s
withdrawal application, the borrower will independently pay them to the borrower’s trading partner who meets the purpose agreed in the contract.
2. The borrower agrees that if the borrower and the lender have newly established a credit business relationship and the borrower’s credit status is
general, or the payment object is clear and the single payment amount exceeds the amount agreed in the contract (see part I of the contract), or other
circumstances recognized by the lender, the entrusted payment method of the lender shall be adopted.
If the entrusted payment method is adopted, the lender has the right to review whether the payment object, payment amount and other information
listed in the payment application provided by the borrower are consistent with the corresponding business contract and other supporting materials
according to the loan purpose agreed in the loan contract.
After approval, the lender shall pay the loan funds to the borrower’s trading partner through the borrower’s account.
9
3. When applying to the lender for external payment of loan funds, the borrower shall submit supporting materials meeting the lender’s
requirements, including but not limited to:
(1) documents certifying that the purpose of payment is in accordance with the purpose agreed in the contract:
(2) Business contracts and written documents that truly reflect the borrower’s payment obligations. For the expenses that must be paid without
signing the contract, the charging policy and standard approved by the competent department shall be provided;
(3) If the corresponding invoices or receipts cannot be obtained at the same time of payment, the borrower shall timely submit the corresponding
invoices or receipts for the use of funds after the completion of payment;
(4) Legal and valid payment voucher:
(5) Other documents required by the lender.
The lender has the right to waive one or more of the above supporting materials without affecting any rights enjoyed by the Lender under this
contract
4. If the special account for working capital loan is not opened, the borrower shall submit the withdrawal application to the lender three (3) banking
days before the proposed withdrawal date (see Annex 1 of the contract for the format), and propose whether to adopt the entrusted payment method of the
lender or the independent payment method of the borrower. The borrower confirms that the lender has the right to review whether the relevant information
of the borrower meets the payment conditions agreed in the contract, and has the right to decide the payment method of the corresponding loan.
If the special account for working capital loan is opened by the entrusted payment method of the lender, the borrower shall submit the payment
application with the reserved seal of the borrower of the special account for working capital loan (see Annex 3 of the contract for the format) to the lender
three (3) banking days before the payment date. The lender has the right to review whether the relevant information of the borrower meets the payment
conditions agreed in this contract. If the lender approves, it shall stamp the special seal for loan fund payment supervision on the payment voucher before
making external payment. If the borrower’s independent payment method is adopted, the borrower shall submit the payment application (see Annex 3 of
the contract for the format) and relevant materials to the lender three (3) banking days in advance. The lender has the right to review whether the relevant
materials submitted by the borrower meet the conditions agreed in the contract.If the lender approves, the borrower shall fill in the payment voucher (the
amount of each summary payment voucher shall not exceed the entrusted payment amount of the lender agreed in this contract).After review, the lender
shall affix the special seal for loan fund payment supervision on the summary payment voucher, and transfer the corresponding funds to the borrower’s
general settlement account.
5. If the borrower’s autonomous payment method is adopted, the borrower shall regularly summarize and report the autonomous payment of loan
funds to the lender every month. The lender has the right to verify whether the borrower’s loan payment meets the agreed purpose and payment method
through account analysis, voucher inspection, on-site investigation, etc.
6. The borrower confirms that it shall pay to the lender the remittance fee arising from the payment of funds. When the remittance fee occurs, the
lender has the right to deduct it directly according to the actual amount.
7. In the process of loan issuance and payment, if any of the following circumstances occurs to the borrower, the lender has the right to require the
borrower to supplement the withdrawal conditions and payment conditions, or change the loan payment method and stop the issuance and payment of loan
funds:
(1) declining credit status;
(2) The profitability of main business is not strong;
(3) Abnormal use of loan funds.
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Article 6 repayment
1. the borrower shall timely and fully repay the principal, interest and relevant expenses of the loan according to the repayment plan agreed in the
contract. The borrower hereby irrevocably authorizes the lender to actively deduct the above amount from its account opened with the lender on the
maturity date of the loan or when the conditions agreed in the contract are met to repay the creditor’s rights of the lender.
2. If the borrower repays the loan in advance, it shall submit a written application to the lender and obtain the written consent of the lender before
the tenth (10th) banking business day before the expected repayment date. Without the prior written consent of the lender, the borrower shall still repay the
principal and interest according to the time limit and interest rate agreed in the contract.
The prepayment agreed by the lender shall be deemed as the prepayment of the loan. In this case, the lender also has the right to require the
borrower to pay certain liquidated damages in accordance with the contract (see part I of the contract).
In case of early repayment of the loan, the interest shall be calculated according to the actual number of days used by the borrower and returned
together with the principal; The principal amount of early repayment shall not be less than the limit agreed in part I of this contract; The principal returned
shall be offset against the loan principal in the reverse order of the repayment plan agreed in this contract.
3. If the borrower is unable to repay on schedule for justified reasons, it shall apply to the lender for loan extension before the thirtieth (30th)
banking business day of the repayment period agreed in this contract, and prepare necessary materials to go through relevant extension procedures. If the
loan under this contract is guaranteed, mortgaged or pledged, the guarantor, mortgagor and Pledgor shall also issue a written consent certificate. The lender
shall decide whether to agree to the extension. If the borrower does not apply for extension or the application for extension is not approved by the lender,
the loan shall be transferred to the overdue loan from the next day of the maturity date.
4. The borrower shall not withdraw any returned loan funds again.
Article 7 representations and warranties
The borrower makes the following representations and warranties to the lender, which are made at the time of signing this contract and remain valid
during the validity of this contract.
1. The borrower is an enterprise (institution) legal person and other economic organization established in accordance with its applicable law, with
independent legal personality, complete financial system and repayment ability, and has the right to conclude and perform this contract according to law.
2. The borrower has the right to sign this contract and has completed all authorizations and approvals of the board of shareholders, the board of
directors or other competent authorities required for signing this contract and performing its obligations under this contract. All terms of this contract are
the true intention of the borrower and are legally binding on the borrower.
3. The signing and performance of this contract shall not violate the laws that the borrower shall abide by (the laws under this contract include the
laws, regulations, rules, local regulations, judicial interpretations, etc., the same below), the relevant documents, judgments and rulings of the competent
authorities, nor the articles of association of the borrower or any contract it has signed Conflict with the agreement or any other obligations undertaken.
4. The borrower guarantees that all financial statements (if any) issued by it comply with the provisions of applicable laws and that the statements
truly, completely and fairly reflect the financial situation of the borrower.
5. In the process of signing and performing this contract, the borrower abides by the principle of honesty and trustworthiness, and all materials,
documents and information (including but not limited to business license, project approval documents, feasibility study report, self raised funds
implementation certificate, financial statements, etc.) provided to the lender, including itself and the guarantor, are true, effective and accurate Complete
without any concealment or omission.
6. The borrower guarantees to complete the filing, registration or other procedures required for the effectiveness and legal performance of this
contract.
7. Since the issuance of the latest audited financial statements, there has been no significant adverse change in the borrower’s operating and
financial conditions.
11
8. In business activities, strictly abide by laws and regulations, carry out various businesses in strict accordance with the provisions of the
borrower’s business license or the business scope approved according to law, go through the registration and annual inspection procedures on time, the
production and operation are legal and compliant, have the ability of sustainable operation and have a legal source of repayment.
9. Do not give up any due creditor’s rights, nor dispose of the existing main property free of charge or in other inappropriate ways.
10. The borrower has disclosed to the lender what it knows or should know and decided whether to grant the loan under this contract
Important facts and conditions (including but not limited to business status, financial status, external guarantee, etc.).
11. The borrower guarantees that it is in good credit condition and has no major bad record.
12. The borrower guarantees that there are no other circumstances or events that have or may have a material adverse impact on the borrower’s
performance ability.
The borrower and the lender agree as follows:
Article 8 covenants
1. The borrower guarantees to operate in accordance with the law, use the loan for the purpose agreed in this contract and not misappropriate it for
other purposes. The borrower shall regularly provide various relevant financial and accounting materials, including monthly and annual statements, as
required by the lender, and actively cooperate with the loan The borrower shall supervise the use of the loan and the operation of the borrower. The lender
may inspect and supervise the use of the loan in various ways at any time.
2. The borrower shall repay the principal and interest of the loan under the contract according to the time, amount, currency and interest rate
specified in the contract, application and loan (loan) certificate.
3. The borrower guarantees that once any event occurs or will occur that is sufficient to have a significant adverse impact on the financial condition
of the guarantor or its ability to perform the guarantee obligations, the borrower will timely provide a new guarantee approved by the lender.
4. The borrower promises that the borrower will not take the following actions without the written consent of the lender:
(1) Transfer (including sale, gift, debt repayment, exchange, etc.), mortgage, pledge or otherwise dispose of all or most of its major assets;
(2) Contracting, joint venture, major foreign investment, change of actual controller or major shareholder, shareholding reform, merger (merger),
joint venture (cooperation), division, equity transfer, substantial increase of debt financing, establishment of subsidiaries, property right transfer, capital
reduction, suspension of business, dissolution, application for bankruptcy Reorganization or cancellation and other acts that may affect the borrower’s
repayment ability;
(3) Provide the third party with a guarantee sufficient to have a material adverse impact on its financial condition or its ability to perform its
obligations under the contract;
(4) Paying off other long-term debts in advance and may have a significant adverse impact on the borrower’s ability to perform its obligations
under the contract;
(5) Sign contracts / agreements or undertake relevant obligations that have a significant adverse impact on the borrower’s ability to perform its
obligations under the contract.
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5. The borrower promises that when the following events occur, the borrower will immediately notify the lender on the date of the event, and
deliver the original of the relevant notice to the lender (with official seal) within five (5) banking days from the date of the event:
(1) the occurrence of relevant events makes the representations and warranties made by the borrower in this contract untrue, inaccurate or invalid.
(2) The borrower or its controlling shareholder, actual controller or its affiliates are involved in litigation, arbitration or its assets are seized, sealed
up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge is involved in litigation, arbitration or
other coercive measures;
(3) The borrower’s legal representative or its authorized agent, principal, main financial principal, mailing address, enterprise name, office space
and other matters are changed;
(4) Being applied for reorganization or bankruptcy by other creditors or being revoked by the superior competent authority;(5) other major adverse
events that may affect the borrower’s solvency.
6. The borrower guarantees that it will not pay off other loans in priority in violation of the normal repayment order, and will not sign any contract
or agreement that will subordinate the loan under this contract now and in the future.
7. The borrower shall, as far as possible, repay and pay the principal and interest of the loan under the contract in the same currency. If the borrower
repays its debts in different currencies, the borrower shall, or authorize the lender, convert the funds in different currencies into the loan currency under the
contract according to the “deduction agreement”. The expenses incurred shall be borne by the borrower. When the guarantor repays the debt on behalf of
the borrower in different currencies, the “deduction agreement” from the guarantee contract shall be borne by the borrower.
8. In case of specific circumstances or changes in the guarantee under this contract, the borrower shall timely provide other guarantees approved by
the lender as required by the lender. Such specific circumstances or specific changes include but are not limited to the guarantor’s suspension of production,
closure of business, dissolution, suspension of business for rectification, revocation or revocation of business license, application or application for
reorganization, bankruptcy, major changes in business or financial status, involvement in major litigation or arbitration cases, involvement of legal
representatives, directors, supervisors and key business managers The value of the collateral is reduced or may be reduced, or property preservation
measures such as sealing up are taken, there is a breach of contract under the guarantee contract, and it is required to terminate the guarantee contract.
9. The lender has the right to conduct on-site or off-site due diligence on the borrower, and carry out post loan inspection on the borrower’s
business status, financial status, external guarantee, use of loan funds and repayment. The borrower is obliged to actively cooperate with the lender in loan
payment management, post loan management and relevant inspection.
10. The lender has the right to recover the loan funds under this contract in advance according to the withdrawal of the borrower’s funds.
11. special agreements on group customers (applicable to group customers).
If the borrower of this contract is a group customer, the borrower hereby undertakes:
(1) the borrower shall timely report the related party transactions of more than 10% of the net assets of the actual trustee, including: ① the related
party relationships of all parties to the transaction ② Transaction items and nature ③ The amount of the transaction or the corresponding proportion
④ Pricing policy (including transactions with no amount or only symbolic amount).
13
(2) If the actual trustee has the following circumstances, it shall be deemed that the borrower has breached the contract, and the lender has the right
to unilaterally decide to cancel the unused credit of the customer, recover part or all of the used credit, or require the customer to increase the margin to
100%: ① providing false materials or concealing important business financial facts ② Changing the original purpose of the credit without the consent of
the lender, misappropriating the credit or using the bank credit to engage in illegal and illegal transactions ③ Taking advantage of false contracts with
related parties to obtain bank funds or credit by discounting or pledging creditor’s rights such as notes receivable and accounts receivable without actual
trade background ④ refusing to accept the lender’s supervision and inspection of its use of credit funds and relevant business and financial activities ⑤ In
case of major merger, acquisition and reorganization, the lender believes that it may affect the credit security ⑥ Intentionally evading bank creditor’s rights
through related party transactions.
12. special guarantees, commitments and agreements on green credit (applicable to borrowers whose construction, production and operation
activities of nuclear power plants, large hydropower stations, water conservancy projects, resource extraction projects, etc. may seriously change the
original state of the environment and the adverse environmental and social consequences are not easy to eliminate, as well as oil processing, coking and
nuclear fuel import workers The construction, production and operation of chemical raw materials and chemical products will produce adverse
environmental and social consequences, but it is easy to eliminate them through slow-release measures)
(1) the borrower declares and guarantees that the management of environmental and social risks, including: ① the internal management documents
related to environmental and social risks comply with the requirements of laws and regulations and are effectively implemented; ② there are no major
litigation cases involving environmental and social risks;
(2) The borrower promises to accept the supervision of the lender and strengthen environmental and social risk management, including: ①
commitment to compliance of all behaviors and performances related to environmental and social risks ② Commit to establish and improve the internal
management system of environmental and social risks, and specify the responsibilities, obligations and punishment measures of relevant responsible
personnel of the borrower ③ Commit to establish and improve the emergency mechanism and measures for environmental and social risk emergencies
④ Commit to establish special departments and / or designate special personnel to be responsible for environmental and social risks ⑤ Promise to
cooperate with the lender or its recognized third party in the assessment and inspection of the borrower’s environmental and social risks ⑥ in the face of
strong doubts from the public or other stakeholders about the borrower’s performance in controlling environmental and social risks, promise to respond
appropriately or take other necessary actions ⑦ undertake to urge the borrower’s vital related parties to strengthen management and prevent the
environmental and social risks of related parties from infecting the borrower ⑧ undertake to perform other matters that the lender considers relevant to
controlling environmental and social risks
(3) The borrower promises to timely and fully inform the lender of various permits ① approvals and approvals related to environmental and social
risks in the process of commencement, construction, operation and shutdown ② Assessment and inspection of the borrower’s environmental and social
risks by the environmental and social risk regulatory authority or its recognized institutions ③ supporting construction and operation of environmental
facilities ④ Discharge and compliance of pollutants ⑤ Safety and health of employees ⑥ neighboring communities for the borrower Major complaints and
protests ⑦ Major environmental and social claims ⑧ Other lenders believe that it is related to environmental and social winds Skillfully Major
information related to insurance;
(4) If the borrower and the actual Credit Lender have the following circumstances, it shall be deemed that the borrower has an event of default
under this Contract: ① the borrower’s statement, guarantee and commitment on environmental and social risk management have not been seriously
fulfilled ② The borrower is punished by relevant government departments due to poor environmental and social risk management ③ the borrower is
strongly questioned by the public and / or the media due to poor environmental and social risk management ④ Other events of default related to
environmental and social risk management agreed between the lender and the borrower, including cross events of default;
In case of the above events of default of the borrower, the lender has the right to unilaterally decide: ① cancel the credit commitment already made
② Suspend the disbursement of the loan until the borrower takes rescue measures satisfactory to the lender ③ recover the allocated loan in advance
④ When the loan cannot be repaid, relevant mortgage and pledge rights and other punishment measures shall be exercised in advance ⑤ other punishment
measures agreed by the lender and the borrower.
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13. As for the anti money laundering agreement, the borrower confirms and agrees that the lender has the right to conduct money laundering risk
assessment on the transactions involved under the contract in accordance with the applicable anti money laundering laws and regulations and internal
management requirements, and the lender has reasonable reasons to suspect that the borrower and / or the transactions under the contract are suspected of
participating in the UN Security Council, the financial action task force against money laundering, China In case of money laundering, terrorist financing
or (weapons of mass destruction) financing activities, or tax evasion recognized by the United States, the European Union and other international
organizations or countries, the lender has the right to take necessary control measures in accordance with the anti money laundering regulations of the
people’s Bank of China. At the same time, the lender has the right to directly restrict and suspend all or part of the business under this contract without
notifying the borrower, announce the early maturity of the loan, terminate this contract, and require the borrower to bear all losses caused to the lender.
14. The borrower agrees to irrevocably authorize the lender, without violating the prohibitive provisions of the regulations on the administration of
credit investigation industry and relevant laws and regulations, to collect information about all contracts / agreements / commitments signed between the
borrower and the lender in accordance with the collection requirements of the basic financial credit information database established by the state, Including
the performance information related to all the above contracts / agreements / commitments, as well as the basic enterprise information and other
information provided by the borrower, which shall be provided to the basic database of financial credit information established by the state for query and
use by qualified units; At the same time, the lender also has the right to query and use the credit information about the borrower in the basic financial credit
information database established by the state. The authorization covers all links of the lender’s necessary business management of the business under the
contract before and after the signing of the contract, and the validity period will expire with the actual termination of the contract.
15. The borrower hereby confirms that it has fully understood and understood the lender’s position against its employees seeking benefits in any
form by taking advantage of their positions, and undertakes to avoid such situations in accordance with the principle of integrity and fairness, and will not
provide any form of rebates, gifts, securities, valuables, various incentives, private expense compensation, private tourism High consumption Entertainment
Music and other improper interests.
Article 9 deduction agreement
1. The borrower agrees that when any debt related to the loan hereunder is due and payable, the lender has the right to directly deduct the funds in
the repayment reserve account opened by the borrower in Shanghai Pudong Development Bank Co., Ltd. to pay off the due and payable debt. If the funds
in the repayment reserve account are insufficient to pay off the debts, the lender has the right to deduct the funds in any other account opened by the
borrower in each branch of Shanghai Pudong Development Bank Co., Ltd.
2. The lender has the right to use the proceeds to repay the loan principal, interest or other expenses. If there are multiple claims unpaid at the same
time, the lender shall determine the repayment order of the claims.
3. if the deducted income is inconsistent with the currency to be repaid, it shall be handled in the following ways:
(1) if the currency of the loan is RMB, the loan principal strings T and 0 shall be paid off after the foreign exchange settlement is converted into
RMB according to the purchase price converted between the currency of the deduction and RMB published by the lender at the time of deduction
(2) If the loan currency is non RMB and the deduction currency is RMB, you shall purchase foreign exchange directly according to the selling price
of RMB exchange between the applicable loan currency published by the lender at that time and convert it into the loan currency, and then pay off your
past principal and interest.
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(3) If the loan currency and the deduction currency are not RMB and are inconsistent, the loan principal and interest shall be paid off after the
foreign exchange settlement is converted into RMB according to the applicable deduction currency published by the lender at the time of deduction and the
purchase price converted into RMB, and then converted into the loan currency according to the loan currency published by the lender and the selling price
converted into RMB on the same day.
Article 10 proof of creditor’s rights
The lender shall, in accordance with its consistent business practice, maintain accounting accounts related to the business activities involved in this
contract on its accounting books to prove the loan amount of the lender. The effective certificate for the borrower to recognize the loan creditor’s rights
under this contract shall be subject to the accounting certificate or other effective supporting materials issued and recorded by the lender according to its
own business regulations.
Article 11 agreed service address
1. The lender confirms that the address listed on the first page of this contract is its effective service address. The notice sent by the borrower to the
lender directly or by mail under this contract shall be sent to the address listed on the first page of this contract until the lender announces the change of this
address. The borrower agrees that all notices it sends to the lender shall be deemed to have been served when actually received by the lender.
2. The borrower confirms that the address, fax, e-mail and other service information listed on the first page of this contract are its valid mailing or
e-service address. All kinds of non litigation notices and other documents under the contract, as well as letters, subpoenas, notices and other legal
documents issued to them in the process of any litigation (including any litigation procedures and execution procedures such as first instance, second
instance and retrial) arising from the contract, as long as they are mailed or sent by fax E-mail and other electronic service methods shall be deemed as
service when they are sent to the mailing or electronic service address listed on the first page of this contract, and the specific service date shall be subject
to the provisions on service date in the civil procedure law. The above change of mailing or electronic service address shall not have legal effect unless
notified to the lender in advance, and the service address confirmed in this contract shall still be deemed as a valid service address.
Article 12 events of default and handling
1.Event of default
Any of the following circumstances shall constitute a breach of contract by the borrower against the lender:
(1) Any statement and guarantee made by the borrower in this contract or any notice, authorization, approval, consent, certificate and other
documents made in accordance with or related to this contract are incorrect or misleading, or have been proved to be incorrect or misleading, or have been
proved to be invalid or revoked or have no legal effect.
(2) The borrower has violated “other matters agreed by both parties” (if any) in part I of the contract or any agreed matter in Article 8 of Part II.
(3) The borrower has a major cross default event, including but not limited to the borrower’s breach of any other loan contract and agreement
signed by it; Or the borrower fails to pay the debts under other loan contracts and agreements signed by it.
(4) The borrower’s investors withdraw funds, transfer assets or transfer equity without authorization.
(5) The guarantor has or will no longer have the ability to provide guarantee corresponding to the loan, or violates the guarantee documents signed
by it.
(6) The borrower suspends business, stops production, goes out of business, goes out of business for rectification, reorganization, liquidation, is
taken over or entrusted, is dissolved, the business license is revoked or cancelled or goes bankrupt.
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(7) The financial condition of the borrower or the guarantor deteriorates, there are serious difficulties in operation, or events or circumstances that
have an adverse impact on its normal operation, financial condition or solvency.
(8) The borrower or its controlling shareholder, actual controller or its affiliates are involved in major litigation, arbitration, or its major assets are
seized, sealed up, frozen, enforced or other measures with the same effect are taken, or its legal representative / person in charge, directors, supervisors or
senior managers are involved in litigation Arbitration or other coercive measures adversely affect the borrower’s solvency.
(9) Failure to repay the principal and interest on schedule or use the loan for the agreed purpose.
(10) The loan funds are not paid in the agreed manner.
(11) the documents and information submitted for loan application are false and incorrect.
(12) It does not meet or exceed the constraints of relevant financial indicators agreed in the contract.
(13) On any principal and interest repayment date under the contract and within three (3) days before it, the capital balance in the repayment
reserve account is lower than the principal and interest repayment amount of the borrower in the current period.
(14) The capital flow in the general settlement account / capital return account is abnormal.
(15) The borrower has other acts in violation of this contract that are sufficient to hinder the normal performance of this contract, or other acts that
damage the legitimate interests of the lender.
2. Handling of breach of contract
(1) when one or more of the default circumstances listed in the current paragraph occur, the lender may take one or more of the following measures
at its discretion:
① require the borrower to correct within a time limit.
② cancel the unused loan of the borrower and stop issuing and paying the unused loan of the borrower.
③ declare that all or part of the loan principal under this contract will expire immediately in advance, and require the immediate repayment of part
or all of the loan, the settlement of the interest owed, and the immediate recourse to the guarantor or the borrower in various forms.
④ Penalty interest and compound interest shall be charged for overdue loans and misappropriated loans.
⑤ Deduct from any account opened by the borrower in each branch of Shanghai Pudong Development Bank Co., Ltd
⑥ Require the borrower to supplement the loan issuance and payment conditions, or change the loan payment method.
⑦ require the borrower to provide other guarantees approved by the lender.
⑧ other necessary measures stipulated by law.
(2) In addition to the above measures, the lender may also require the borrower to bear the liability for breach of contract and require the borrower
to pay liquidated damages (see part I of the contract for the calculation method of liquidated damages). If the liquidated damages are insufficient to make
up for the losses suffered by the lender, the borrower shall compensate the lender for all losses suffered thereby.
(3) If the borrower fails to repay the principal and pay interest in full and on time, it shall also bear all expenses paid by the lender for realizing the
creditor’s rights and security rights, including but not limited to collection expenses, litigation expenses, lawyer’s fees, travel expenses and various other
expenses payable.
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Article 13 effectiveness, alteration and dissolution
1. this contract shall come into force after being signed (or sealed) and affixed with official seal by the legal representative of the borrower or its
authorized agent, and signed (or sealed) and affixed with official seal (or special seal for contract) by the legal representative (person in charge) of the
lender or its authorized agent, and shall be terminated after all creditor’s rights under this contract are paid off.
2. After the contract takes effect, neither party shall change or terminate the contract in advance without authorization. If the contract needs to be
changed or terminated, both parties shall reach a written agreement through consultation.
1. definition
Article 14 other provisions
(1) “all creditor’s rights” under this contract refers to the loan principal, interest, liquidated damages and various expenses incurred to realize the
creditor’s rights.
(2) The term “interest” under this contract includes interest, penalty interest and compound interest.
(3) The “bank business day” under this contract refers to the normal business day of the lender’s corporate business at the lender’s domicile,
excluding Saturdays, Sundays (except those open for business due to holiday adjustment) or other legal holidays.
2. Applicable law
This contract shall be governed by and construed in accordance with the laws of the people’s Republic of China (for the purpose of this contract,
the laws of Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan are not included here).
3. Settlement of disputes
All disputes related to this contract shall be settled through friendly negotiation; If the negotiation fails, a lawsuit shall be filed with the people’s
Court of the place where the lender has its domicile. During the dispute period, each party shall continue to perform the terms not involved in the dispute.
4. Miscellaneous
(1) If matters not covered in this contract need to be supplemented, both parties may agree and record them in part I of this contract, or reach a
separate written agreement as an annex to this contract. The annexes to the contract (see part I of the contract) are an integral part of the contract and have
the same legal effect as the text of the contract.
(2) During the validity of this contract, the lender’s grace or delay in taking action for any breach of contract or other acts of the borrower shall not
damage, affect or restrict all rights or interests enjoyed by the lender as a creditor according to the law or this contract, nor shall it be regarded as the
lender’s recognition of the borrower’s breach of this contract, It shall not be deemed that the lender waives the right to take action against the borrower’s
existing or future default.
(3) The invalidity of one clause of the contract shall not affect the validity of other clauses of the contract. This contract is not valid for any reason
When effective, the borrower shall still bear the responsibility of repaying all debts owed to the Lender under this contract. In case of the above
circumstances, the lender has the right to immediately terminate the execution of this contract and recover all debts owed by the borrower under this
contract from the borrower immediately.
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(4) The lender may transfer all or part of its rights and / or obligations under this contract, and in this case, the transferee shall enjoy and / or bear
the same rights and / or obligations as it should enjoy if it is a party to this contract. After receiving the lender’s notice on the transfer of creditor’s rights,
the borrower shall be liable to the transferee in accordance with the provisions of this contract.
(5) Unless otherwise specified in the contract, relevant terms and expressions in the annexes to the contract have the same meanings as those in the
contract.
(6) The headings under this contract are for convenience only and shall not be used as the basis for the contents under this heading.
(no text below this page)
(this page is the signature page without text)
This contract is signed by and between the borrower and the lender on May 7, 2022. The borrower confirms that when signing this contract, both
parties have explained and discussed all the terms in detail, both parties have no doubt about all the terms of the contract, and have an accurate
understanding of the legal meaning of the parties’ relevant rights and obligations and liability limitation or exemption terms. annihilation
Borrower(Official seal)
Legal representative or authorized agent (signature or seal)
Lender (Official seal or contract seal)
Legal representative / person in charge (authorized or sealed)
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Exhibit 10.21
No.: Z2205LN15641967
Current Fund Loan Contract
Bank of Communications Co., Ltd.
Current Fund Loan Contract
Important Notes
Please read the full text of this contract carefully, especially those articles marked with
▲▲. Please inquire the loaner in case of any question.
No.: Z2205LN15641967
Whereas, the borrower applies to the loaner for the line of credit of current fund, both parties hereby enter into this contract through negotiations to
clarify the obligations of each party.
Article 1. Definition
“Line of credit” refers to the maximum amount of balance of loan (under the revolving line of credit) or total loan (under the one-time line of credit)
that the loaner may issue to the borrower according to this contract. Such line of credit may be revolving or one-time (to be used for one or several times) in
accordance with this contract.
“Revolving line of credit” refers to the line of credit within which the borrower may apply for the loan for several times according to this contract.
“Balance of loan” refers to the sum of principal of the outstanding loan that the borrower obtains under this contract.
“Balance of line of credit” refers to the balance of the line of credit deducted with the balance of loan (under the revolving line of credit) or total loan
(under the one-time line of credit).
“Period of line of credit” refers to the period for the loaner to issue the loan to the borrower according to the application by the borrower and this
contract that it is in relation to the occurrence of loan but not the loan itself.
“Period of loan” refers to the period of each loan that both parties determine in the corresponding Application for Use of Line of Credit of Bank of
Communications (hereinafter referred to as Application for Use of Line of Credit).
“Pricing benchmark” refers to the benchmark that the borrower and lender can choose to apply to the corresponding loan to determine the
corresponding loan interest rate, including but not limited to the following specific pricing benchmarks and other types of pricing benchmarks.
“Loan Market Quotation Rate (LPR)” refers to the loan market quotation rate applicable to RMB loans issued by the National Interbank Funding
Center on the 20th day of each month (postponed in case of holidays).
“Secured Overnight Financing Rate (SOFR)” refers to the rate managed by Federal Reserve Bank of New York (or other entity taking over the pricing
benchmark) and displayed on the corresponding page of Bloomberg/Refiniv financial telecommunications terminal (or the alternative page of other
information service institutions that display the pricing benchmark approved by the lender), Secured overnight financing rate applicable to USD loans.
“Secured overnight financing interest rate term reference interest rate (SOFR term interest rate)” refers to the interest rate managed by CME Group
Benchmark Administration Limited (or other entity taking over the pricing benchmark) and issued by CME Group Benchmark Administration Limited (or
any other entity taking over the pricing benchmark), The term SOFR reference rate of the secured overnight financing interest rate applicable to USD loans
displayed on the corresponding page of Bloomberg/Referentiv financial telecommunications terminal (or the alternative page of other information service
institutions approved by the lender to display the pricing benchmark).
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“EURIBOR” refers to the European Money Markets Institute (or other entity taking over the pricing benchmark) managed and displayed on the
corresponding page of Bloomberg/Refiniv financial telecommunications terminal (or the alternative page of other information service institutions approved
by the lender to display the pricing benchmark), Euro Interbank Offered Rate applicable to euro loans.
“Hong Kong Interbank Offered Rate (HIBOR)” refers to the rate managed by the Hong Kong Association of Banks (or other entities that take over the
pricing benchmark) and displayed on the corresponding page of Bloomberg/Refiniv financial telecommunications terminal (or the alternative page of other
information service institutions that display the pricing benchmark approved by the lender), Hong Kong Interbank Offered Rate applicable to Hong Kong
dollar loans.
“Tokyo Risk Free Rate” refers to the Tokyo Risk Free Rate applicable to Japanese yen loans, which is managed by QUICK Benchmarks Co., Ltd. (or
other entities taking over the pricing benchmark) and displayed on the corresponding page of Bloomberg/Refiniv financial telecommunications terminals
(or the alternative page of other information service institutions approved by the lender that displays the pricing benchmark).
“Sterling overnight average index reference term interest rate (TSRR)” refers to the interest rate managed and published by Intercontinental Exchange
Benchmark Administration Limited (or other entities taking over the pricing benchmark), which is displayed on the corresponding page of
Bloomberg/Refiniv financial telecommunications terminal (or the replacement page of other information service institutions that display the pricing
benchmark approved by the lender), Term SONIA Reference Rate for sterling loans.
“London Interbank Offered Rate (LIBOR)” refers to the rate managed by Intercontinental Exchange, Inc. (or other entities taking over the pricing
benchmark) and displayed on the corresponding page of Bloomberg/Refiniv financial telecommunications terminal (or the alternative page of other
information service institutions approved by the lender to display the pricing benchmark), London Interbank Offered Rate applicable to USD loans.
“Business day of bank” and “business day” refer to the day on which banks at the place of the loaner operate the corporation business, excluding legal
holidays and rest days (excluding those adjusted to be business days). If any issuance, repayment, interest payment or maturity of loan lies at any non-
business day, it should be postponed to the next business day.
“Foreign currency working day” means, with respect to the secured overnight financing rate (SOFR) or the term reference rate of the secured
overnight financing rate (SOFR term interest rate), the U.S. government bond trading day (excluding Saturday and Sunday) recommended by the Securities
Industry and Financial Markets Association (or its successor organization) to its member’s fixed income department; The London Interbank Offered Rate
(LIBOR) or the sterling overnight average index reference term rate (TSRR) refers to the opening day (excluding Saturday and Sunday) for general
business of local commercial banks in London; For the Euro Inter bank Offered Rate (EURIBOR), it refers to the operation date of Euro payment and
clearing of the second generation pan European real-time automatic clearing system (TARGET2); For the Hong Kong Interbank Offered Rate (HIBOR), it
refers to the open business day (excluding Saturday and Sunday) for general business of local banks in Hong Kong; For Tokyo risk-free term interest rate
(TORF), it refers to the opening day for general business of local banks in Tokyo (excluding statutory holidays and rest days).
“Related person” refers to the authorized handler, agent, legal representative, responsible person, controlling shareholder or actual controller,
beneficial owner and other direct or indirect related persons of the borrower.
“Business related parties” refer to all parties to the transaction under the basic transaction contract and other relevant subjects related to the transaction
other than all parties to the transaction, as well as all parties to the transaction, such transaction parties, their authorized handlers, agents, legal
representatives, responsible persons, controlling shareholders or actual controllers, beneficial owners, etc.
3
Terms including affiliate, affiliate transaction and major investor should contain the same meaning with those contained in the Accounting Standards
for Business Enterprises No.36 – Disclosure of Affiliates (CK [2006] No.3) published by the Ministry of Finance, as well as its subsequent revisions.
Article 2. Use of Line of Credit
2.1 Each time when needing to use the line of credit, the borrower should submit the application to the loaner at least 5 business days in advance. The
borrower should fill in the Application for Use of Line of Credit to obtain the approval by the loaner before using the line of credit.
▲▲2.2 Use of the line of credit must meeting following conditions:
(1) Balance of loan (under the revolving line of credit) or total loan (under the one-time line of credit) is within the line of credit;
(2) Amount of applied loan is within the balance of line of credit;
(3) Application date and issuance date are within the period of line of credit;
(4) Period of loan and maturity date of loan comply with this contract;
(5) Guarantee contract (if any) under this contract is effective and surviving, and while the guarantee contract is in the form of mortgage contract
and/or pledge contract, the secured real right is already set and surviving;
(6) The borrower has handled procedures to obtain licenses, approvals and registrations from the government necessary for the application for the
loan, and such licenses, approvals or registrations are surviving;
(7) No serious adverse change occurs in the operation status or financial status of the borrower after this contract takes effect;
(8) Application by the borrower meets relevant rules and regulations of the loaner;
(9) The borrower does not violate this contract;
(10) Payment mode of the loan meets this contract and if the loaner is entrusted to make the payment, the loaner should agree with the payment;
(11) If the loan is provided in any foreign currency, the borrower should provide the certificate providing that the loan meets relevant policies on the
management of foreign currency, including but not limited to the valid purpose certificate or registration document of foreign currency;
(12) The borrower has appointed the dedicated fund withdrawal account as required by the loaner and has signed the account management agreement.
▲▲2.3 If the loaner agrees to issue the loan, the final issuance information should be subject to the column of Application for Use of Line of Credit
printed by the bank. Application for Use of Line of Credit should be regarded as the Loan Certificate.
▲▲2.4 If the currency of the Application for Use of Line of Credit is different from that of the line of credit, it should be converted at the exchange
rate published by Bank of Communications Co., Ltd. in the beginning of each day only for the purpose of recognizing the balance of line of credit. If there
is no available exchange rate, it should be converted by the exchange rate reasonably determined by Bank of Communications Co., Ltd.
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▲▲2.5 After the borrower becomes the shareholder of the guarantor or the “actual controller” defined by the Company Law, the loaner may suspend
or cancel the line of credit not used by the borrower until the guarantor provides the resolution made by its Board of Shareholders (General Meeting) about
securing the borrower that is acceptable to the loaner.
Article 3. Interest Rate and Payment of Interest
3.1 Basic regulations on determining the interest rate
3.1.1 The annual interest rate (simple interest) of the loan under this contract shall be agreed by both parties in the Application for the Use of Quota
after negotiation each time the quota is used. If the annual interest rate value is determined according to the pricing benchmark, the annual interest rate
value shall be calculated according to the pricing benchmark agreed in the Application for the Use of Quota plus (minus) points (1 basis point is 0.01
percent, and 1 percentage point is 100 basis points).
3.1.2 If both parties agree to apply the fixed interest rate in the Application for Use of Quota, and the specific value is recorded in the fixed interest
rate value field, The specific interest rate of each loan shall be subject to the value recorded in the Fixed Interest Rate Value field of the Application for the
Use of the Quota (where the loan currency is RMB, such specific value shall be determined on the basis of the specific value of the pricing benchmark
applicable on the applicable date of the pricing benchmark agreed in the Application for the Use of the Quota (hereinafter referred to as “the pricing
benchmark value”) and according to the plus (minus) point value agreed in the Application for the Use of the Quota). If no specific value is recorded in the
Fixed Interest Rate Value field, the specific interest rate of each loan shall be determined based on the applicable pricing benchmark value on the applicable
date of the pricing benchmark agreed in the Application for the Use of Quota and according to the plus (minus) point value agreed in the Application for
the Use of Quota.
If both parties agree to apply the floating interest rate in the Application for the Use of Quota, the specific interest rate of each loan shall be
determined on the basis of the pricing benchmark value applicable to the applicable date of the pricing benchmark agreed in the Application for the Use of
Quota, according to the plus (minus) point value, interest rate floating rules, interest rate floating cycle, interest rate floating cycle unit and the floating start
date of a specific date (if necessary) agreed in the Application for the Use of Quota.
3.1.3 If the currency is RMB, daily interest rate = monthly interest rate/30, monthly interest rate = annual interest rate/12; if the currency is HKD,
GBP and AUD, daily interest rate = annual interest rate/365; if the currency is USD, Euro, JPN and other foreign currencies accepted by the loaner, daily
interest rate = annual interest rate/360.
▲▲3.2 Interest rate of loan
If both parties agree on the application of fixed interest rate in the Application for the Use of Quota and the fixed interest rate value field records a
specific value, the interest rate at the time of each loan disbursement shall be subject to the fixed value. If it is agreed in the Application for Use of Quota
that a fixed interest rate is applicable and no specific value is recorded in the fixed interest rate value field, and it is agreed in the Application for Use of
Quota that a floating interest rate is applicable, the loan interest rate for each loan is determined based on the pricing benchmark value applicable to the
“Pricing Benchmark Application Date” agreed in the Application for Use of Quota and the plus (minus) point value agreed in the Application for Use of
Quota. The “applicable date of pricing benchmark” shall be taken as the T day, and the pricing benchmark value rules applicable to the T day shall be
implemented in accordance with Article 3.5.1 of the Contract.
3.3 Adjustment of interest rate
3.3.1 Once the interest rate is recorded in the Application for Use of Line of Credit as fixed, such interest rate should apply to the loan within the
period of loan.
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▲▲3.3.2 Once the interest rate is recorded in the Application for Use of Line of Credit as fluctuating, the interest rate adjustment date should be
determined according to the interest rate fluctuation rules, interest rate fluctuation cycle, interest rate fluctuation cycle unit and specific beginning date of
fluctuation (if necessary) agreed in the Application for Use of Line of Credit, and the adjusted interest rate should apply since the interest rate adjustment
date.
3.3.2.1 If the benchmark interest rate is adjusted within the period of loan, the adjustment cycle of interest rate should be calculated by choosing
“fluctuating at bookkeeping date” or “fluctuating at specific date” in the “interest rate fluctuation rules” since the “bookkeeping date” or “specific date”.
The column of interest rate fluctuation cycle should be filled with the quantity of interest rate fluctuation cycles, the column of interest rate fluctuation
cycle unit may be filled with day or month. If the quantity of interest rate fluctuation cycle is “1” while the interest rate fluctuation unit is “day”, then the
adjustment date of benchmark interest rate should be the adjustment date of loan interest rate; if the quantity of interest rate fluctuation cycle is “3” while
the interest rate fluctuation unit is “day”, then the adjustment date of loan interest rate should be every third day since the “bookkeeping date” or “specific
date”; if the quantity of interest rate fluctuation cycle is “1” while the interest rate fluctuation unit is “month”, then the adjustment date of loan interest rate
should be the end of every month since the “bookkeeping date” or “specific date”; if the quantity of interest rate fluctuation cycle is “3” while the interest
rate fluctuation unit is “month”, then the adjustment date of loan interest rate should be the end of every third month since the “bookkeeping date” or
“specific date”, the same below.
3.3.2.2 The loan interest rate on the loan interest rate adjustment date shall be determined on the basis of the pricing benchmark value applicable on
the loan interest rate adjustment date. Unless otherwise agreed in the Contract or the two parties agree to adjust the plus (minus) point value, the plus
(minus) point value of the interest rate shall still be subject to the plus (minus) point value of the interest rate agreed in the corresponding Application for
Use of Quota of the loan. The “loan interest rate adjustment date” shall be the T date, and the pricing benchmark value rules applicable to the T date shall
be implemented in accordance with Article 3.5.1 of this Contract.
▲ ▲ 3.3.3 If the pricing benchmark applicable to the corresponding loan is cancelled or the corresponding issuing agency stops publishing, both
parties shall negotiate and adjust the interest rate of the loan separately, but the adjusted interest rate shall not be lower than the applicable interest rate at
that time; If the two parties have not reached an agreement on the adjusted interest rate for more than one month since the pricing benchmark is cancelled
or ceased to be published, the lender has the right to declare that the loan is due ahead of schedule.
▲▲3.3.4 Both parties may adjust the fluctuation extent or increase (decrease) value of the corresponding loan interest rate through negotiation at
each adjustment date of loan interest rate.
3.4 The default interest rate of overdue loans shall be increased by 50% according to the interest rate agreed herein, and the default interest rate of
misappropriated loans shall be increased by 100% according to the interest rate agreed herein. If the floating rate loan is subject to adjustment of the loan
pricing benchmark, the lender has the right to adjust the penalty interest rate applicable to each loan accordingly, and the new penalty interest rate shall
apply from the date of loan interest rate adjustment agreed in the corresponding Application for Use of Quota.
3.5 Calculation of interest
3.5.1 According to the different applicable pricing benchmarks, the rules for taking the value of the applicable pricing benchmark value on the T date
(i.e. the “pricing benchmark application date”, “loan interest rate adjustment date” and “repricing date”) agreed in Article 3.2, 3.3.2.2 and 9.3.3.2 of the
Contract are as follows:
If the pricing benchmark is the loan market quoted rate (LPR), the pricing benchmark value applicable to T day is the latest published loan market
quoted rate (LPR) value before T day.
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If the pricing benchmark is the guaranteed overnight financing rate (SOFR), when T day is a foreign currency working day, the pricing benchmark
value applicable to T day is the value of the guaranteed overnight financing rate (SOFR) corresponding to the fifth foreign currency working day before T
day displayed on the corresponding financial telecommunications terminal page; If Day T is a non foreign currency working day, the pricing benchmark
value applicable to Day T is the value of the guaranteed overnight financing rate (SOFR) that should be applied on the latest foreign currency working day
before Day T (that is, the value of the guaranteed overnight financing rate (SOFR) that is displayed on the page of the corresponding financial
telecommunications terminal and corresponds to the fifth foreign currency working day before the latest foreign currency working day).
If the pricing benchmark is the guaranteed overnight financing interest rate term reference interest rate (SOFR term interest rate), London Interbank
Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Tokyo risk-free term interest rate (TORF) or sterling overnight average index reference
term interest rate (TSRR), when T day is a foreign currency working day, the applicable pricing benchmark value on T day is the corresponding financial
telecommunications terminal page The pricing benchmark value corresponding to the second foreign currency working day before T day; If Day T is a non
foreign currency working day, the pricing benchmark value applicable to Day T shall be the pricing benchmark value applicable to the latest foreign
currency working day before Day T (that is, the pricing benchmark value displayed on the corresponding financial telecommunications terminal page and
corresponding to the second foreign currency working day before the latest foreign currency working day).
If the pricing benchmark is Hong Kong Interbank Offered Rate (HIBOR), and T day is a foreign currency working day, the pricing benchmark value
applicable to T day is the value of Hong Kong Interbank Offered Rate (HIBOR) corresponding to T day displayed on the corresponding financial
telecommunications terminal page; When T day is a non foreign currency working day, the applicable pricing benchmark value on T day is the value of
Hong Kong Interbank Offered Rate (HIBOR) displayed on the corresponding financial telecommunications terminal page and corresponding to the latest
foreign currency working day before T day.
When the pricing benchmark value displayed on the corresponding financial telecommunication terminal page is greater than or equal to 0, the pricing
benchmark value used to determine the loan interest rate under this contract shall be determined according to the pricing benchmark value actually
displayed on the corresponding financial telecommunication terminal page; When the pricing benchmark value displayed on the corresponding financial
telecommunication terminal page is less than 0, the pricing benchmark value used to determine the loan interest rate under this contract shall be determined
by 0.
3.5.2 Normal interest=interest rate agreed herein × Loan amount × Number of days occupied.
The number of days occupied shall be calculated from the loan granting date (inclusive) to the due date (exclusive). If the due date is not a working
day, it shall be postponed. The postponed period shall be included in the number of days occupied, and the interest shall still be calculated according to the
contract.
3.5.3 The penalty interest of overdue loans and misappropriated loans shall be calculated according to the amount of overdue or misappropriated loans
and the actual number of days (from the date of overdue or misappropriated loans (inclusive) to the date of principal and interest settlement (exclusive)).
3.5.4 If there are many decimal places of interest/penalty interest calculated, the lender will retain two decimal places according to the rounding
method.
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▲▲3.6 If the borrower repays the loan in advance or the loaner withdraws the loan in advance according to this contract, the corresponding interest
rate shall still be subject to that specified in this contract.
3.7 If the loan currency is other than RMB, US dollar, euro, Hong Kong dollar, Japanese yen and British pound, the loan pricing benchmark type,
daily interest rate calculation rules and the pricing benchmark value determination rules applicable to the pricing benchmark application date, loan interest
rate adjustment date and repricing date shall be subject to the provisions of Article 17 of the Contract.
Article 4. Payment of Loan
4.1 If the issuance account appointed by the borrower is the dedicated loan issuance account opened at the loaner, the issuance and payment of loan
should be handled through the account, which may only be used to issue and externally pay the loan fund and only sell the certificate of “Application for
Settlement Business” but may not be used to handle any check, draft, bank acceptance or any other settlement. When handling the allocation of loan fund
independently, the borrower must handle procedures at the counter of the bank of deposit. The deposit interest of the account should be accounted into the
repayment account of the borrower.
4.2 When drawing the loan according to this contract, the borrower should clarify the payment mode (entrusted payment by loaner or independent
payment by borrower) and only one mode is applicable in each time of drawing.
4.3 In the mode of entrusted payment by loaner, the loaner will, after receiving the payment entrustment from the borrower and issuing the loan
according to this contract, pay the loan fund directly to the counterparty of the borrower meeting the purpose specified in this contract through the account
of the borrower.
If the amount of a single payment is beyond the limit of the independent payment or any condition specified in Article 19.3, the mode of entrusted
payment should apply.
When choosing the mode of entrusted payment by the loaner, the borrower should submit the loaner with the Application for Use of Line of Credit,
corresponding payment entrustment and other materials required by the loaner (including but not limited to the commercial contract, invoice and receipt) to
clarify the amount of loan and the receiver and amount of payment, while the amount of drawn loan should equal to that of the payment.
▲▲ If the payment planned by the borrower does not comply with this contract or the corresponding commercial contract, or contains any other
defect, the loaner may refuse to make the payment and return the payment entrustment submitted by the borrower.
▲▲ If the loaner agrees but fails to make the payment or the payment is returned due to any incorrect information provided by the borrower, the
borrower should submit relevant documents and materials containing the correct information within the period regulated by the loaner, and the loaner
should be expected from any liability for any delay or failure of payment.
4.4 In the mode of independent payment by the borrower, after the loaner issues the loan fund to the account of the loaner according to this contract,
the borrower pays the fund to the counterparty of the borrower meeting the purpose specified in this contract independently.
When choosing the mode of independent payment by the borrower, the borrower should submit the loaner with the Application for Use of Line of
Credit, description of fund usage and other materials required by the loaner. The borrower should report the payment situation of the loan fund to the
loaner. The loaner may check whether the loan is paid for the regulated purpose by analyzing the account, verifying the certificate and conducting the on-
site survey, and the borrower shall cooperate with such verification by the loaner.
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Article 5. Repayment of Loan
5.1 The borrower should make the repayment according to the date and amount specified in the corresponding Application for Use of Line of Credit.
▲▲5.2 Without the written consent from the loaner, the borrower may not repay the loan in advance.
▲▲5.3 The repayment schedule of principal and interest agreed by the borrower and the loaner in the Application for Use of Line of Credit is the true
intention of both parties through negotiations on a voluntary basis. Under the repayment arrangement chosen by both parties, the principal should prior to
the interest in the repayment without influencing the repayment liability of the borrower for the payable interest, and the borrower may not set up any plea
against the repayment of payable interest. The borrower should be responsible for repaying all the principal and interest under any repayment arrangement.
▲▲5.4 When the amount repaid by the borrower is insufficient to cover all the debt of the borrower:
(1) It should be firstly used to repay the overdue amount. If the principal and interest are overdue for less than 90 days, the balance after such
repayment should be firstly used to repay the outstanding interest, default interest or compound interest before any overdue principal; if the principal and
interest are overdue for more than 90 days, the balance after such repayment should be firstly used to repay the outstanding principal and then the overdue
interest, default interest or compound interest;
(2) If there are several debts of the borrower (including debts of the borrower owed to the loaner under any other contract), the loaner may determine
the repayment sequence of each debt, only if such sequence does not violate any applicable law, rule, regulation, system or any compulsory regulatory
provision of the loaner. The loaner should inform the borrower of the repayment result, unless otherwise regulated.
Article 6. Representation and Guarantee of Borrower
6.1 The borrower is legally incorporated and surviving, possesses all the necessary capacities, perform obligations under this contract it its own name
and assumes civil liabilities.
6.2 Signing and performing this contract are the true intention of the borrower that they must obtain all the necessary approvals, permissions and
authorizations to contain no legal defect.
6.3 The borrower conducts production and operation in compliance with laws and regulations, possesses the constant operation capability and legal
repayment source, involves no serious environmental or social risk, possesses no serious adverse credit record and no officer of the borrower possesses any
adverse record.
6.4 All the documents, statements, materials and information provided by the borrower to the loaner when signing and performing this contract are
authentic, accurate, complete and valid. The borrower does not conceal any information that may affect its financial status and solvency, and there is no
serious adverse change to the financial status of the borrower since the issuance of the latest financial statement.
▲▲6.5 The borrower and its related persons and business related parties do not belong to the enterprises or individuals in the sanctions list issued by
the United Nations and relevant countries, organizations and institutions, or in the list of risks related to terrorism and anti money laundering issued by
Chinese government departments or competent authorities; It is not located in countries and regions sanctioned by the United Nations and relevant
countries, organizations and institutions.
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▲▲ 6.6 The borrower guarantees to comply with the national anti money laundering laws, regulations and relevant policies, not to assist others in
money laundering, terrorist financing, tax evasion, bank debt evasion, cash withdrawal, telecommunications fraud, illegal fund-raising and other illegal
activities, and actively cooperate with the lender to carry out various anti money laundering work such as customer identification, transaction record
keeping, customer identity and transaction background due diligence, large sum and suspicious transaction reports, And provide relevant supporting
materials as required by the lender.
6.7 According to the lender’s environmental and social risk assessment standards, if the borrower is a customer with environmental and social risks
classified as A or B, the borrower promises:
(1) The borrower’s internal management documents related to environmental and social risks comply with laws and regulations and are effectively
implemented;
(2) The borrower has no major litigation cases involving environmental and social risks;
(3) All behaviors and performances of the borrower related to environmental and social risks are compliant.
Article 7. Rights and Obligations of Loaner
7.1 The loaner may withdraw the principal and interest (including compound interest and default interest of overdue and embezzled loan) of the loan
according to this contract, collect the payable expense from the borrower, withdraw the loan in advance at its own discretion depending on the fund status
of the borrower, and may exercise other rights under laws, regulations or this contract.
▲ ▲ 7.2 The loaner only conducts the formal examination of materials provided by the borrower during the performance of this contract that the
loaner should be exempted from any liability for the failure to complete entrusted payment if the borrower provides any false, inaccurate or uncomplete
material or the borrower makes the payment in violation to this contract.
▲▲7.3 The loaner should issue the loan and make the payment according to this contract. The loaner should be exempted from the liability if the
loaner fails to issue the loan or make the payment due to any cause below, but the loaner should send a notice to the borrower in time: the issuance account
appointed by the borrower is frozen, the account of the receiver is frozen, there is any force majeure, communicaiton or network fault, or the system fault of
the loaner, unless otherwise regulated in this contract.
▲▲ 7.4 According to the regulatory requirements to be followed by the lender, the lender will conduct a dynamic assessment of the borrower’s risk
of money laundering, terrorist financing, tax evasion and other risks, and has the right to take one or all of the measures agreed in Article 9.2 when it
believes that the borrower and the borrower’s business involved in the transaction instructions are suspected of high risk of money laundering, terrorist
financing, tax evasion.
Article 8. Obligations of Borrower
8.1 The borrower should repay the principal and interest of loan under this contract according to the time, amount, currency and interest rate specified
in this contract and the corresponding Application for Use of Line of Credit.
The fund collection account appointed by the borrower should be used to collect the corresponding sales income or planned repayment fund. If the
corresponding sales income is not settled in cash, the borrower should ensure to allocate it to the fund collection account upon receiving it. The borrower
should provide the cash flow of the fund collection upon the request from the loaner.
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8.2 The borrower should use the line of credit for the purpose specified in this contract and use the loan for the purpose specified in the corresponding
Application for Use of Line of Credit but may not embezzle the loan for any other purpose, or the investment in fixed assets, equity or any production or
operation prohibited by the government.
The borrower should draw the loan fund in the mode agreed by both parties but not avoid the entrusted payment by the loaner by breaking up the
whole into parts; in the mode of independent payment by the borrower, the borrower should use the loan within the reasonable period required by the
regulatory authority of the loaner, and the payment of loan fund should meeting this contract.
▲▲8.3 The borrower shall bear the settlement fees (if any) for the loan fund payment (including the lender’s entrusted payment and the borrower’s
independent payment), and the specific fees shall be subject to the laws, regulations, rules, regulatory provisions and the then effective Directory of Bank
of Communications Service Fees published by the lender.
If the loan fund payment does not involve cross-border payment, the lending account is a special loan issuing account. When the loan fund payment
(including the lender’s entrusted payment and the borrower’s independent payment) is made, if the collection account does not belong to the account
opened in the Bank of Communications, the fund payment may be made through the People’s Bank of China’s payment system or the local exchange
system. If the loan granting account is not a special loan granting account, and when the loan fund is paid (including the lender’s entrusted payment and the
borrower’s independent payment), if the collection account is an account of another bank in another place, the fund payment is handled through the
payment system of the People’s Bank of China.
If the loan fund payment involves cross-border payment, the loan fund payment may be handled through the SWIFT system or other systems.
▲▲8.4 The borrower should cooperate with the loaner in the management of loan payment and the supervision and inspection of the use of loan and
operation situation of the borrower, provide the financial statement, use record and material of the loan fund, information of affiliate and affiliate
transaction, environmental and social risk report, other materials and information necessary for the after-loan risk management required by the loaner, and
shall ensure the authenticity, integrity and accuracy of such documents, materials and information.
▲▲8.5 Under either circumstance below, the borrower should send a written notice to the loaner at least 30 days in advance and take no action before
repaying the principal and interest under this contract or providing the repayment plan or guarantee recognized by the loaner:
(1) The borrower sells, presents, leases, lends, transfers, mortgages, pledges or disposes in any other manner all or a large part of the assets or
important assets;
(2) The operation mechanism or ownership organization of the borrower suffers from any great change, including but not limited to the contracting,
lease, association, corporate system transformation, joint stock cooperation system transformation, sales, combination (merger), joint venture (cooperation),
separation of enterprise, establishing of subsidiary, equity transfer, ownership transfer, and decrease of capital.
(3) The external investment or increase of debt financing of the borrower exceeds the agreed limit.
▲▲8.6 The borrower shall notify the lender in writing within 7 days of the occurrence or possible occurrence of the following events and cooperate
in submitting relevant certificates according to laws and regulations, regulatory provisions and the lender’s requirements:
(1) The borrower or its affiliate revises the Memorandum of Association, changes the name, legal representative (responsible person), domicile,
mailing address or business scope of the enterprise, or makes any decision that affects the finance or human resource greatly;
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(2) The borrower, its affiliate or guarantor plans to apply for bankruptcy or may be or has been applied by the creditor for bankruptcy;
(3) The borrower or its affiliate is involved in any serious lawsuit, arbitration or administrative measure, or its major assets or the guarantee under this
contract is executed with the property preservation or any other compulsory measure, or the security of its major assets or the guarantee under this contract
is or may be affected or the value is or may be decreased;
(4) The borrower or its affiliate provides any guarantee to any third party to affect its economic status, financial status or capability in performing
obligations under this contract significantly;
(5) The borrower or its affiliate enters into any contract with significant influence on its operation and financial status;
(6) The borrower repays the immature debt in advance or repay other mature debt firstly, or increases any form of guarantee for any other existing
debt, or makes any arrangement with the similar effect or enters into any relevant document;
(7) The borrower, its affiliate or guarantor is shut down, closed, dissolved, suspended, cancelled, or the business license is withdrawn;
(8) The borrower or its affiliate, major investor of the borrower or its affiliate, legal representative (responsible person), director or officer of the
borrower or its affiliate is missing or involved in any violation, to any law, regulation or rule of stock exchange, or suffers from any abnormal change;
(9) The borrower or its affiliate suffers from serious difficulty or deterioration of financial status in the operation, or there is any other event with
adverse influence on the operation, financial status, solvency or economic status of the borrower or its affiliate;
(10) There is any affiliated transaction and its amount reaches or exceeds 10% of the latest audited net assets;
(11) Before repaying all the debts under this contract, the borrower becomes or may become the shareholder or the “actual controller” defined by the
Company Law of the guarantor;
(12) The borrower or its affiliate causes any liability accident or is made public by the media by violating any law, rule, regulation, national policy or
industrial standard;
(13) The borrower or its affiliate encounters any safety or environment protection accident;
(14) The relationship between the affiliate and the borrower is changed;
(15) The borrower or its affiliate encounters any significant equity change;
(16) The opinion issued by the external audit of the borrower on its financial statements is not the standard unreserved opinion;
(17) The borrower is or may be investigated, punished or taken with other similar measures by the competent authority as it violates the law or rule
and/or regulatory requirement;
(18) The borrower or its affiliate is listed to be sanctioned by the UN, EU or US, or the country or area where the borrower or its affiliate resides in is
listed to be sanctioned by the UN, EU or US;
(19) There is any other event with serious adverse influence on the solvency of the borrower or its affiliate.
(20) According to the lender’s environmental and social risk assessment standards, if the borrower is a customer with environmental and social risks
classified as A or B, the borrower has or may have any of the following events:
① Various permits, approvals and approvals related to environment, society and risks during commencement, construction, operation and shutdown;
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② The assessment and inspection of the environmental and social risks of the borrower by the environmental and social risk regulatory authority or its
recognized institution;
③ Supporting construction and operation of environmental facilities;
④ Discharge and compliance of pollutants;
⑤ Safety and health of employees;
⑥ Major complaints and protests from neighboring communities against the borrower;
⑦ Major environmental and social claims;
⑧ Other major circumstances that the lender considers relevant to environmental and social risks.
▲▲8.7 In case of any change of guarantee under this contract that is adverse to the creditor’s right of the loaner, the borrower should provide other
guarantee recognized by the loaner in time.
The “change” specified here includes but not limited to: merger, separation, shutdown, dissolution, suspension, cancellation, withdrawal of business
license, and applying or being applied for bankruptcy of the guarantor; significant change of the operation or financial status of the guarantor; the guarantor
is involved in any serious lawsuit, arbitration or administrative measures, or the major assets is taken with property preservation or other compulsory
measure; the security of the guarantee is or may be affected; the value of the guarantee is or may be decreased, or taken with measures of property
preservation, such as sealing; the guarantor or its legal representative (responsible person) or officer violates any law, regulation or applicable rules of stock
exchange; the guarantor (when it is an individual) is missing or dead (announced to be dead); the guarantor breaches the guarantee contract; there is any
dispute between the guarantor and the borrower; the guarantor requires cancelling the guarantee contract; the guarantee contract does not take effect, or is
invalid or cancelled; the secured real right is not set up or take effect; any other event affecting the security of the creditor’s right of the loaner.
▲ ▲ 8.8 The borrower promises: during the period since the signing date of this contract to the date at which the principal, interest and relevant
expenses of the loan under this contract are paid off, the financial index, external rating, as well as production and operation qualification/license of the
borrower will always comply with this contract, and such production and operation qualification/license will pass the annual inspection if necessary.
8.9 The Borrower guarantees that the Borrower and its employees and agents will not provide, give, ask for or receive any form of material benefits
(including but not limited to cash, physical cards, tourism, etc.) or other non-material benefits other than those agreed herein to the Lender or its employees
in any form; Do not use the funds or services provided by the lender in any form, directly or indirectly, for activities related to corruption or bribery; If the
borrower is aware of any violation of this article, it shall provide clues and relevant information to the lender in a timely, truthful, complete and accurate
manner, and cooperate with the lender on relevant matters as required by the lender.
8.10 According to the lender’s environmental and social risk assessment standards, if the borrower is a customer with environmental and social risks
classified as A or B, the borrower shall assume the following obligations:
(1) Establish and improve the internal management system of environmental and social risks, and specify the responsibilities, obligations and
punishment measures of relevant responsible personnel of the borrower;
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(2) Establish and improve the emergency response mechanism and measures for environmental and social risk emergencies;
(3) Establish special departments and/or designate special personnel to be responsible for environmental and social risks;
(4) Cooperate with the lender or a third party recognized by the lender in the assessment and inspection of the borrower’s environmental and social
risks;
(5) Respond appropriately or take other necessary actions when the public or other interested parties strongly question the borrower’s performance in
controlling environmental and social risks;
(6) Urge the borrower’s vital related parties to strengthen management and prevent the environmental and social risks of related parties from being
transmitted to the borrower;
(7) Perform other obligations that the lender considers relevant to the control of environmental and social risks.
▲▲Article 9. Adjustment of Line of Credit, Acceleration of Maturity and Repricing of Risk
9.1 Any event below should be deemed as the “early maturity event” of this contract:
(1) The borrower does not repay the principal or interest of the loan according to the Application for Use of Line of Credit under this contract;
(2) The borrower makes any false representation or guarantee under this contract;
(3) Any event that should be notified as specified in Article 8.6 occurs and influences or may influence the security of the creditor’s right of the
loaner;
(4) Any law, rule or regulatory policy is changed to the extent that the loaner will or may violate the law or rule if it issues the loan according to this
contract;
(5) While performing the contract with the loaner or any third party, the borrower conducts any breach or the debt may be or has been announced to be
mature in advance;
(6) The borrower breaches any other article of this contract.
(7) According to the lender’s environmental and social risk assessment standards, if the borrower’s environmental and social risks are classified as A
or B, the borrower has any of the following events:
① The borrower is punished by relevant government departments due to poor environmental and social risk management;
② The borrower is strongly questioned by the public and/or the media due to poor environmental and social risk management, and it is verified that
there are relevant situations;
③ The borrower violates the obligations related to environmental and social risk management agreed with the lender in other contracts.
9.2 In case of any “early maturity event”, the loaner may take any one, several or all measures below:
(1) To lower, suspend or cancel the line of credit under this contract;
(2) To stop issuing the loan unused by the borrower;
(3) To stop paying the loan unused but already withdrawn by the borrower;
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(4) To require the borrower to supplement the issuance and payment conditions of loan to the loaner with the regulated period;
(5) To require the borrower to change the payment mode as required by the loaner;
(6) To reprice against the risk in executing the loan according to Article 9.3;
(7) To announce that the principal of loan already issued under this contract becomes mature and require the borrower to repay the principal and
interest of all the mature loan immediately.
9.3 In view of the production and operation situation of the borrower when signing this contract, both parties have determined the interest rate and its
adjustment through negotiations. The borrower agrees that in case of any “early maturity event”, the loaner may reprice against the risk in executing the
loan according to this article.
9.3.1 The repricing mentioned above consists of two modes, including repricing and directly raising the loan interest rate. The specific mode is agreed
by both parties in Article 21.
9.3.2 “Negotiated reprice” means that the loaner may require the borrower to negotiate with the loaner within the regulated period to raise the loan
interest rate and both parties will determine the “repricing date” and relevant interest rate in the form of supplemental agreement.
9.3.3 “Direct raise of loan interest rate” means that the loaner may directly raise the loan interest rate according to this article and Article 21.
9.3.3.1 Since the loan sends a notice of “repricing date” to the borrower, the loan interest rate should be applied to each loan that the borrower has not
repaid by the “repricing date”.
9.3.3.2 If the loan currency is RMB, US dollar, Euro, Hong Kong dollar, Japanese yen and British pound, the increased loan interest rate of each loan
shall be determined according to the plus (minus) point value agreed in Article 21.2.1 on the basis of the applicable pricing benchmark value on the
“repricing date”. The “repricing date” shall be the T date, and the pricing benchmark value rules applicable to the T date shall be implemented in
accordance with Article 3.5.1 of the Contract.
9.3.3.3 If the loan currency is other than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen and British pound, the increased loan interest rate
shall be determined according to Article 21.2.2.
9.3.4 After the lender executes risk repricing as agreed above, the new interest rate will be executed from the “repricing date”. On the basis of this
interest rate, it is still subject to floating adjustment as agreed in Article 3 of this contract. If both parties agree to change relevant agreements, the
agreement after the change shall prevail. If the loan is overdue (including the borrower’s failure to repay on time or the lender’s announcement of early
maturity) or misappropriated, the default interest rate for overdue and misappropriated loans shall be determined on the basis of the new interest rate
(including the interest rate after floating adjustment as agreed in this contract), and the interest rate for compound interest shall be adjusted accordingly.
9.3.5 The implementation of “risk repricing” shall not be deemed or interpreted as the lender waiving other rights stipulated by laws and regulations
and agreed in this contract. The Lender has the right to take other measures to protect creditor’s rights in accordance with laws and regulations and this
Contract, including but not limited to the measures agreed in Article 9.2.
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▲▲Article 10. Breach
10.1 If the borrower does not repay the principle or interest of the loan in time or uses the loan for any purpose not included in this contract, the loaner
will collect the interest at the default interest rate of overdue or embezzled loan, and collect the compound interest of the outstanding interest. If the default
interest rate is adjusted according to this contract, the compound interest rate should also be adjusted correspondingly.
10.2 If the borrower does not repay the principle or interest of the loan in time, it should assume the calling expense, lawsuit expense (or arbitration
expense), preservation expense, announcement expense, execution expense, attorney’s fee, travel expense and other expenses of the loaner in realizing the
creditor’s right.
▲▲Article 11. Deduction
11.1 The borrower authorizes that in case of any payable principal, interest, default interest, compound interest or any other expense of the loan, the
loaner may deduct the fund in any account of the borrower opened at any branch of Bank of Communications Co., Ltd. to repay the amount mentioned
above.
11.2 After such deduction, the loaner should inform the borrower of relevant account number, contract number, number of Application for Use of Line
of Credit, deduction amount and remaining debt.
11.3 If the deducted fund is insufficient to repay all the debt of the borrower, the debt to be repaid by such fund should be determined according to this
contract.
11.4 If the currency of the deducted fund is different from that of the debt to be repaid, the deducted fund should be converted at the exchange rate
published by Bank of Communications Co., Ltd. at the time of deduction. If any settlement, sales or exchange procedure of foreign currency is necessary,
the borrower is obliged to assist the loaner and assume the risk in exchange rate.
Article 12. Notice
12.1 Contact details provided by the borrower in this contract (including mailing address, telephone number and fax number) are all authentic and
valid. In case of any change of any contact detail, the borrower should send/deliver such change to the mailing address offered by the loaner in this contract
immediately. Such change should take effect when the loaner receives the notice of change.
12.2 Unless otherwise specified in this contract, the loaner may send a notice to the borrower in any manner below. The loaner may choose the
manner it thinks fit but is relieved from any liability for the error, omission or delay caused by the postal service, fax, telephone or any other
communication system. If the loaner chooses several manners, the one delivering the notice to the borrower, the fastest should prevail.
(1) If the loaner chooses the announcement, the date at which the loaner publishes the announcement on its website, online bank, telephone bank or
outlet should be deemed as the delivery date;
(2) If the loaner chooses the personal delivery, the date at which the borrower signs to confirm the reception should be deemed as the delivery date;
(3) If the loaner chooses the postal service (including express delivery, ordinary mail and registered mail) to send the notice to the latest mailing
address of the borrower that the loaner knows, the third day (in the same city)/the fifth day (in different cities) since the sending date should be deemed as
the delivery date;
(4) Fax, mobile phone short message or other electronic communication methods shall be delivered to the borrower’s fax number, mobile phone
number or e-mail address designated by the borrower that the lender knows most recently, and the date of sending shall be deemed as the date of service.
The aforementioned delivery refers to the entry of relevant information into the server terminal of the service provider without taking the actual display of
relevant information on the client terminal as the standard.
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12.3 The borrower agrees that, unless the lender receives the borrower’s written notice on changing the mailing address, the mailing address filled by
the borrower in this contract is the address where the court serves judicial documents and other written documents to the borrower. The scope of application
of the above address for service includes but is not limited to the first instance of civil litigation, objection to jurisdiction and reconsideration, second
instance, retrial, remand for retrial and enforcement procedures. If the borrower responds to the lawsuit and directly submits the confirmation of service
address to the court, if the confirmed address is inconsistent with the communication address recently known by the lender, the court has the right to serve
according to the address on the confirmation of service address.
In the process of dispute resolution under the Contract, the court may serve the judgment, ruling and mediation statement on the Borrower in any of
the following ways:
(1) The date of delivery by post (including express mail, ordinary mail and registered mail) shall be the date on which the borrower signs on the
service receipt;
(2) The date when the borrower signs on the service receipt shall be deemed as the date of service.
If the court uses the method of delivery by post (including express mail, ordinary mail and registered mail), if the borrower fails to sign on the service
receipt, or the mailing address filled in by the borrower is inaccurate, or the mailing address is actually changed, but the lender does not receive the
borrower’s written notice on changing the mailing address, resulting in the return of the judgment, ruling and mediation statement, the date when the
document is returned shall be deemed as the date of service.
If the court adopts the method of personal service, if the borrower fails to sign on the service receipt, the date of service shall be the date when the
sender records the situation on the service receipt.
Except for the judgment, ruling and mediation statement, the court has the right to give any notice to the borrower through any communication
method agreed in Article 12.2. The Court shall have the right to choose such means of communication as it thinks fit, and shall not be liable for any errors,
omissions or delays in the delivery of mail, fax, telephone, telex or any other communication system. If the court chooses multiple communication methods
at the same time, the one that reaches the borrower faster shall prevail.
12.4 This clause is an independent dispute resolution clause in the contract. If the contract is invalid, canceled or terminated, the validity of this clause
will not be affected.
▲▲ Article 13. Disclosure and Confidentiality
13.1 With respect to the information and materials of the borrower obtained in the signing and performance of this contract, the loaner may not violate
any law, rule or regulatory requirement to use such information and materials. It should assume the confidentiality liability but not disclose such
information and materials to any third party, except for under following circumstances:
(1) The law or rule requires such disclosure;
(2) The judicial department or regulatory authority requires such disclosure;
(3) When the borrower does not repay the principal and/or interest of the loan in time, the loaner has to make the disclosure to the external
professional advisor for the purpose of realizing the creditor’s right under this contract but such external professional advisor must assume the
confidentiality obligation;
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(4) The borrower agrees or authorizes the loaner to make the disclosure.
13.2 The borrower confirms that it has signed the Credit Information Inquiry and Provision Authorization. The loaner may inquire, use and keep the
credit information of the borrower within the scope regulated by the authorization.
13.3 Besides the circumstance specified in Article 13.1 and Article 13.2, the borrower further agrees Bank of Communications Co., Ltd. to use or
disclose the information and materials of the borrower under following circumstances, including but not limited to the basic information, credit transaction
information, adverse information and other relevant information and materials of the borrower, and is willing to assume all the consequences thereof:
Bank of Communications Co., Ltd. may disclose such information and materials on a confidentiality basis to the business outsourcing institution, third
party service provider, other financial institutions and other institutions or individuals that the loaner deems necessary, including but not limited to other
branches or wholly-owned subsidiaries of Bank of Communications Co., Ltd. for the purpose below: ① It conducts the line of credit business or any
relevant business, such as promoting the line of credit business of Bank of Communications Co., Ltd., calling for the debt from the borrower and
transferring the creditor’s right of the line of credit business; ② The loaner provides or may provide the borrower with the new product or service, or
further provides the service.
Whether Article 13.3 is applicable should be subject to Article 24 of this contract.
Article 14. Applicable Laws and Dispute Solution
Laws of the People’s Republic of China (for the purpose of this contract, excluding laws of Hong Kong, Macau and Taiwan) apply to this contract.
Any dispute under this contact should be brought to the competent court at the place of the loaner, unless otherwise regulated in this contract. Both parties
should continue to perform those articles not involved in the dispute during the period of dispute solution.
Article 15. Effectiveness of the contract, loan nature and contract composition
15.1 This Contract shall come into force after being signed (or sealed) by the legal representative (principal) or authorized representative of the
Borrower and affixed with the official seal, and signed (or sealed) by the legal representative (principal) or authorized representative of the Lender and
affixed with the special seal for contract. If the special seal for contracts affixed by the lender is the special seal for offshore credit business contracts (or
other special seals for contracts with the word “offshore”), the loans under this contract are offshore business loans.
15.2 The Application for Use of Line of Credit and other relevant documents and materials signed under this contract are indispensable parts of this
contract.
15.3 Application for Use of Line of Credit is the supplement to this contract. Unless otherwise regulated in the Application for Use of Line of Credit,
rights, obligations and other matters of the borrower and the loaner should still be subject to this contract.
Article 16. Specific Content of Line of Credit
16.1 Currency of line of credit: RMB; Amount in words: ten million yuan; It can be used in √ currency ☐ line currency and other currencies
acceptable to the lender; This line belongs to ☐ Revolving line ☐ One time line (can be used for many times) √ One time line (only used once).
16.2 Purpose of credit line: business turnover.
16.3 The credit term is from April 3, 2022 to April 3, 2023.
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Article 17. Interest Rate
If the loan currency is other than RMB, US dollar, euro, Hong Kong dollar, Japanese yen and British pound, the applicable pricing benchmark types,
daily interest rate calculation rules and pricing benchmark value determination rules applicable to the corresponding loan on the applicable date of the
pricing benchmark and the adjustment date of the loan interest rate are agreed as follows:
____________________________________/____________________________________
Article 18. Account
18.1 The borrower appoints the following account to be the issuance account. The account ☐ is √ is not the dedicated loan issuance account opened at
the loaner. If both parties otherwise regulate in the Application for Use of Line of Credit, such Application for Use of Line of Credit should prevail.
Account name:
ChinaLink Professional Services Co., Ltd.
Account number: 310066865018010213932
Bank of deposit: Zhangjiang Sub-branch of Bank of Communications
18.2 The borrower appoints that:
(1) The repayment account:
Account name:
ChinaLink Professional Services Co., Ltd.
Account number: 310066865018010213932
Bank of deposit: Zhangjiang Sub-branch of Bank of Communications
(2) The fund collection account:
Account name:
ChinaLink Professional Services Co., Ltd.
Account number: 310066865018010213932
Bank of deposit: Zhangjiang Sub-branch of Bank of Communications
Article 19. Issuance, Payment and Repayment of Loan
19.1 The period of each loan withdrawn under this contract should be no longer than 12 √ months ☐ days, and the maturity date of all the loan should
be no later than Oct 3, 2023
19.2 The limit of independent payment under the Contract is: √ RMB ☐/(foreign currency) zero thousand yuan or equivalent in other currencies.
19.3 The entrusted payment by loaner is compulsory once any condition below is met:
____________________________________/____________________________________
_________________________________________________________________________
19.4 In the mode of independent payment by the borrower, the borrower should report the payment of loan fund to the loaner within 15 days since the
issuance of loan.
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Article 20. Financial Restriction, External Rating, Production and Operation Qualification/License
20.1 Limit on the external investment by the borrower is RMB 90 million; limit on the increase of debt financing is RMB 90 million.
20.2 Specific regulations on the financial indexes of the borrower:
(1) ____________________________________/____________________________________
(2) _________________________________________________________________________
(3) _________________________________________________________________________
20.3 Specific regulations on the external rating:
(1) ____________________________________/____________________________________
(2) _________________________________________________________________________
20.4 Specific regulations on the production and operation qualification/license of the borrower:
(1) ____________________________________/____________________________________
(2) _________________________________________________________________________
▲▲Article 21. Repricing of Risk
21.1 This contract adopts the first repricing mode below: (1) Repricing through negotiations; (2) Direct raising the loan interest rate.
21.2 Once the “direct raising the loan interest rate” is adopted:
21.2.1 If the loan currency is RMB, US dollar, Euro, Hong Kong dollar, Japanese yen and British pound,, the increased interest rate plus (minus)
points shall be: ☐ no point plus or minus ☐ plus percentage points ☐ minus / percentage points. If a loan is otherwise agreed, the increase (decrease) value
of the interest rate after the increase of the loan shall be subject to the records in the application for the use of the applicable limit.
21.2.2 If the loan currency is other than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen and British pound, the loan interest rate after the
increase is:
___/_____________
Article 22. Contact Details
Contact details of the borrower to receive the notice specified in Article 12:
Mailing address: 1F, Building 18, 498 Guoshoujing Road
Addressee:
Yang Xiaofeng
Post code:
201203
Tel:
_______________
Mobile:
13701602419
Fax:
_______________
E-mail:
paulyang@clpsglobal.com
Article 23. Counterparts
This contract is made with four copies. Both parties and the guarantor (if any) holds one copy (ies) respectively.
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Article 24. Miscellaneous
24.1 Both parties agree that Article 13.3 √ applies ☐ does not apply to this contract.
24.2 According to the lender’s environmental and social risk assessment standards, the borrower ☐ belongs to a customer √ not classified as A or B in
terms of environmental and social risks.
24.3 The payment method of the loan under the Contract shall be subject to the Application for Use of Quota signed by the Lender.
24.4 Although otherwise agreed in this contract, during the epidemic control period, both parties agreed that the signing and effective method of this
contract was changed to: [Yang Xiaofeng, ID No. 310110196303106258, Chairman] signed this contract on behalf of the borrower, The signed contract and
scanned copies of all documents and materials related to the performance of the contract (hereinafter collectively referred to as “contract documents”, in
PDF or JPG format) shall be sent to the email designated by the borrower (paulyang@clpsglobal.com) Send to the email address designated by the lender
(zhang_shiting@bankcomm.com) Such contract documents shall be deemed as the borrower’s own behavior, and shall have the same legal effect as the
original and have legal binding force on the borrower. Once the contract documents are sent, they shall be deemed to be delivered. Without the written
consent of the lender, they shall not be withdrawn, revoked, changed or declared invalid. The lender has the right to make loans, entrusted payments and
other operations according to the contract documents. This contract takes effect from the date of the lender’s first loan. After the closure measures are
lifted, the borrower shall timely submit the original contract documents to the lender, and cooperate with the lender to handle the re sealing and other
necessary procedures.
Borrower: ChinaLink Professional Services Co., Ltd.
Legal representative (responsible person): Yang Xiaofeng
Address: Room 26C01, 828-838 Zhangyang Road, China (Shanghai) Free Trade Area
Loaner: Xinqu Branch (Sub-branch) of Bank of Communications Co., Ltd.
Responsible person: Cen De
Mailing address: 230 Xinjinqiao Road, Pudong New Area, Shanghai, China
The borrower has read this contract and the loaner has made detailed descriptions as
required by the borrower. The borrower possesses no objection or doubt when signing
this contract and understands all the articles, especially the meaning and legal
consequence of those marked with ▲▲.
(This page is the signature page of the Working Capital Loan Contract, and there is no text below)
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Borrower: (Seal)
Loaner: (Seal)
(Seal: ChinaLink Professional Services Co., Ltd.)
(Seal: Line of Credit Business Contract Seal of Shanghai Xinqu Sub-
branch of Bank of Communications Co., Ltd.)
Legal representative (responsible person) or authorized representative
Legal representative (responsible person) or authorized representative
(Signature or seal)
(Signature or seal)
Date: May 26, 2022
Date: June 23, 2022
Important:
Dear customer, in order to safeguard the rights and interests of your company, please read the full text of this application carefully before
signing this application, especially the black and bold clauses. If there is any doubt, please ask our bank to explain it in time. If you still have
any questions or doubts, please consult your lawyers and relevant professionals.
No. IR2204240000115
Exhibit 10.22
China Merchants Bank
Application for withdrawal
(Applicable to working capital loans that do not require a separate loan contract)
China Merchants Bank Co., Ltd Shanghai branch :
According to the contract No.121XY2021015509 signed by both parties 《Credit Agreement 》(including but not limited to Credit Agreement)
《Credit Agreement (applicable to working capital loans where no separate loan contract is required)》, 《Credit Agreement for Bill Pool Business, etc.》,
hereinafter referred to as the 《Credit Agreement》stipulates that the 7703600.59 of the loan (RMB) applied by our company this time, the loan term is 6
months, and the account number is 121908367810901. For the details listed in the following table:
Method of payment
(Subject to the
requirements of your
bank)
Independent payment
Name of the payee
ChinaLink Professional
Services Co., Ltd.
Currency
Amount
RMB
7703600.59
Pay
Use of funds
taxes, pay
social
fees and other
security
human resources expenses
Business contract
number
I. Our company agrees that the loan interest rate shall be subject to the following terms:
1. This loan is adopted (one of the following two options is marked with “√”):
√ Return to fixed interest rate ☐ A floating interest rate
2. Determination of the interest rate during the contract period (please tick “√” if applicable):
2.1 The benchmark interest rate for RMB loans issued shall be the market quotation rate (LPR) for √ one-year/☐ five-year loans published by the
National Interbank Funding Center one working day before the pricing date. Add in points, 10.00 basis points (BPs) 。
2.2 Pricing date refers to the reference date used to determine the benchmark interest rate during the loan period or floating period. If the loan adopts
a fixed interest rate, the pricing date shall be the date when the loan is actually issued; If the loan adopts a floating interest rate, the determination of the
pricing date shall be carried out in accordance with the provisions of Article 2.3.
2.3 If this loan adopts a floating interest rate, it shall be based on: Float for floating periods, and the applicable benchmark interest rate for each
floating period shall be determined in accordance with the provisions of Article 2.
The actual loan release date is the pricing date of the first floating cycle, and the first day of each subsequent floating cycle is the pricing date of the
floating cycle.
2.4
Interest: The loan interest shall be calculated from the date when the loan is transferred to our account according to the actual loan amount and
the actual number of days occupied, and our company shall adopt the interest rate。If the interest is paid in the form of clearing the principal,
your bank may directly deduct the amount from our account □on the 20th day of each month or √on the 20th day of the last month of each
quarter when the loan is due. Daily interest rate of RMB = annual interest rate/360. Unless otherwise specified, the loan interest rate under this
Agreement shall be calculated by the simple interest method.
II. Commitment of our company:
1. Our company will withdraw the loan according to the details in the above table. If it is necessary to change the details, it will be reported to your bank
for approval. If your bank requires our company to adopt the entrusted payment method according to the regulatory requirements or for the need of risk
control, the requirements of your bank shall prevail.
2. For the payment of loan funds in the form of entrusted payment, it shall be reported to your bank for approval before handling the transfer procedures.
For the loan funds paid by our company independently, our company shall regularly (at least monthly) provide your bank with the evidence of the use of
loan funds, including business contracts, payment vouchers, etc.
3. Our company guarantees that the preconditions required for the issuance of the loan agreed in the Credit Agreement have been met.
4. The specific loan amount, term and interest rate will be approved and determined by your bank, and your bank has the right to reject our
application. If your bank agrees to this application, The actual issuing amount, currency, term, purpose, interest rate, loan/settlement account and
other matters of each withdrawal shall be subject to the business records of your bank’s system.
5. ☐ During the term of the loan, our company agrees to repay the loan in installments according to the following plan (if this clause is selected, “√” shall
be marked in the “□” before this clause):
6. Repayment in advance
6.1 If our company applies for prepayment, we shall submit a written application to your bank 7 working days before the planned prepayment date,
and pay the liquidated damages for prepayment to your bank (except that Party B is a small and micro enterprise with national standards). Liquidated
damages for prepayment = amount of prepayment × proportion of liquidated damages. The specific proportion of liquidated damages shall be determined
by your bank according to the loan term and loan account age (i.e. the actual duration of the loan) agreed in the Contract. After your bank approves our
application for prepayment and notifies us of the specific proportion of liquidated damages in writing, our company shall pay the liquidated damages for
prepayment to your bank in full within the time required by your bank. Otherwise, your bank still has the right to reject our application for prepayment.
Your bank has the right but not the obligation to reduce the amount of liquidated damages for our prepayment according to the remaining loan period and
other factors at the time of our prepayment.
6.2 For prepayment by our company, the interest rate is still calculated according to the Credit Agreement, and the interest payable is calculated
according to the actual loan term.
The Borrower declares that:
All terms of this application have been fully negotiated between the parties. The Bank has drawn the Borrower’s special attention to the
exemption or mitigation of your Bank liability and other clauses that have a material interest in the borrower, and make corresponding
explanations to the above clauses at the request of the borrower. The Borrower has fully and accurately understood it. The Borrower and the
Bank have the same understanding of the terms of this Application.
Borrower (electronic signature):
ChinaLink Professional Services Co., Ltd.
April 26, 2022
Important Notes.
Dear customer, in order to safeguard your rights and interests, please read this agreement in its entirety, especially the bolded and highlighted clauses,
carefully before signing it. If you have any doubts, please ask us to clarify them promptly. If you are still in doubt or unsure of anything, please consult
your lawyer and relevant
Exhibit 10.23
(applicable in the case of working capital loans where no separate loan contract is required)
Credit Agreement
NO. 121XY2021035010
Grantor: China Merchants Bank Co. LTD Shanghai branch (hereinafter referred to as Party A)
Credit Applicant: JAJI (Shanghai) Co., Ltd. (hereinafter referred to as Party B)
Upon Party B’s application, Party A agrees to provide a credit line to Party B for your use. Now Party A and Party B agree on the following terms in
accordance with the relevant legal provisions and after full consultation, and hereby enter into this agreement.
1. Credit limit
1.1 Under this Agreement, we shall provide you with a credit line (including revolving line and/or one-off line) in the amount of RMB 8 million
(including the equivalent in other currencies, the exchange rate of which shall be based on the foreign exchange rate published by us at the time of the
actual occurrence of each specific business, hereinafter the same).
If there is any outstanding balance in respect of a specific operation under (insert the name of the agreement here) between Party A (or Party A’s
subsidiary) and Party B, it will automatically be included under this agreement and will directly occupy the credit line under this agreement.
1.2 The credit period shall be for a period of months, from 2021.10.31 to 2022.10.30. If Party B needs to use the credit line for specific credit
business, it shall submit an application to Party A for the use of the credit line within such period. Party A shall not accept any application for the
use of the credit line submitted by Party B beyond the expiry date of the credit line period, except as otherwise provided in this Agreement.
1.3 The types of credit business granted under the credit line include but are not limited to one or more credit businesses such as loans/order loans,
trade finance, bill discounting, commercial bill acceptance, commercial bill acceptance/bonding, international/domestic letters of guarantee, customs duty
payment guarantee, corporate account overdraft, derivative transactions, gold leasing, etc.
“Trade Finance” includes, but is not limited to, international/domestic letters of credit, import charge, lading guarantee, import collection charge,
packaged release, export charge, export negotiation, export collection charge, import/export remittance financing, credit guarantee financing, factoring, bill
factoring and other business types.
1.4 Revolving Credit Limit means the maximum amount of the sum of the principal balance of one or more credit facilities referred to in the preceding
paragraph that we may provide to you on a continuous and revolving basis during the credit period.
The one-off line of credit refers to the cumulative amount of each type of credit business provided by Party A for Party B during the credit period shall
not exceed the amount of the one-off line of credit approved by Party A. Party B shall not recycle the one-off credit line, and the corresponding amount of
multiple credit operations applied for by Party B shall occupy the one-off credit line amount until the accumulated amount is full.
2. credit line occupancy arrangements
2.1 Specific credit operations applied for by you and approved by us during the credit period are automatically included in this Agreement and will be
covered by the credit limit under this Agreement.
2.2 If Party A applies for factoring business in which Party B is the payer (debtor of the receivables), the credit line mentioned above shall be
used for the receivables claims assigned to Party B by Party A from a third party in such business; if Party B applies to Party A for factoring business
in which Party B is the payee (creditor of the receivables), the credit line mentioned above shall be used for the purchase of the receivables claims held by
Party B paid by Party A to Party B with its own funds or funds from other legal sources. The acquisition amount (off-take payment) of the receivable
claims held by Party B will occupy the above credit line.
2.3 If Party A, according to its internal process, entrusts other branches of China Merchants Bank to reopen a letter of credit to the beneficiary after the
letter of credit has been issued, the letter of credit and the guarantee business of charge and delivery under it will occupy the above credit line.
When classifying an import opening business, if an import charge actually occurs subsequently under the same letter of credit, the import opening and
the import charge will occupy the same line of credit at different stages. In other words, when an import charge is made, the amount recovered after the
letter of credit is paid out is then used for the import charge and is deemed to be the same amount used for the original import opening.
3. Approval and use of credit lines
3.1 The type of credit line (revolving line or one-off line) and the applicable credit business types under this Agreement, the amount of credit
line corresponding to each credit business type, whether the credit line can be transferred between credit business types and the specific conditions
of use are subject to Party A’s approval and consent. If, during the credit period, Party A makes any adjustment to the original Party A’s approval
opinion upon Party B’s application, the subsequent approval opinion issued by Party A shall constitute a supplement and change to the original
approval opinion, and so on.
3.2 Party B must apply for the use of the credit line on a case-by-case basis and submit the materials required by Party A, which will be
approved and agreed by Party A on a case-by-case basis. Party A has the right to consider whether or not to agree in conjunction with its internal
management requirements and Party B’s business situation, and has the right to unilaterally reject Party B’s application for the use of the credit
line without incurring any form of legal liability to Party B. In the event of any inconsistency between this paragraph and other relevant
agreements in this Agreement, this paragraph shall prevail.
2
3.3 When specific credit operations are classified after Party A’s approval and consent, the specific business text (including but not limited to
individual agreement/application, framework agreement or specific business contract, etc.) signed by Party A and Party B in respect of the specific credit
operations shall form an integral part of the Credit Agreement. The specific amount, interest rate, term, purpose, fees and other business elements of
each loan or other credit business are determined by the specific business text, the business documents confirmed by us (including but not limited
to the withdrawal application, loan debit note (if any), etc.) and the business records in our system. Unless otherwise agreed in the specific business
text, the business documents confirmed by us (including but not limited to borrowing documents, etc.) and the business records in our system, the
interest rate under this Agreement shall be calculated using the simple interest method.
If Party B applies for a working capital loan within the credit line, there is no need for Party A and Party B to sign a separate Loan Contract on an
individual basis. When Party B applies for a loan, it will submit its application for withdrawal on a case-by-case basis and Party A will approve it on a case-
by-case basis.
3.4 We shall have the right to adjust the benchmark interest rate or interest rate pricing method for loans/other credit facilities under this
Agreement from time to time, taking into account changes in relevant national policies, domestic and international market conditions or our own
credit policies. Such adjustment shall take effect upon notice by us to you (by way of announcement at our branches or the official website of
China Merchants Bank, or by sending notice to any of the contact addresses/methods reserved by you in this Agreement); if you do not accept the
adjustment, you may repay the loan early, otherwise you shall be deemed to have accepted the implementation of the notice. If the relevant
financing business under this Agreement involves periodic repricing and the market benchmark interest rate is lower than 0 at the time of
repricing, both parties agree to use 0 as the benchmark for calculating the interest rate pricing.
In the event of any inconsistency between this clause and any other relevant agreement in this Agreement, the agreement in this clause shall
prevail.
3.5 Each loan or other credit within the credit line shall be used for a specific period determined in accordance with Party B’s operational needs and
Party A’s business management regulations, and the maturity date of each specific business may be later than the maturity date of the credit period (unless
otherwise required by Party A).
3.6 During the credit period, we shall have the right to assess Party B’s operation and financial position on an annual basis and to adjust the
credit limit available to Party B in the light of the assessment.
4. Interest rate terms for working capital loans
4.1 The interest rate of any loan under this Agreement shall be determined by Party B as specified in the corresponding drawdown
application and approved and agreed by Party A. If the drawdown application is inconsistent with the loan note (if any) or our system records for
that loan, the loan note (if any) or our system records shall prevail.
4.2 If Party B fails to use the loan in accordance with this Agreement, a penalty interest rate of 100% will be charged on the original interest
rate from the date of change of use for the portion of the loan not used for the agreed purpose. The original interest rate refers to the interest rate
that was applicable before the change of use of the loan.
3
If Party B fails to repay the loan on time, late interest (penalty interest) will be charged on the outstanding portion of the loan from the
overdue date at a rate of 50% (the overdue loan interest rate) over the original interest rate. The original interest rate refers to the interest rate
applicable until the loan maturity date (including early maturity date) (or in the case of a floating rate, the last floating period before the loan
maturity date (including early maturity date)).
If the loan is both overdue and not used for the contracted purpose, interest will accrue on the higher of the above provisions.
4.3 In the event that the People’s Bank of China adjusts the regulations on loan interest rates during the term of the loan, the relevant regulations of the
People’s Bank of China shall apply.
4.4 If the maturity date of the loan falls on a holiday, the loan will automatically be postponed to the first working day after the holiday and the interest
will be calculated according to the actual number of days the loan funds are occupied.
4.5 Interest shall be paid by Party B on each interest accrual date and Party A may deduct the interest payable directly from any account of
Party B with China Merchants Bank. If the last payment date of the principal amount of the loan is not an interest-bearing date, the last payment
date of the principal amount of the loan shall be the interest payment date and the borrower shall pay all the interest payable corresponding to the
principal amount of the loan on that date. If Party B fails to pay the interest on time, compound interest shall be calculated on the unpaid interest
payable (including penalty interest) at the overdue loan rate as stipulated in this Article.
5. Guarantee clause
5.1 All debts owed by Party B to Party A under this Agreement shall be secured by a pledge of property or joint and several guarantee provided by
Party B or a third party approved by Party A. Party B or the third party acting as guarantor shall issue or sign a separate copy of the guarantee as required
by Party A.
5.2 If the guarantor fails to sign the text of the guarantee and complete the guarantee formalities in accordance with the provisions of this Article
(including if the debtor of the receivables defends the receivables before the pledge of the receivables), we shall have the right to refuse to provide credit to
Party B.
5.3 In the event that the mortgagor provides security for all debts owed by Party B to Party A under this Agreement, if Party B becomes aware that the
mortgaged property has been or may be included in the government’s demolition or expropriation plan, it shall immediately inform Party A and urge the
mortgagor to continue to provide security for Party B’s debts with the compensation provided by the demolishing party as agreed in the mortgage contract
and complete the corresponding security procedures in a timely manner, or provide Party A with other safeguards as requested by Party A. other security
measures that are acceptable to us.
6. Party B’s rights and obligations
6.1 Party B shall have the following rights.
6.1.1 the right to require us to provide a loan or other credit within the credit limit on the terms set out in this Agreement.
6.1.2 the right to use the credit line as agreed in this Agreement.
6.1.3 the right to require Party A to keep confidential the production, operations, property and accounts provided by Party B, except as otherwise
provided in this Agreement.
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6.1.4 The right to assign the debt to a third party with our written consent.
6.2 Party B undertakes the following obligations.
6.2.1 shall truthfully provide the documents and information requested by Party A (including but not limited to its true financial books/statements and
annual financial reports, major decisions and changes in production, operation and management, information on withdrawals/use of funds, information
relating to collateral, etc.), as well as all account opening banks, account numbers and deposit and loan balances, and cooperate with Party A’s
investigation, examination and inspection.
6.2.2 shall accept Party A’s supervision of its use of credit funds and related production, operation and financial activities.
6.2.3 Loans and/or other credits shall be used as agreed and/or committed to in this Agreement and in each specific operational text.
6.2.4 shall repay in full and on time the principal, interest and fees on loans, advances and other credit obligations as agreed in this Agreement and
each specific business text.
6.2.5 the assignment of all or part of the obligations under this Agreement to a third party shall be subject to our written consent.
6.2.6 Party B shall immediately notify Party A in the following circumstances and actively cooperate with Party A to implement measures to ensure
the safe repayment of principal and interest of loans, advances and other credit debts and all related expenses under this Agreement.
6.2.6.1 the occurrence of a significant financial loss, loss of assets or other financial crisis.
6.2.6.2 loans or guarantees for the benefit of third parties or for the protection of third parties against loss, or guarantees of credit (pledge) on
own property (rights).
6.2.6.3 the occurrence of winding up of business, revocation or cancellation of business licence, filing or being filed for bankruptcy, dissolution,
etc., or changes in important corporate information, such as changes in corporate name, registered address, place of business, beneficial owner,
etc.; or changes in the controlling shareholders/actual controllers of the borrower
6.2.6.4 where its controlling shareholder or other affiliated companies or the de facto controller has a major crisis in operation or finance which affects
its normal operation, or where there is a change in personnel of the legal representative/main person in charge, director or important senior
management, or where it is punished/restricted in personal freedom by the state authority for matters such as violation of law or discipline, or
where it is missing for more than 7 days, which may affect its normal operation.
6.2.6.5 connected transactions with its controlling shareholder or other affiliated company or beneficial owner amounting to 10% or more of
Party B’s net assets (Party B’s notification should cover at least the connected relationship between the parties to the transaction, the nature of the
transaction item and transaction, the amount or corresponding proportion of the transaction, pricing policy (including transactions with no
amount or only a nominal amount), etc.).
6.2.6.6 the occurrence of any litigation, arbitration or criminal or administrative penalty that has a material adverse effect on its business or property
position.
6.2.6.7 Party B or its de facto controller has a large amount of private usury; or has a bad record of borrowing new money, overdue or defaulting on
interest payments in other financial institutions; or Party B’s affiliated enterprises have a broken internal capital chain and a debt crisis; or Party B’s
projects are halted or suspended or major investment mistakes have occurred.
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6.2.6.8 The occurrence of other material events that may affect the solvency of Party B and or its controlling shareholders/actual controllers.
6.2.7 Not to neglect to manage and pursue its claims as they fall due, or to dispose of existing major property without compensation and in
other inappropriate ways.
6.2.8 Party B shall obtain Party A’s written consent before undertaking major matters such as merger (amalgamation), demerger,
restructuring, joint venture (cooperation), transfer of production (share) rights, shareholding reform, foreign investment, increase in debt
financing, etc.
6.2.9 In the case of pledge of accounts receivable, Party B guarantees that the credit balance at any point during the credit period is less than 80% of
the pledged accounts receivable balance, otherwise Party B must provide a new, Party A-approved accounts receivable for pledge or deposit a security
deposit (the security deposit account number is automatically generated or recorded by Party A’s system at the time the security deposit is made, the same
below) until the pledged accounts receivable balance x 80% + Effective margin > credit balance.
6.2.10 In the event that the balance in the margin account is less than 95% of the amount of the specific operation to which it relates due to exchange
rate fluctuations, Party B shall be obliged to provide additional margin or other security in the corresponding amount as required by Party A. In the event
that Party B provides a margin pledge, Party B shall be obliged to provide additional margin or other security in the corresponding amount as required by
Party A.
6.2.11 To ensure that the payment for sales under import is recovered from the account designated by Party A; and to transfer the bills and/or
documents under the letter of credit to Party A under export negotiation.
6.2.12 Party B shall ensure that settlement, payment and other income and expenditure activities are mainly carried out in its bank settlement
account with Party A. The share of settlement transactions in Party B’s designated account during the credit period shall be at least not less than
the share of Party B’s financing with Party A in its financing with all banks.
7. Party A’s rights and obligations
7.1 We shall have the following rights.
7.1.1 the right to require you to repay the principal, interest and costs of loans, advances and other credit obligations under this Agreement and the
specific Contract in full and on time.
7.1.2 the right to request information from you in relation to the use of its credit facilities.
7.1.3 the right to be informed of Party B’s production operations and financial activities.
7.1.4 the right to supervise the use of loans and/or other credit facilities by Party B in accordance with the purposes agreed in this Agreement and each
specific business text; the right to unilaterally and directly suspend or restrict the corporate internet banking / corporate APP / other online
functions of Party B’s account (including but not limited to closing the corporate internet banking / corporate APP / other online functions,
presetting the list of payment recipients / single payment limit / stage payment limit and other restrictions) and other electronic payment channels,
restrict the sale of settlement vouchers, or restrict over-the-counter payments and transfers for your account, as well as the payment and pass-
through functions of non-counter channels such as telephone banking and mobile banking.
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7.1.5 has the right to entrust other branches of China Merchants Bank located at the beneficiary’s location to re-open letters of credit to the beneficiary
after accepting Party B’s application to open a letter of credit, as required by its internal processes.
7.1.6 the right to debit directly from any of Party B’s accounts with China Merchants Bank for the repayment of debts owed by Party B under
this Agreement and each specific business text (when the credit debt is not in RMB, the right to purchase foreign exchange or trade in foreign
currency directly from any of Party B’s accounts at the exchange rate published by us at the time of debit in order to repay the principal, interest
and fees on the credit)
7.1.7 the right to assign the claims it has against Party B and the right to notify Party B of the assignment by such means as it considers appropriate,
including but not limited to facsimile, post, personal service, announcement in the public media, etc., and to make collection calls on Party B.
7.1.8 the right to exercise supervision over Party B’s account and to entrust other institutions of China Merchants Bank other than Party A to exercise
supervision over Party B’s account and to control the disbursement of loan funds in accordance with the use of the loan and the scope of payment agreed
between the parties.
7.1.9 If Party A finds that any of the circumstances set out in Clause 6.2.6 of this Agreement exist in Party B, Party A shall have the right to require
Party B to implement measures to ensure the safe repayment of the principal and interest of the credit debt and all related expenses under this Agreement as
required by Party A, and shall also have the right to directly take one or more of the remedial measures as stipulated in the “Events of Default and
Handling” clause of this Agreement. (b) to take one or more of the remedies for breach of contract set out in the “Events of Default and Treatment” clause
of this Agreement.
7.1.10 Other rights under this Agreement.
7.2 Party A undertakes the following obligations.
7.2.1 the granting of loans or other credit to you within the credit limit on the terms set out in this Agreement and in each specific contract.
7.2.2 Party B’s assets, finances, production and operations shall be kept confidential, except where otherwise provided by laws and regulations,
required by regulatory bodies, or provided to Party A’s superior or subordinate bodies, or to external professional bodies such as auditors, accountants or
lawyers who are under an equivalent obligation of confidentiality.
8. In particular, Party B warrants the following
8.1 Party B is an entity duly established and legally existing under Chinese law, with legal personality, whose registration and annual report publication
formalities are true, legal and valid, and has sufficient civil capacity to enter into and perform this Agreement.
8.2 the execution and performance of this Agreement has been fully authorised by the Board or any other authorised body.
8.3 the documents, information and vouchers provided by Party B in relation to Party B, the guarantor, the mortgagee (pledge) and the mortgage
(pledge) are true, accurate, complete and valid and do not contain material errors or omit any material facts that are inconsistent with the facts.
8.4 Strictly comply with the agreements of each specific operational text and the various types of correspondence and relevant documents issued to us.
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8.5 No litigation, arbitration or criminal or administrative penalties which may have material adverse consequences for you or your principal property
have occurred at the time of entering into this Agreement and no such litigation, arbitration or criminal or administrative penalties will occur during the
performance of this Agreement. In the event of such an occurrence, you shall notify us immediately.
8.6 Strictly abide by all national laws and regulations in its business activities, carry out all businesses in strict accordance with the scope of business
as stipulated in Party B’s business licence or as approved by law, and complete business (legal person) registration, business annual report procedures and
business term extension/extension procedures on time, etc.
8.7 to maintain or improve the existing management of the business, to ensure the preservation of the value of existing assets and not to abandon any
claims that have become due or to dispose of existing major property without compensation or in any other inappropriate manner.
8.8 you shall not settle other long-term debts in advance without our permission.
8.9 The loan items applied for under the credit line are in compliance with the requirements of laws and regulations, and the loan will not be used for
investments in fixed assets, equity, etc., or for speculative buying and selling of securities, futures and real estate; will not be used for lending to each other
to make illegal income; will not be used in areas and for purposes prohibited by the State for production and operation; and will not be used for purposes
other than those stipulated in this Agreement and each specific business text.
If the loan funds are disbursed by the borrower, Party B shall regularly (at least on a monthly basis) report to Party A the summary of the loan funds
disbursement, and Party A has the right to verify whether the loan disbursement is in accordance with the agreed purpose through account analysis, voucher
checking and on-site investigation.
8.10 At the time of entering into and performing this Agreement, no other material event has occurred to you which affects the performance of your
obligations under this Agreement.
9. Special provisions on working capital loans
9.1 Withdrawals and drawdowns
Your use of the Working Capital Loan under this Agreement will be made both on your own and in trust.
9.1.1 Autonomous payments
Self-disbursement is the disbursement of loan funds by us to your account after we have released the loan funds to your account in accordance with
your request for withdrawal, and then by you to your counterparty who meets the agreed purpose.
9.1.2 Fiduciary payments
Fiduciary payment is where we disburse the loan funds through your account to your counterparty who is eligible for the agreed purposes in
accordance with your withdrawal application and payment mandate. For loan funds using the fiduciary payment method, Party B authorises us to pay the
loan funds to Party B’s counterparty through Party B’s account on the day of the drawdown (or on the next business day after the drawdown).
9.1.3 you shall use the fiduciary payment method unconditionally and in full if
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9.1.3.1 Where a single withdrawal by Party B exceeds RMB 5 million (inclusive, or its equivalent in foreign currency).
9.1.3.2 Where Party A requires Party B to adopt a fiduciary payment method in accordance with regulatory requirements or for risk
management purposes.
9.1.4 If payment is made on trust, external payment after loan disbursement must be approved by Party A. Party B shall not circumvent Party A’s
supervision by means of online banking, reverse cheque withdrawal or conversion of the whole amount into zero.
9.2 When Party B withdraws funds, Party B shall submit the withdrawal application (if submitted offline, it shall be stamped with Party B’s official
seal or Party B’s reserved seal with Party A; if submitted online, it shall be signed with a digital certificate or other means approved by Party A), the loan
debit note (if required) and such information as Party B may require according to the different requirements of Autonomous Payment and Entrusted
Payment. Otherwise, we have the right to reject your request for withdrawal. Party A shall not be liable for any delay or failure in the payment of funds
due to inaccurate or incomplete payment information provided by Party B, resulting in Party B’s default or formation of other losses to its
counterparty.
9.3 Loan extensions
If Party B cannot repay the loan under this Agreement on time and needs to extend the loan, it shall submit a written application to Party A one month
prior to the expiry of the relevant loan; if Party A agrees to the extension after examination, Party A and Party B shall enter into a separate extension
agreement. If Party A does not agree to the extension, the borrowings already occupied by Party B and the interest payable shall still be repaid in
accordance with the provisions of this Agreement and the corresponding loan notes or as recorded in Party A’s system.
10. Events of default and handling
10.1 An event of default shall be deemed to have occurred if Party B.
10.1.1 Failure to perform or breach of each of its obligations under this Agreement.
10.1.2 if there is any untruthfulness or incompleteness in the Special Warranties by Party B under this Agreement, or if Party B breaches the Special
Warranties and fails to rectify the same as required by Party A.
10.1.3 fails to draw down or draw down the loan as agreed in this Agreement, or fails to repay the principal, interest or fees of the loan in full and on
time as stipulated in this Agreement, or fails to use the funds in the fund recovery account as required by us, or fails to accept our supervision and to rectify
the situation immediately as required by us.
10.1.4 a material breach by Party B under a legally valid contract with another creditor which is not satisfactorily resolved within three
months from the date of the breach.
The foregoing material breach means that Party B’s breach of contract results in its creditors being entitled to claim from it for an amount of
RMB1 million or more.
10.1.5 if Party B is a listed company on the New Third Board or intends to apply for listing on the New Third Board and there are circumstances where
Party B encounters significant impediments to listing on the New Third Board or suspends its application for listing; Party B is issued with a warning letter,
ordered to make corrections, restricted from trading in securities accounts and other self-regulatory measures by the New Third Board Market for a total of
three or more times or is subject to disciplinary action, termination of listing, etc.
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10.1.6 when Party B acts as a supplier to a government procurement unit, the government procurement unit has risk information that is unfavourable to
the repayment of Party A’s credit, such as delayed payment for three consecutive or cumulative periods, or Party B has been disqualified from supply
(entered the government procurement blacklist), untimely supply, unstable product quality, operational difficulties, significant deterioration in financial
position (insolvency), suspension of works, etc..
10.1.7 Party B’s financial indicators do not consistently meet the requirements as agreed in this Agreement/Specific Business Text; or any of the
conditions precedent (if any) to the provision of credit/finance by us to Party B as agreed in this Agreement/Specific Business Text are not consistently met.
10.1.8 where Party B draws down the loan in a “fractional” manner in order to circumvent the requirement under this Agreement that Party B should
entrust Party A with the external disbursement of the loan funds.
10.1.9 Your business activities may pose anti-money laundering or sanctions compliance risks to us.
10.1.10 occurrence of other circumstances which we consider to be detrimental to our legitimate rights and interests.
10.2 An event of default shall be deemed to have occurred if the guarantor fails to co-operate with any of the following circumstances which,
in our opinion, may affect the guarantor’s ability to guarantee and we require the guarantor to remove the adverse effects thereof, or require
Party B to increase or replace the terms of the guarantee.
10.2.1 the occurrence of one of the circumstances similar to those described in clause 6.2.6 of this Agreement, or the occurrence of a circumstance
described in clause 6.2.8 without our consent
10.2.2 the issuance of an irrevocable guarantee conceals its actual capacity to assume liability or is not authorized by a competent authority.
10.2.3 Failure to comply with registration, annual business report procedures and/or extension/extension of business term procedures, etc. on time.
10.2.4 neglects to manage and pursue its claims as they become due or disposes of existing major property without compensation or in any other
improper manner.
10.2.5 breach of any obligation, undertaking or statement in an irrevocable undertaking signed by it.
10.3 An event of default shall be deemed to have occurred if the mortgagor (or pledgee) fails to co-operate with the mortgagee (or pledgee) or
Party B if Party A considers that the mortgage (or pledge) may not be established or the collateral (or pledge) is of insufficient value and requests
the mortgagor (or pledgee) to exclude the adverse effects thereof or requests Party B to increase or replace the terms of the security.
10.3.1 there is no right of ownership or disposition of the collateral (or pledge), or the ownership is disputed.
10.3.2 the mortgage (or pledge) has not been registered, or has been leased out, a right of occupancy has been created, has been seized, seized, placed
in custody, has a joint/prior legal priority (including, but not limited to, a priority for payment of construction work, a priority for a mortgage on the price of
movable property), a retention-of-title priority of the seller has been created, a priority for a finance lease of the lessor, and/or conceals the occurrence of
such circumstances.
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10.3.3 the mortgagor, without our written consent, assigns, leases, creates a right of occupancy, re-mortgages or disposes of the collateral in any other
improper manner or creates any encumbrance of rights of any kind, or he disposes of the collateral with our written consent but does not apply the proceeds
to the payment of the debt owed by you to us as required by us
10.3.4 where the mortgagor fails to keep, maintain and repair the mortgage properly, resulting in an appreciable depreciation in the value of the
mortgage; or where the mortgagor’s actions directly endanger the mortgage, resulting in a reduction in the value of the mortgage; or where the mortgagor
fails to insure/renew the mortgage as required by us during the term of the mortgage.
10.3.5 where the mortgaged property has been or may be included in the scope of government demolition or expropriation and the mortgagor fails to
immediately inform us and perform the relevant obligations as agreed in the mortgage contract.
10.3.6 where the Mortgagor provides a residual value mortgage to secure the business under this Agreement using its mortgaged property with China
Merchants Bank, and where the Mortgagor settles its personal mortgage loan early without our consent before Party B has repaid the credit granted under
this Agreement.
10.3.7 where the pledgee pledges financial products, the source of funding for the subscription of the financial products is not legal/compliant.
10.3.8 other matters occurring or likely to occur in relation to the mortgage (pledge) affecting the value of the mortgage (pledge) or affecting our
mortgage (pledge) rights, etc.
10.3.9 the mortgagor (or pledgee) breaches any obligation, promise or representation in the mortgage contract/pledge contract signed by him.
10.4 When the guarantee under this Agreement includes the pledge of accounts receivable, Party A has the right to require the debtor of the
accounts receivable to provide security in the event of any significant deterioration of its operation, transfer of property/evasion of funds to evade
its debts, collusion with the pledgee of the accounts receivable to change the route of repayment resulting in the repayment of the accounts
receivable not entering the special account for repayment, loss of business reputation, loss or likely loss of performance ability or other material
matters affecting its solvency, etc. Party B to provide corresponding guarantee or provide new valid accounts receivable for pledge; if Party B fails
to do so, an event of default shall be deemed to have occurred.
10.5 In the event of any of the above events of default, we shall be entitled to take the following measures separately or concurrently.
10.5.1 reduce the amount of credit granted under this Agreement or discontinue the use of the remaining credit line.
10.5.2 early recovery of principal, interest and related fees on loans granted within the credit limit.
10.5.3 For bills of exchange accepted by Party A or letters of credit, letters of guarantee or letters of guarantee for goods delivery opened (including
entrusted transfer) during the credit period, regardless of whether Party A has made advances or not, Party A may request Party B to increase the amount of
the deposit, or transfer the deposits in other accounts opened by Party B with Party A to its deposit account as the deposit for settling future advances made
by Party A under this Agreement, or hand over the corresponding amount to a third party withdraw the corresponding amount to a third party as security
for future advances made by Party A to Party B.
10.5.4 For outstanding receivables claims assigned by Party A from Party B under factoring business, Party A shall have the right to request Party B to
immediately fulfill its repurchase obligations and take other recovery measures in accordance with the relevant specific business text; for receivables claims
assigned by Party A to Party B under factoring business, Party A shall have the right to immediately reclaim them from Party B.
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10.5.5 Party A may also directly request Party B to provide other property acceptable to Party A as new security as appropriate. If Party B fails to
provide new security as requested, Party B shall be liable for liquidated damages equivalent to 30% of the amount of the credit facility under this
Agreement.
10.5.6 to directly freeze/withhold the deposits in any settlement account and/or other accounts opened by Party B with China Merchants
Bank, to stop opening new settlement accounts for Party B and to stop issuing new credit cards to Party B’s legal representatives.
10.5.7 to report to credit reference agencies and banking associations information on Party B’s default and breach of trust, and have the right
to share such information among banking institutions and even publicize it to the community through appropriate means.
10.5.8 dispose of the pledge and/or recover it from the guarantor in accordance with the provisions of the security text.
10.5.9 for working capital loans under the credit facility, change the terms of the loan funds entrusted to you and remove the use of the loan by you on
a “self-pay” basis.
10.5.10 Recourse in accordance with this Agreement.
10.6 The amounts recovered by us shall be repaid in the order of the actual maturity date of each credit in descending order. The order of repayment of
each specific credit shall be in accordance with the order of fees, default, compound interest, penalty interest, interest and finally the principal amount of
the credit until the principal and interest and all related fees are repaid in full.
Party A has the right to unilaterally adjust the above repayment order, unless otherwise required by law or regulation.
11. Changes and additions to the agreement
This agreement may be varied by mutual agreement and written agreement between A and B. Until such time as a written agreement is reached, this
Agreement shall remain in force. Neither party may make unilateral changes to this agreement.
The written supplemental agreements reached by consensus between A and B in respect of matters not covered by this Agreement and changes thereto,
as well as each specific business text under this Agreement, shall form an integral part of this Agreement.
12. Other matters
12.1 The granting of any indulgence, relief or delay by us in respect of any breach or delay by you while this Agreement is in force shall not prejudice,
affect or limit all our rights and entitlements as a creditor under the relevant legal provisions and this Agreement, nor shall it be deemed to be our
permission or approval of any breach of this Agreement, nor shall it be deemed to be a waiver of our It shall not be deemed a waiver of our right to act in
respect of any existing or future breach.
12.2 In the event that this Agreement becomes legally invalid for whatever reason, or part of its provisions are invalid, Party B shall remain liable to
pay all debts owed to us under this Agreement. In the event of such an event, we shall be entitled to terminate this Agreement and may immediately recover
from you all debts owed by you under this Agreement.
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If, as a result of changes in applicable laws and policy requirements, Party A incurs additional costs in performing its obligations under the
Agreement, Party B shall reimburse Party A for the additional costs incurred at Party A’s request.
12.3 Notices, requests or other documents from Party A and Party B in relation to this Agreement shall be sent in writing (including but not limited to
letters, faxes, emails, electronic platforms such as China Merchants Bank Corporate Internet Banking / Corporate APP, mobile phone SMS or WeChat,
etc.). Party B confirms the following in relation to the address and manner of service of documents.
12.3.1 Party B acknowledges and agrees to use Party B’s China Merchants Bank Corporate Internet Banking / Corporate App and Party B’s contact
address, email, fax number, mobile phone number or micro-signal set out in this Agreement as Party B’s address for service of all commercial and legal
documents under this Agreement.
The commercial documents referred to in this Article refer to all kinds of commercial documents such as business notices, confirmations, default
notices, early maturity notices, overdue reminders, etc. formed in the course of business transactions under this Agreement; the legal documents referred to
in this Article include notarized documents and judicial documents (including but not limited to indictment/application for arbitration, appeal, reply,
evidence, summons, notice of appeal, notice of proof, notice of court hearing, notice of hearing, judgment/judgment, ruling, mediation, notice of deadline
for performance, etc.). (including, but not limited to, documents for trial and enforcement, such as indictment/arbitration application, appeal, defence,
evidence, summons, notice of appeal, notice of proof, notice of hearing, judgment/award, ruling, conciliation, notice of deadline for performance).
Service by Party A, the Court of Appeal and the Notary Public by the means of service agreed in this Agreement to the address for service agreed in
the preceding paragraph shall be deemed to be valid service.
12.3.2 Party B acknowledges and agrees that: if delivered by hand (including but not limited to delivery by lawyers/notaries, courier delivery, etc.),
delivery shall be deemed to have been effected upon signature by the recipient (if the recipient refuses to accept, delivery shall be deemed to have been
effected upon the expiry of seven days from the date of refusal/return or the date of posting, whichever is earlier); if delivered by postal letter,
delivery shall be deemed to have been effected upon the expiry of seven days from the date of posting; if delivered by fax, email, China Merchants
Bank Corporate Internet Banking/Enterprise App (i.e. delivery to Party B’s China Merchants Bank Corporate Internet Banking/Enterprise App via China
Merchants Bank Corporate Internet Banking/Enterprise App), mobile phone SMS or WeChat, etc. (i.e. delivered to Party B’s China Merchants Bank
Corporate Internet Banking/Enterprise App via China Merchants Bank Corporate Internet Banking/Enterprise App), mobile phone SMS or WeChat, etc.,
the date of delivery shall be deemed to be the date of delivery when the corresponding system/electronic device of Party A shows successful delivery. If
Party A notifies Party B of the transfer of debts or makes a collection call on Party B by way of announcement in the public media, the date of
announcement shall be deemed to be the date of service.
12.3.3 If Party B changes its contact address, email address, fax number or mobile phone number or micro-signal, it shall notify Party A in writing of
the change five working days from the date of the change, otherwise Party A shall have the right to serve Party B at its original contact address or
information. If the change of Party B’s contact address or information is not successfully delivered, the date of return or seven days after posting
(whichever is earlier) shall be deemed to be the date of delivery. Party B shall bear any loss that may arise as a result and shall not affect the legal validity
of service.
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12.3.4 Party B further agrees that the court may serve judicial documents on Party B by electronic means such as the China Open Network for Judicial
Process Information and the National Unified Service Platform; if the court serves judicial documents electronically as agreed above, the date of successful
transmission as shown on the China Open Network for Judicial Process Information and the National Unified Service Platform shall be regarded as the date
of service; if the court completes the service of judicial documents by electronic service If the court completes the service of judicial documents by
electronic service, there is no need to serve paper judicial documents to Party B’s contact address.
12.3.5 The address and mode of service agreed in this article apply to all stages of the contract performance, dispute resolution, arbitration, court
hearing (first trial, second trial, retrial) and enforcement.
12.4 The Parties agree that for each application for business under the Trade Finance Business, it is sufficient for Party B to affix its reserved seal on
Party A and both Parties acknowledge the validity of such signature.
12.5 Both parties agree that if Party B submits applications or business vouchers for credit business through Party A’s electronic platform
(including but not limited to Enterprise Banking/Enterprise APP), its electronic signature generated by means of digital certificate is regarded as
Party B’s valid signature and represents Party B’s true intention, and Party A has the right to fill in relevant business vouchers based on the
application information issued online, and Party B acknowledges its authenticity, accuracy and legality and is bound by it. Party A is entitled to fill
in the relevant business vouchers according to the application information issued online, and Party B recognises its authenticity, accuracy and
legality and is bound by it.
12.6 In order to facilitate business processing, all operations of Party A involving transactions (including but not limited to application
acceptance, information review, payment release, transaction confirmation, debit, enquiry, receipt printing, collection, payment deduction, etc.
and all kinds of notifications) may be handled by any of Party A’s business outlets and relevant correspondence may be generated, issued or
issued, and the business operations and correspondence of Party A’s outlets shall be deemed to be Party A’s acts and shall be binding on Party B.
Binding effect.
12.7 The annexes under this Agreement form an integral part of this Agreement and shall automatically apply to the corresponding specific operations
actually occurring between the Parties.
12.8 Covering costs
☐ 12.8.1 Where this Agreement involves Party B taking out accident insurance with Party A as the first beneficiary, the relevant insurance costs shall
be borne in the following form (a tick in “☐” indicates that the provisions of this clause apply).
Please tick one of the following.
☐ The Party A is responsible for.
☐ A and B share in the following proportions: Party A / %, Party B / %.
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☐ 12.8.2 Where this Agreement relates to enforcement notary fees (other than the fee for the application for the issue of a certificate of enforcement),
the following form of fee payment shall apply (a tick in “☐” indicates that the provisions of this clause apply).
Please tick one of the following.
☐ Party A bears
☐ A and B share in the following proportions: Party A / %, Party B / %.
12.8.3 In other matters where services are entrusted to a third party, the relevant costs shall be borne by the principal. If both parties are jointly acting
as principal, each shall bear 50%.
12.8.4 In the event that Party B fails to repay the debts owed to Party A under this Agreement on time, all costs incurred by Party A for realising the
claim, such as attorney’s fees, litigation fees, travel expenses, public notice fees, service of process fees, application for issuance of enforcement certificate
fees, etc., shall be fully borne by Party B, and Party B authorises Party A to deduct them directly from Party B’s bank account with Party A. If there
is any shortfall, Party B guarantees to reimburse the full amount upon receipt of notice from Party A without any proof from Party A.
12.9 Party B shall, at Party A’s request (tick one of the following options at☐ ).
☐ insure its core assets and designate us as the first-ranking beneficiary.
☐ No sale or encumbrance of assets designated by us until the credit debt has been settled.
☐ The dividends to its shareholders prior to the settlement of the credit debt are restricted in accordance with our requirements as follows.
12.10 You shall ensure that the financial indicators of Party B during the credit period do not fall below the following requirements.
12.11 You also acknowledge that China Merchants Bank and your parent/head office/holding company (insert name of enterprise), agrees to
be bound by the contents of the Group Credit Business Cooperation Agreement (including any adjustments and supplements thereto from time to
time made by the signatories) numbered (insert name of enterprise) and agrees to undertake the obligations set out therein in respect of the
Group’s subordinate units as a subordinate unit of the Group under the Agreement. In the event of any breach, Party B shall be deemed to be in
default and Party A shall be entitled to take all remedies for such breach as set out in this Agreement.
12.12 Other engagements.
15
12.12.1 (1) Party B shall not use false contracts with related parties or debts such as bills and receivables without trade background to conduct
various businesses such as bill discounting, factoring, pledge, letter of credit and forfaiting in Party A. If Party B uses the connected transactions
to damage or evade the claims of Party A or other branches of China Merchants Bank, it shall be regarded as an event of default under this
Agreement and Party A shall have the right to take corresponding default handling measures in accordance with this Agreement. (2) If any
related party of Party B defaults on its obligations to China Merchants Bank, it shall be deemed to be an event of default under the Group Credit
Facility and Party A shall be entitled to decide whether or not to take the default handling measures as stipulated in this Agreement in accordance
with the degree of impact of the event of default, irrespective of whether or not Party B has defaulted under this Agreement. (3) Related
transaction means a transfer of resources or obligations between related parties, whether or not a price is received. A related party is defined as a
party who has the ability to control, jointly control or exercise significant influence over another party, directly or indirectly, in the financial and
operating decisions of the enterprise; two or more parties are also related if they are controlled by the same party. Both parties agree that the
specific definition of related party shall be determined by Party A. (4) Group means a group of legal persons who have a direct or indirect
controlling (control) or controlled (control) relationship, or other groups of legal persons who have a materially significant risk connection (such
as being jointly controlled by a third party, having other related relationships and possibly not transferring assets and profits on a fair price
basis). A control relationship is one in which you have effective control or exert significant influence over the operating decisions, capital
operations or senior management appointments of the other party. Both parties agree that whether or not they are members of the Group is
subject to Party A’s determination.
12.12.2 Party B guarantees that there will be no performance under the foreign insured domestic loan, and if there is such a situation, Party B
shall notify Party A in a timely manner, and Party A has the right to suspend the conclusion of new foreign insured domestic loan contracts or the
processing of new withdrawals; Party B guarantees that if there is performance under the guarantee, the sum of the outstanding principal balance
and the stock of external liabilities will not exceed the risk-weighted balance of Party B’s cross-border financing, and the risk arising from
exceeding the risk-weighted balance of Party B’s cross-border financing shall be borne by Party B The risk arising from exceeding the risk-
weighted balance of your cross-border financing shall be borne by you.
12.12.3 Party B undertakes that it will not return the loan to the Affiliate in any form until the debt under this contract has been settled.
12.12.4 Party B undertakes that until all credit obligations under this Agreement are settled, the terms of the guarantee provided by Party B
to Party A for obtaining credit under this Agreement will not be weaker than the terms of the guarantee provided by Party B to other banks for
new applications for financing by Party B in other banks.
13. Account information
☐ 13.1 Special Loan Account (tick if applicable)
All disbursements and payments of loan funds under this Agreement must be made through the following accounts.
Account name. JAJI (Shanghai) Co., Ltd.
Account number. 121923728310801
Bank of Account. Century Avenue Branch of China Merchants Bank Co., LTD
13.2 Funds back account
13.2.1 We both agree to designate the following account as Party B’s funds recovery account.
Account name. JAJI (Shanghai) Co., Ltd.
Account number. 121923728310801
Bank of Account. Century Avenue Branch of China Merchants Bank Co., LTD
16
13.2.2 The account monitoring requirements are as follows. /
Party A has the right to recover the loan early based on Party B’s funds recovery, i.e. when there are funds recovered from the account, then
the loan corresponding to the amount of such recovered funds may be deemed to mature early and Party A has the right to debit the account
directly to repay such part of the loan.
13.3 Party B shall provide quarterly information on the movement of funds in and out of the above accounts and cooperate with Party A in the
monitoring of the relevant accounts and the return of funds.
14. Applicable law and dispute resolution
14.1 The laws of the People’s Republic of China (excluding the laws of Hong Kong, Macau and Taiwan) shall apply to the conclusion, interpretation
and settlement of disputes of this Agreement, and the rights and interests of both A and B shall be protected by the laws of the People’s Republic of China.
14.2 Disputes arising in the course of the performance of this Agreement between A and B shall be settled by mutual agreement. If
consultation fails, either party shall (choose one of the three, tick one of the following).
☐ 14.2.1 to the People’s Court of competent jurisdiction in the location of Party A.
☐ √14.2.2 to the people’s court with jurisdiction in the place where the agreement was signed, which is
☐ 14.2.3 Application for arbitration to / (insert name of specific arbitration institution), where the arbitration will take place.
14.3 After this Agreement and each specific business text has been notarised by both parties to give enforcement effect, Party A may apply directly to
the people’s court having jurisdiction for enforcement in order to recover the debts owed by Party B under this Agreement and each specific business text.
15. Entry into force of the agreement
This Agreement shall come into effect upon the signature (or name seal) of the legal representative/principal person in charge of both parties or their
authorized agent and the official seal/contractual seal of the entity, and shall automatically expire on the date of expiry of the credit period or the date of
settlement of all debts and all other related expenses owed by Party B to Party A under this Agreement (whichever is later).
16. By-laws
This agreement is made in four copy, one for Party A, one for Party B and one for each with the same legal effect.
Attachment: 1. Special Terms and Conditions for Cross-border Trade Finance Business
2. Special Terms for Buyer/Import Factoring
3. Special Terms for Order Credit Business
4. Special Terms for Commercial Acceptance Guarantee Business
5. Special provisions for derivative business
6. Special Terms for Gold Leasing Business
17
Attachment 1
Special Terms for Cross-border Trade Finance Business
1. Cross-border linked trade finance business refers to the cross-border trade finance business applied by Party B to Party A based on the real cross-
border trade background with overseas companies and provided by Party A in cooperation with overseas institutions of China Merchants Bank (hereinafter
referred to as “linked platform”).
2. The specific types of cross-border linked trade finance business include: back-to-back letter of credit, entrusted issuance, entrusted offshore
financing, bill guarantee, letter of guarantee offshore credit and cross-border trade finance through train. The specific meaning and business rules of each
business type will be agreed in the specific business text.
3. Under a back-to-back letter of credit, the parent letter of credit applied for by you to us directly occupies the credit line under this Agreement, and
the charge or advance (whether or not incurred during the credit period) and the corresponding interest and costs incurred by us in fulfilling our obligations
to the issuing bank under such parent letter of credit constitute financing obligations of you to us and are included in the credit guarantee.
Under the entrusted letter of credit / entrusted offshore financing, we entrust the Linkage Platform to accept letters of credit / trade finance applied for
by offshore companies under your application to occupy the credit line under this Agreement. If Party A issues a charge or provides an advance to Party B
for external payment under import collection, such charge or advance (whether or not it occurs within the credit period) and the related interest and fees
directly constitute Party B’s financing obligations to Party A and are included in the credit guarantee.
Under the note guarantee, Party A will, upon Party B’s application, directly draw on its credit facilities under this Agreement to guarantee the payment
of Party B’s promissory note. If Party B fails to pay the bill in full and on time, Party A has the right to make direct advances on the guaranteed bills, and
such advances (whether or not incurred during the credit period) and related interest and fees are included in the credit guarantee.
Under the letter of guarantee offshore credit business, Party A directly occupies the credit line under this Agreement based on the letter of guarantee/
standby letter of credit issued by Party B upon application. After the offshore company assigns its right to receive payment under the letter of guarantee
(not the right to claim) to the linked platform, when the linked platform claims against Party A under the letter of guarantee / standby letter of credit, the
advances made by Party A (whether or not incurred during the credit period) and the related interest and expenses directly constitute Party B’s financing
obligations to Party A and are included in the credit guarantee.
Under the cross-border trade finance through train business, after Party A has approved Party B’s trade finance based on Party B’s application, the
trade finance provided by the linked platform directly to Party B will occupy the credit line under this Agreement. If Party B fails to repay the trade
financing amount to the Linkage Platform in full and on time, Party A is entitled to repay the amount by way of charge or advance, and the relevant charge
or advance (whether or not it occurs within the credit period) and related interest and fees directly constitute Party B’s financing debt to Party A and are
included in the credit guarantee.
18
Attachment 2
1. Definition clause
Special Terms for Buyer/Import Factoring
1.1 Buyer/Import Factoring is a comprehensive factoring service including payment approval, receivables collection and management for the
Seller/Export Factor after we, as the Buyer/Import Factor, have assigned the receivables under the Commercial Contract to the Seller/Export Factor with
Party B as the debtor of the receivables.
Under the buyer/import factoring business, if Party B incurs buyer’s credit risk, Party A shall be liable to the seller/export factor for approved payment;
in the event of a dispute during the performance of the business contract, Party A shall be entitled to counter-assign the assigned accounts receivable to the
seller/export factor.
1.2 A seller/export factor is a party that enters into a factoring agreement with a supplier/service provider (receivables creditor) under a commercial
contract and assigns the receivables held by the receivables creditor. We may act as both buyer/import factor and seller/export factor.
1.3 Dispute means a defence, counterclaim, set-off or similar action by you in respect of the receivables assigned to us as a result of a dispute between
the creditor of the receivables and you over the relevant goods, services, invoices or any other matter relating to a commercial contract, and the assertion
by a third party of its rights or application for seizure of the receivables under this Agreement. A dispute shall be deemed to have arisen whenever
the receivables assigned to us are not fully or partially realised as a result of any credit risk other than that of the buyer.
1.4 Commercial Contract: A contract for a transaction between Party B and a receivable creditor for the purpose of a commodity transaction and/or a
service transaction, settled on credit.
1.5 Approved payment/guaranteed payment means that Party A, as the buyer/import factor, shall pay the corresponding amount of receivables to the
seller/export factor within a certain period of time after the receivables are due, after Party B has incurred buyer’s credit risk.
2. Upon application by Party B, Party A agrees to handle the buyer/import factoring business for him/her within the credit line, and his/her receivables
assigned from the seller/export factor will be reduced/occupied according to their amount under the credit line of the credit agreement.
The amount paid by Party A as the buyer/import factor in fulfilling the approved payment/guaranteed payment obligations and the related fees shall be
deemed to be the credit granted by Party A to Party B under the Credit Agreement (the interest rate for financing within 30 days from the date of granting
and the interest rate for financing beyond this period shall be ) and included in the guarantee of the credit guarantee provided by Party B. We are
entitled to take all the measures agreed under the Credit Agreement to recover the approved/guaranteed payment from you. As long as the seller/export
factor (whether or not it is Party A) assigns the receivables within the credit period, Party A shall have the right of recourse against Party B in
accordance with the Credit Agreement and the Commercial Contract, even if Party A fulfils its approved payment obligations beyond the credit
period.
3. Buyer/Import Factoring Charges
The factoring fee is a business management fee charged by Party A for providing buyer/import factoring services and shall be charged by Party A to
Party B at the time of settlement of the assignment at a rate of a certain percentage of the receivable amount, the exact rate of which shall be reasonably
determined by Party A in accordance with its business rules.
4. Party B waives the right to dispute any disputes arising in the course of the performance of the commercial contract. In view of this,
regardless of any other agreement, once Party B fails to make external payments as agreed in the Commercial Contract, it shall be deemed that
Party B has incurred buyer’s credit risk and Party A will make approved payments, to which Party B has no objection.
19
Annex 3
Special Terms for Order Credit Business
1. The order loan business is a loan granted by us to you under a commercial contract (or works contract) with your downstream customer (the payer)
for the purpose of performing the daily production and operation of the commercial contract (or performing the works contract), with the sales return (or
works return) of the contract as the first source of repayment.
2. Party B shall open a special account in Party A for the repayment of sales under commercial contracts (or engineering contracts). All sales under
commercial contracts (or engineering contracts) for which order credits are applied must be paid back directly to the special account, which cannot be used
or changed without our approval. Party B shall inform the payer that the account is the only account for sales refunds. Party A has the right to withhold the
money in the special account for the purpose of repaying the principal and interest, penalty and interest and other related expenses of the order loan
financing.
3. Party A may immediately stop the use of Party B’s credit line under the Credit Agreement and take default handling measures as agreed in the Credit
Agreement when the following circumstances occur
3.1 circumstances that are not conducive to the protection of our claims, such as three consecutive late payments by Party B’s downstream customers
or, in our reasonable judgement, a deterioration in their financial position.
3.2 Party B is disqualified as a supplier by the downstream customer, Party B’s supply to the downstream customer is not delivered in a timely manner,
the quality of the product is not stable, the construction is not carried out in accordance with the progress agreed in the works contract without the approval
of the downstream customer, the qualification of Party B’s practice is adjusted downward and makes its qualification not meet the requirements of the
downstream customer, Party A reasonably judges that it is in operational difficulties, its financial position deteriorates, or there are three consecutive
months when the downstream customer’s repayment is less than The total monthly repayment amount due from Party B under each financing contract
under this credit facility, or the downstream customer fails to pay in instalments as agreed in the construction contract for the second consecutive period.
20
Annex 4
Special Terms and Conditions for Commercial Acceptance Guarantee Business
1. Commercial acceptances are discounted by Party A or allowed to be discounted by the bearer at any branch of China Merchants Bank (hereinafter
referred to as other discounting banks). The holder (hereinafter referred to as the discounting applicant) may apply for discounting with the commercial
acceptances to Party A or other discounting accepting banks, and such discounting operations shall occupy the credit line under this Agreement.
Given that the provision of commercial acceptances by Party A to Party B is a prerequisite for other discount accepting banks to accept the holder’s
application for discounting, other discount accepting banks are entitled to transfer the discounted bills to Party A after discounting, and Party A is obliged
to accept the transfer, and Party B has no objection to this.
2. The commercial acceptances referred to herein include both paper commercial acceptances and electronic commercial acceptances (hereinafter
referred to as electronic commercial acceptances); the interest payment methods include interest payment by the buyer, interest payment by the seller,
interest payment by other parties and interest payment by agreement.
3. Party B shall open a commercial acceptances margin account with Party A (the account number shall be the one generated or recorded by Party A’s
system at the time of deposit of the margin) and deposit a certain amount of funds into such margin account in proportion to Party A’s requirements prior to
the acceptance of each instrument as payment margin for commercial acceptances discounted by Party A or assigned from other discount accepting banks.
If Party B is the acceptor of a commercial acceptances, Party B shall deposit the full amount of each commercial acceptances payable in its margin
account opened with Party A before the maturity of the bill.
4. During the credit period, the discounting applicant may apply for discounting directly to Party A with the commercial acceptances accepted,
endorsed or guaranteed by Party B, or may apply for discounting with other discounting acceptance banks. Party A or other discount accepting banks have
the right to examine the eligibility of the discount applicant, request Party B to conduct audit and confirmation, and decide whether to process the discount
at their own discretion.
After discounting, other discount accepting banks have the right to endorse and transfer the discounted commercial acceptances to Party A in
accordance with the relevant regulations of China Merchants Bank. After Party A has discounted or transferred the commercial promissory notes from
other discount accepting banks, Party B shall unconditionally pay Party A the full amount of the note payable in a timely manner when Party B is requested
to pay with the note.
5. The business records such as the business information stored in the China Bills Transaction System or the electronic commercial draft system, or the
customer statements filled in or printed out accordingly, shall govern the opening, acceptance, guarantee, endorsement and discounting of each electronic
commercial draft. The information stored in the China Bills Transaction System or the electronic commercial draft system and the business records
generated thereunder are part of this Annex and have the same legal effect as this Annex. Party B acknowledges its accuracy, authenticity and legality.
6. Any dispute arising from the underlying contract of the commercial acceptances guaranteed by Party A shall be resolved by Party B in coordination
with the parties concerned and shall not relieve Party B of its obligation to deposit the deposit and the payment in full and in a timely manner in accordance
with the provisions of Clause 3.
7. If Party A has discounted the commercial acceptances accepted, endorsed or guaranteed by Party B or has assigned such commercial acceptances
from other discount accepting banks, Party A shall have the right to take recourse directly against Party B if the payer of the commercial acceptances or
Party B has not delivered the full amount of the notes before the maturity date, including but not limited to deducting the amount from any account opened
by Party B with China Merchants Bank for payment. Any advance made by Party A as a result of insufficient delivery by Party B and insufficient debit
from Party B’s account balance shall be subject to a penalty interest charge by Party A to Party B at the rate of 5% per day of the amount advanced in
accordance with the relevant provisions of the Payment and Settlement Measures.
21
Annex 5
Special Terms for Derivative Trading Business
1. In respect of derivative transactions which Party A accepts Party B’s application for classification, the credit line may be taken up by a certain
percentage of the notional principal amount of the transaction/transaction amount, or in the event of a floating loss on the derivative transaction, Party A
may take up additional credit line from Party B according to the specific agreement of both parties (at the time of each transaction, Party A shall
determine the specific amount of credit line to be taken up in accordance with the variety, maturity and risk level of the transaction, the business
to which the credit line is deducted, etc.). The actual amount of credit line to be taken up shall be determined by the transaction documents such as the
notification of credit line taking up and/or the confirmation/certification of the transaction issued by Party A.
2. Any derivative transaction that has a balance or loss during the credit period, whether or not the transaction occurs within the credit
period, will be charged to the credit line in accordance with the previous article.
22
Annex 6
Special Terms for Gold Leasing Business
1. “Gold Leasing” is a business in which we lease out physical gold to Party B. Upon expiry, Party B returns an equivalent amount of gold of the same
quality and property and pays the leasing fee to Party A in RMB on a regular basis.
2. Party A may, upon Party B’s application, handle the gold leasing business for Party B within the credit period and credit limit. The physical gold
leased by Party A shall occupy the credit limit in accordance with the agreed value of the gold leasing agreement signed by both parties and shall constitute
a debt owed by Party B to Party A.
Party B declares that
All the terms of this agreement have been fully negotiated by both parties. We have drawn your attention in particular to those provisions
which relate to the exclusion or reduction of our liability and which are of material interest to you, and have clarified these provisions accordingly
at your request. Party B has given a full and accurate understanding of them. The contracting parties are in full agreement as to the terms of this
agreement.
(No text below)
23
(The following is the signature line of the Credit Agreement (for liquidity loans without a separate loan contract) numbered:121XY2021035010)
Party A: China Merchants Bank Co. LTD. Shanghai Branch
Principal or authorised agent (signature/name seal).
Contact address. 1088 Lujiazui Ring Road, Pudong New Area, Shanghai
Unit e-mail address.qsong@cmbchina.com
Unit fax number. /
Contact mobile number. Song Qian 13585859417
Unit micro signal. /
Party B: (seal) JAJI (Shanghai) Co., Ltd.
Legal representative/principal person in charge or authorised agent (signature/name seal).
Contact address. 1F, Building 18, 498 Guoshoujing Road, Pudong New Area, Shanghai
Unit e-mail address.penny.dai@jajiglobal.com
Unit fax number. /
Contact mobile number. Dai Panpan 15721320032
Unit micro signal. /
24
Date: 2021.10.20
Exhibit 12.1
Certification
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Raymond Ming Hui Lin, certify that:
1.
I have reviewed this annual report on Form 20-F of CLPS Incorporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control
over financial reporting.
Date: October 20, 2022
By:
/s/ Raymond Ming Hui Lin
Name: Raymond Ming Hui Lin
Title: Chief Executive Officer
(Principal Executive Officer)
Exhibit 12.2
Certification
Pursuant to Rule 13a-14(a) of the Exchange Act
I, Rui Yang, certify that:
1.
I have reviewed this annual report on Form 20-F of CLPS Incorporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the company and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the
annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control
over financial reporting.
Date: October 20, 2022
By:
/s/ Rui Yang
Name: Rui Yang
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
Certification
Pursuant to 18 U.S.C. Section 1350
Exhibit 13.1
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code),
each of the undersigned officers of CLPS Incorporation (the “Company”), does hereby certify, to such officer’s knowledge, that the Annual Report on Form
20-F for the year ended June 30, 2022 of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
October 20, 2022
October 20, 2022
CLPS Incorporation
By:
By:
/s/ Raymond Ming Hui Lin
Name: Raymond Ming Hui Lin
Title: Chief Executive Officer
(Principal Executive Officer)
/s/ Rui Yang
Name: Rui Yang
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
Exhibit 21.1
Name of the Entity
Qinheng Co., Limited
Qiner Co., Limited
Shanghai Qincheng Information Technology Co., Ltd.
ChinaLink Professional Services Co., Ltd.
CLPS Dalian Co., Ltd.
CLPS Ruicheng Co., Ltd.
CLPS Beijing Hengtong Co., Ltd.
JAJI (Shanghai) Co., Ltd.
JAJI (Shanghai) Human Resource Co., Ltd.
CLPS-Ridik Technology (Australia) Pty. Ltd.
CLPS Technology (Singapore) Pte. Ltd.
CLPS Technology (HK) Co., Ltd.
CLPS Shenzhen Co., Ltd.
Tianjin Huanyu Qinshang Network Technology Co., Ltd.
CLPS Guangzhou Co., Ltd.
CLPS Technology (US) Ltd.
CLPS Technology (California) Inc.
CLPS Hangzhou Co. Ltd.
Ridik Pte. Ltd.
Ridik Consulting Private Limited
Ridik Sdn. Bhd.
Ridik Software Solutions Pte. Ltd.
CLPS Technology Japan
Qinson Credit Card Services Limited
Hainan Qincheng Software Technology Co.Ltd
CLPS Xian Co., Ltd.
Shanghai Chenqin Information Technology Services Co., Ltd.
CareerWin Executive Search Co., Ltd.
Growth Ring Ltd.
Arabian Jasmine Ltd.
Noni (SINGAPORE) PTE. LTD.
CLPS-Beefinance Holding Limited
LinkCrypto Finance Technology Limited
Qinson Ltd.
LQE Ltd.
CLPS Technology (Philippines) Corp
MSCT Investment Holdings Limited
MNYC HOLDINGS (HK) LIMITED
Haikou Huaqin Minshang Software Development Co., Ltd
Jurisdiction
Hong Kong
Hong Kong
PRC
PRC
PRC
PRC
PRC
PRC
PRC
Australia
Singapore
Hong Kong
PRC
PRC
PRC
Delware
California
PRC
Singapore
India
Malaysia
Singapore
Japan
Hong Kong
PRC
PRC
PRC
PRC
BVI
BVI
Singapore
BVI
Hong Kong
BVI
BVI
Philippines
BVI
Hong Kong
PRC
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-237846) and Amendment No. 1 to Registration Statement (Form S-8 No. 333-237846) pertaining to
the 2020 Equity Incentive Plan of CLPS Incorporation,
(2) Registration Statement (Form F-3 No. 333-254910) and Amendment No.1 to the Registration Statement (Form F-3 No. 333-254910) of CLPS
Incorporation, and
(3) Registration Statement (Form F-3 No. 333-266951) and Amendment No.1 to the Registration Statement (Form F-3 No. 333-266951) of CLPS
Incorporation;
of our report dated October 20, 2022, with respect to the consolidated financial statements of CLPS Incorporation included in this Annual Report (Form 20-
F) of CLPS Incorporation for the year ended June 30, 2022.
/s/ Ernst & Young Hua Ming LLP
Shanghai, The People’s Republic of China
October 20, 2022