F-1/A: Zhibao Technology Faces Default Amid Regulatory Hurdles and Share Resale Delays

Zhibao Technology Inc., a Cayman Islands holding company operating primarily in China's InsurTech sector, has disclosed an event of default on its convertible notes due to delays in its SEC resale registration statement, triggering immediate payment obligations and potential significant share dilution for investors.

Summary

• Zhibao Technology Inc. is an InsurTech company operating through its PRC Subsidiaries, primarily providing digital insurance brokerage and managing general underwriting (MGU) services in China.
• The company utilizes a 2B2C (to-business-to-customer) digital embedded insurance model, pioneering this approach in China since 2020, and has partnered with over 2,000 B channels and secured more than 20 million end customers.
• Revenue for the fiscal year ended June 30, 2024, reached approximately RMB 183.7 million (US$25.2 million), a 29% increase from RMB 142.1 million (US$19.5 million) in the prior fiscal year.
• The company reported a net income of approximately RMB 13.3 million (US$1.8 million) for FY2024, a significant improvement from a net loss of RMB 43.1 million (US$5.9 million) in FY2023 (which included RMB 54.7 million in share-based compensation).
• For the six months ended December 31, 2024, revenue increased by 74% to RMB 146.4 million (US$20.1 million) from RMB 84.3 million in the same period of 2023, though a net loss of RMB 0.6 million (US$0.1 million) was incurred.
• An event of default occurred as of June 11, 2025, on the Second Tranche Note because the resale registration statement was not declared effective by the SEC within the stipulated timeframe.
• This default allows the investor (L1 Capital Global Opportunities Master Fund) to immediately exercise prefunded warrants for 191,522 Class A ordinary shares at a nominal price, accrue 10% interest on outstanding notes, and demand a Mandatory Default Amount equal to 120% of the outstanding principal plus accrued interest.
• The company will not receive proceeds from the resale of shares by the Selling Shareholder but expects to receive approximately $1.6 million from the cash exercise of L1 Warrants, which will be used for working capital and general corporate purposes.
• The company previously entered into a share subscription facility with GEM Global Yield LLC SCS for up to $50 million, but this agreement was terminated on March 11, 2025, with no shares issued.

Sentiment

Score: 3

Explanation: While the company shows strong revenue growth and an innovative business model, the occurrence of an event of default on its convertible notes, coupled with significant and pervasive regulatory risks related to operating in China (HFCA Act, CSRC rules, data security), and identified material weaknesses in internal controls, creates substantial financial and operational uncertainty. The termination of a major potential capital raise facility further adds to the negative outlook, outweighing the positive growth metrics.

Positives

• The company demonstrated strong revenue growth, with a 29% increase in FY2024 to US$25.2 million and a 74% increase for the six months ended December 31, 2024, to US$20.1 million.
• Zhibao Technology achieved a net income of US$1.8 million in FY2024, a significant turnaround from a net loss in FY2023 (excluding one-off share-based compensation).
• The company operates with an innovative 2B2C digital embedded insurance model, positioning itself as a pioneer and market leader in China, which enables low-cost customer acquisition.
• Zhibao China Group has established cooperation with over 2,000 B channels and acquired more than 20 million end customers, indicating a strong and expanding customer base.
• The company has developed over 40 proprietary digital insurance solutions built on its advanced PaaS (Platform as a Service), enhancing efficiency and customization.
• An experienced management team with extensive expertise in the insurance industry and digital technology is in place, which is crucial for strategic direction and growth.

Negatives

• The company incurred a net loss of approximately RMB 0.6 million (US$0.1 million) for the six months ended December 31, 2024, indicating continued unprofitability in the short term.
• An event of default occurred as of June 11, 2025, on the Second Tranche Note due to the resale registration statement not being declared effective by the SEC within the required timeframe, triggering severe financial penalties and potential dilution.
• The company is obligated to pay the Investor a Mandatory Default Amount equal to 120% of the outstanding principal balance of the Notes plus accrued interest upon the event of default, which is immediately due and payable.
• The CEO and Chairman, Mr. Botao Ma, holds approximately 95.5% of the total voting power, giving him significant influence over corporate matters, which may not always align with minority shareholder interests.
• The company identified two material weaknesses in its internal controls over financial reporting as of June 30, 2024, specifically insufficient U.S. GAAP knowledge and inadequate IT logical access security.
• The company terminated a share subscription facility with GEM Global Yield LLC SCS for up to $50 million on March 11, 2025, indicating a potential loss of a significant future funding source.
• The company relies heavily on dividends and other distributions from its PRC Subsidiaries for cash and financing, which are subject to PRC laws, regulations, and foreign exchange controls that could restrict transfers.

Risks

• Potential delisting of Class A ordinary shares under the Holding Foreign Companies Accountable Act (HFCA Act) if the PCAOB is unable to inspect the company's auditor for two consecutive years due to positions taken by PRC authorities.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations, including those related to foreign investment, taxation, and data security, could limit legal protections and adversely affect business operations.
• Substantial influence exerted by the PRC government over business activities, with potential for intervention or changes in regulations that could materially alter operations or devalue shares.
• Risks related to data security and protection, including potential failure to protect personal information of over 20 million end customers, leading to legal liabilities, reputational damage, or increased compliance costs.
• PRC regulations on loans and direct investment by offshore holding companies, and governmental control in currency conversion, may delay or prevent the use of future offering proceeds to fund PRC subsidiaries.
• Uncertainties regarding the requirement of the National Financial Regulatory Administration (NFRA) and its potential impact on the viability of the current corporate structure and business operations.
• Dependence on key insurance companies for product supply and on B channels to reach end customers; loss or failure to acquire/retain these partners could adversely affect business.
• Challenges in continuous development and upgrades of innovative insurance technology and infrastructure, with no assurance that current technologies will fully support business growth.
• Potential for legal or other proceedings in the ordinary course of business, which could result in substantial liabilities, expenses, and diversion of management attention.
• Risks associated with leased properties of PRC Subsidiaries, including unregistered leases and lack of ownership certificates, potentially leading to penalties or operational disruptions.
• Failure to make adequate contributions to various employee benefit plans and withhold individual income tax as required by PRC regulations, potentially leading to penalties and increased labor costs.
• The trading market for Class A ordinary shares is new and may not develop or be sustained, leading to limited liquidity and potential volatility.
• Concentrated voting power of the CEO, Mr. Botao Ma, who controls approximately 95.5% of total voting power, potentially leading to decisions not aligned with other shareholders' interests.
• Risk of not meeting Nasdaq's continued listing standards, including minimum bid price, which could lead to delisting and adversely affect liquidity and share price.
• Significant dilutive impact on shareholders from the issuance of Class A ordinary shares upon exercise of outstanding warrants and conversion of convertible notes, especially at lower prices due to anti-dilution provisions.
• The occurrence of an event of default under the Second Tranche Note could lead to substantial increases in costs and potential inability to repay accelerated amounts, further diluting shareholders.

Future Outlook

The company plans to accelerate the expansion of its B channels, including insurance companies, and increase its sales force. It intends to strengthen its 2C business by targeting existing customers for additional insurance needs through personalized consultations. Zhibao also plans to continually upgrade and enrich its digital insurance solutions and enhance its PaaS technology with new AI and BI functionalities. Furthermore, it aims to expand the scale of its MGU business by increasing MGU partners and online business proportion, and support brokerage and MGU services through its new reinsurance company in Labuan, Malaysia. The company is also exploring new strategic partnerships and global expansion opportunities, including assessing product offerings in the U.S. and European markets.

Management Comments

• "Our management team is passionate about innovation in providing digital insurance solutions to end customers."
• "Our founder and Chief Executive Officer, Mr. Botao Ma has accumulated more than 30 years of management experience in the insurance industry."
• "Our Chief Financial Officer, Mr. Yuanwen Xia, has more than 15 years of experience in PwC and investment sector."
• "Our Chief Operating Officer, Mr. Xiao Luo has more than 15 years of experience in insurance brokerage business."
• "Our Chief Technical Officer, Mr. Yugang Wang, has more than 20 years of digital technology and management experience in the insurance industry."
• "We believe Mr. Mas decades experience in business management and insurance industry qualifies him to serve on our board of directors."
• "We believe Mr. Xias extensive experience in management and corporate accounting and finance qualifies him to serve on our board of directors."
• "We intend to keep any future earnings to re-invest in and finance the expansion of our business, and we do not anticipate that any cash dividends will be paid or any assets will be transferred in the foreseeable future."

Industry Context

Zhibao Technology operates in China's emerging, rapidly evolving, and competitive digital insurance brokerage service industry. The company positions itself as a pioneer and market leader in the 2B2C embedded insurance business, differentiating itself by acquiring end customers at minimal cost through existing business channels. This model contrasts with peers who rely on direct-to-consumer advertising. The industry is subject to significant and evolving PRC regulatory oversight, particularly concerning data security, overseas listings, and foreign investment, which adds substantial uncertainty to operations for China-based companies like Zhibao. The company's expansion into MGU services and reinsurance in Labuan, Malaysia, indicates a strategy to diversify and deepen its role within the broader insurance ecosystem.

Comparison to Industry Standards

• The document does not provide specific comparable companies, projects, or results to global benchmarks. It generally states that the 2B2C digital embedded insurance model is innovative and allows for higher efficiency compared to industry peers who rely on direct-to-consumer advertisement.
• The company's revenue growth rates (29% FY2024, 74% H1 FY2025) are presented as 'high growth' but are not explicitly benchmarked against industry averages or specific competitors.
• The company's net income/loss figures are provided, but no direct comparison to industry profitability standards is made.
• The document highlights the company's 'first-mover' advantage and 'market leader' position in 2B2C embedded insurance brokerage in China, but without specific market share data or competitor names for direct comparison.

Management Changes

Corporate Governance

Legal Proceedings

• The company states that it may be subject to legal or other proceedings in the ordinary course of business, including contractual disputes, product liability claims, and employee claims.
• As of the date of the prospectus, the company and its PRC Subsidiaries are not aware of any claim or challenge brought by any third parties concerning the use of leased properties without obtaining proper ownership proof.
• As of the date of the prospectus, Zhibao China and its MGU Partner have not been subject to any notice, fines, or other penalties from competent government authorities or claims/allegations from clients related to MGU business compliance.

Related Party Transactions

• Shanghai Anyi was originally 100% controlled by Shanghai Xinhui Investment Consulting Co., Ltd., a related party controlled by CEO Mr. Botao Ma, before its equity interest was transferred to Zhibao China on July 12, 2016.
• Mr. Botao Ma, the CEO and Chairman, beneficially holds 16,816,692 Class B ordinary shares, representing approximately 95.5% of the total voting power of the company's issued and outstanding ordinary shares.
• Mr. Botao Ma is the director of Mavy Holdings Limited and the majority shareholder of Shanghai Xinhui Investment Consulting Co., Ltd., both of which are significant shareholders of the company.
• The company's executive officers have labor contracts with its PRC Subsidiaries, detailing their salaries and benefits.

Stakeholder Impact

• **Shareholders**: Face significant dilution risk from the conversion of notes and exercise of warrants, especially at lower prices due to anti-dilution provisions. The event of default triggers immediate payment obligations and potential further dilution, which could materially adversely affect the value of their investment. The concentrated voting power of the CEO limits minority shareholder influence. Delisting risk from Nasdaq due to HFCA Act or other listing standard non-compliance could severely impact liquidity.
• **Employees**: The company's success depends on attracting and retaining talented professionals. Failure to do so could impact business operations. Non-compliance with PRC labor regulations regarding employee benefits and income tax withholding could lead to penalties, potentially affecting employee welfare or company financial stability.
• **Customers (End Customers & B Channels)**: The company's ability to serve end customers and B channels could be diminished if it fails to retain talented employees or if its technology does not keep pace with market needs. Security breaches or improper handling of personal information could damage trust and deter customers.
• **Creditors (L1 Capital Global Opportunities Master Fund)**: The event of default provides the Investor with immediate rights to demand payment of 120% of outstanding principal and accrued interest, and to convert notes/warrants at favorable (for them) prices, potentially improving their recovery position at the expense of other stakeholders.
• **Suppliers**: Not explicitly detailed, but general business disruptions due to regulatory issues, financial instability, or operational challenges could indirectly impact relationships with suppliers.

Next Steps

• The company is required to pay the Investor the outstanding principal balance under the Second Tranche Note in monthly installments, commencing on the earlier of the 60-day anniversary after February 13, 2026, or the date the resale registration statement is declared effective.
• Upon completion of all tranches and/or closings of the A&R Securities Purchase Agreement, the company will submit a final consolidated report to the CSRC, supplementing the initial filing with the final amount and terms of the securities issued.
• The company will continue to take additional measures to remediate the identified material weaknesses in its internal control over financial reporting, including hiring qualified accounting personnel, setting up a financial and system control framework, implementing formal access and change controls, and providing internal training.
• The company intends to invest in R&D for new technologies, upgrade and enhance its PaaS, and introduce new AI and BI functionalities.
• Plans include expanding the number of B channels, increasing the sales force, driving additional conversions for existing end customers (2C business), and developing new digital insurance solutions.
• The company aims to increase the number of MGU partners from 10 to 15 and the proportion of MGU online business to 50% of total MGU business by the end of June 2026.
• The company intends to expand its MGU insurance products from high-end medical and long-term disability lines to mid-end medical and personal accident lines.
• The company plans to support its brokerage and MGU services through its newly incorporated reinsurance company in Labuan, Malaysia, which has received final approval.
• The company plans to seek new strategic partnerships and cooperation, including potential M&A targets, especially those that can bring new B channel resources.
• The company plans to expand its business footprint outside of China, cooperating with partners in other countries and assessing opportunities in the U.S. and European markets.

Key Dates

Recommendation

Keywords

InsurTech, Digital Insurance Brokerage, 2B2C Embedded Insurance, China, SEC Filing, F-1/A, Convertible Notes, Warrants, Event of Default, PCAOB, HFCA Act, CSRC, Data Security, Internal Controls, Corporate Governance, Nasdaq, Share Dilution, PRC Regulations, Financial Performance