20-F: Zhibao Technology Inc. Files 20-F Annual Report, Details Financial Performance and Future Strategies

Sentiment:

Annual Report 31 October 2024 5:28 PM

Zhibao Technology Inc. released its 20-F filing, highlighting its financial results for the fiscal year ended June 30, 2024, and outlining its business strategies and risk factors.

Capital raiseThe Securities Purchase Agreement provides for loans in an aggregate principal amount of up to $8.0 million under three tranches.As of September 23, 2024, upon the First Closing of First Tranche, the Investor funded $675,000 (net of original issue discount of 10%).The Investor has agreed to fund, (i) in a subsequent closing of the First Tranche, an additional $675,000 (net of original issue discount of 10%), subject to the satisfaction of the Equity Conditions (as defined in the Securities Purchase Agreement), after the Company provides written confirmation to the Investor that a resale registration statement on Form F-1 has been filed with the SEC for the registration of Class A ordinary shares issuable upon conversion of the Note and the exercise of the Common Warrants, and, (ii) in a subsequent closing of the First Tranche, another $900,000 upon the execution of a duly executed deposit account control agreement (DACA) and establishment of a DACA account, subject to the satisfaction of the Equity Conditions (as defined in the Securities Purchase Agreement).The Company and Investor have agreed to consummate an additional financing of $2,500,000 in the second tranche (Second Tranche) after 120 days following effectiveness of the resale registration statement, subject to certain conditions contemplated under the Securities Purchase Agreement.The Securities Purchase Agreement also contemplates a third tranche (Third Tranche) financing of aggregate of up to $3,000,000, upon the mutual consent of the Investor and Company, after 180 days following the closing date of the Second Tranche.

Better than expectedThe company's revenue increased by 29% year-over-year.The company achieved net income of RMB 13.3 million (US$1.8 million) for the fiscal year ended June 30, 2024, a significant turnaround from the previous year's loss.

Summary

Zhibao Technology Inc., a Cayman Islands holding company, conducts its operations in China through its PRC Subsidiaries.
The company's primary business is providing digital insurance brokerage services, pioneering the 2B2C digital embedded insurance model in China.
For the fiscal year ended June 30, 2024, Zhibao reported revenues of approximately RMB 183.7 million (US$25.3 million), a 29% increase from the previous year.
Net income for the same period was approximately RMB 13.3 million (US$1.8 million), a significant improvement from the net loss of RMB 43.1 million in the prior year.
The company completed an IPO in April 2024, raising gross proceeds of $6,000,000, and subsequently issued additional shares for $95,060 through an over-allotment option.
Zhibao entered into a Securities Purchase Agreement for potential loans up to $8.0 million, receiving $675,000 initially and a further $675,000 in a second tranche.
The company issued a convertible note for up to $2,500,000 and warrants to purchase Class A ordinary shares as part of the financing agreement.
Zhibao faces risks related to doing business in China, dependence on key insurance companies and B channels, and the evolving regulatory landscape.
The company has identified two material weaknesses in its internal controls over financial reporting and is taking steps to remediate them.
Zhibao plans to expand its B channel network, upgrade its technology platform, and explore M&A opportunities to drive future growth.

Sentiment

Score: 7

Explanation: The document presents a mixed picture. While the company shows strong revenue growth and a return to profitability, there are significant risks and internal control weaknesses that temper the positive outlook.

Positives

Significant revenue growth of 29% year-over-year.
Return to profitability with a net income of RMB 13.3 million (US$1.8 million).
Successful completion of IPO and subsequent over-allotment option exercise.
Secured a Securities Purchase Agreement for potential loans up to $8.0 million.
Large customer base of over 15 million end customers through 1,800+ business channels.

Negatives

Identified two material weaknesses in internal controls over financial reporting.
Reliance on a limited number of key insurance companies for a significant portion of revenue.
Dependence on B channels to reach end customers.
Potential delisting risks under the Holding Foreign Companies Accountable Act (HFCA Act).

Risks

Potential delisting under the HFCA Act if PCAOB cannot inspect the company's auditor.
Changes in political and economic policies of the PRC government.
Uncertainties in the interpretation and enforcement of PRC laws and regulations.
Dependence on key insurance companies and B channels.
Failure to comply with data security and privacy regulations.
Inability to attract and retain talented professionals.
Competition in the digital insurance brokerage service industry.
Fluctuations in exchange rates.
Potential difficulties in enforcing legal judgments in China.
The trading price of Class A ordinary shares may be volatile.

Future Outlook

Zhibao intends to expand its B channel network, upgrade its technology platform, and explore M&A opportunities to drive future growth. The company also plans to increase its sales force and drive additional conversions for existing end customers through its 2C business.

Industry Context

Zhibao operates in the rapidly growing digital insurance brokerage service industry in China, with a focus on the 2B2C embedded insurance model. The company faces competition from other insurance brokerage firms, in-house brokerage firms of internet companies, and independent digital insurance brokerage firms.

Comparison to Industry Standards

According to the Frost & Sullivan Report, Zhibao China Group ranked number one in the 2B2C digital insurance brokerage services sector in China in 2022, with a market share of approximately 17.4%.
The 2B2C digital insurance brokerage services sector is the fastest growing segment within the digital insurance brokerage service industry, with a historical compound annual growth rate (CAGR) of approximately 54.6% from 2018 to 2022, which also presents a substantial growth potential to reach approximately RMB6.2 billion in 2027, with an estimated CAGR of approximately 50.1% from 2022 to 2027.

Legal Proceedings

Sunshine Insurance Brokers filed a lawsuit against Hengbang Property Insurance Holding Co., Ltd Suzhou Branch, which was ruled in favor of Sunshine Insurance Brokers.
Harbin Feiyang Software Technology Co., Ltd. filed a lawsuit against Sunshine Insurance Brokers, which was ruled in favor of Harbin Feiyang.
Zhibao China filed a lawsuit against Taiping Insurance, which is currently pending.
Shanghai Chenxi Technology Group Co., Ltd. filed a lawsuit against Sunshine Insurance Brokers and Zhibao China, which is currently pending.
Shanghai Chenxi Technology Group Co., Ltd. filed a lawsuit against Shanghai Anyi, which is currently pending.
Guangdong Zhongkang Yongdao Insurance Brokerage Co., Ltd. filed a lawsuit against Sunshine Insurance Brokers and Zhibao China, which is currently pending.
Sunshine Insurance Brokers filed a counterclaim lawsuit against Guangdong Zhongkang, which is currently pending.
Beijing Tiantan Puhua International Hospital filed a lawsuit against Taiping Property Insurance Co., Ltd. Shanghai Branch, Shanghai Jibeiji Enterprise Management Consulting Co., Ltd. & Zhibao China, which is currently pending.

Related Party Transactions

The company purchases certain services on insurance purchase and claim assistance from Shanghai GBG, a limited liability company organized under the laws of PRC and an affiliate of Mr. Botao Ma, our Chief Executive Officer.
For the fiscal year ended June 30, 2024, the purchase amount was approximately RMB 2.0 million (US$0.3 million), representing approximately 1% of our total sales amount.
For the fiscal year ended June 30, 2024, we borrowed RMB 28.1 million and RMB 0.4 million from Shanghai Xinhui and Mr. Botao Ma, respectively.
For the fiscal year ended June 30, 2024, we repaid borrowings of RMB 28.4 million and RMB 0.4 million to Shanghai Xinhui and Mr. Botao Ma, respectively.
On April 12, 2024, the Company entered into the agreement with such investor. Pursuant to the agreement, the Company settled this liability at the consideration of RMB 6,003,659, which was paid by Shanghai Xinhui Investment Consulting Co., Ltd, a related party (see Note 14).
As of June 30, 2024, the balance due to Shanghai Xinhui represented the amount paid by the related party on behalf of the Company to settle the subscription fees liabilities due to a shareholder.
As of June 30, 2024, the balance due to Mr. Botao Ma represented the operating expenses paid by Mr. Botao Ma on behalf of the Company. The expenses were interest free and payable on demand.

Stakeholder Impact

Shareholders: The company's financial performance and strategic decisions directly impact shareholder value.
Employees: The company's ability to attract and retain talent is crucial for its success.
Customers: The company's services provide insurance solutions to end customers through B channels.
Insurance Companies: The company partners with insurance companies to provide insurance products and MGU services.
B Channels: The company relies on B channels to reach end customers and embed its insurance solutions.

Next Steps

Expand the B channel network.
Upgrade the technology platform.
Explore M&A opportunities.
Increase the sales force.
Drive additional conversions for existing end customers through the 2C business.
Continue to remediate material weaknesses in internal controls.

Key Dates

Date	Description
November 17, 2011	Sunshine Insurance Brokers was incorporated in Shanghai.
September 18, 2015	Shanghai Anyi was incorporated in Shanghai.
November 24, 2015	Zhibao China (WFOE) was formed in Shanghai.
January 4, 2016	Equity interest of Sunshine Insurance Brokers transferred to Zhibao China.
July 12, 2016	Equity interest of Shanghai Anyi transferred to Zhibao China.
January 11, 2023	Zhibao Technology Inc. was incorporated in the Cayman Islands.
January 12, 2023	Zhibao BVI was incorporated in the British Virgin Islands.
January 19, 2023	Zhibao HK was incorporated in Hong Kong.
April 3, 2024	Zhibao closed its IPO.
May 15, 2024	Zhibao issued additional shares pursuant to the underwriters over-allotment option.
June 30, 2024	End of fiscal year.
September 23, 2024	Zhibao entered into a Securities Purchase Agreement with an investor.
September 30, 2024	The Company filed a Registration Statement on Form F-1 (the Resale Registration Statement) with the Securities and Exchange Commission (the SEC) pursuant to the terms of the Securities Purchase Agreement.
October 1, 2024	The Company received additional $675,000 (net of original issue discount of 10%) in a second closing of the first tranche, excluding expenses and commissions (the Second Closing of First Tranche).

Keywords

insurance brokerage, digital insurance, financial results, 20-F filing, Zhibao Technology, China, InsurTech, IPO, HFCA Act, PCAOB

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