F-1: Zhibao Technology Inc. Files for Resale of Ordinary Shares Following Private Placement

Zhibao Technology Inc. is registering for the resale of ordinary shares by an institutional investor after a recent private placement involving convertible notes and warrants.

Summary

• Zhibao Technology Inc., a Cayman Islands-based InsurTech company, has filed a registration statement for the resale of its Class A ordinary shares.
• The filing follows a private placement where Zhibao issued a senior secured convertible promissory note and warrants to an institutional investor.
• The resale offering includes up to 3,282,563 Class A ordinary shares issuable upon conversion of the note, up to 74,451 Class A ordinary shares issuable upon exercise of warrants, and up to 984,769 Class A ordinary shares issuable upon exercise of pre-funded warrants upon an Event of Default.
• Zhibao will not receive any proceeds from the resale of shares by the selling shareholder, but may receive proceeds from the cash exercise of the Common Warrants.
• The company intends to use any net proceeds from the cash exercise of the Common Warrants for working capital and general corporate purposes.
• The filing also details Zhibao's corporate structure, recent regulatory developments in China, and associated risks.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While the company highlights its market leadership and growth strategies, it also acknowledges significant risks and a recent net loss. The sentiment is neutral, reflecting both positive and negative aspects.

Positives

• The company has completed a cybersecurity review for its initial public offering.
• The company has a cash management policy in place for cash transfers among Zhibao and its subsidiaries.

Negatives

• The company is subject to risks associated with operating in China, including regulatory uncertainties and potential delisting under the HFCA Act.
• The company may be classified as a passive foreign investment company (PFIC), which could have adverse tax consequences for U.S. shareholders.
• The company is a controlled company, which may limit corporate governance protections for shareholders.

Risks

• Changes in PRC government policies or relations between China and the United States could adversely affect the company.
• Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit legal protections.
• The company may be unable to use proceeds from future offerings to capitalize its PRC operations.
• The company may be deemed a PRC resident enterprise for tax purposes, resulting in unfavorable tax consequences.
• The company is dependent on key insurance companies and B channels, and the loss of these relationships could harm the business.
• The company has identified a material weakness in its internal controls over financial reporting.
• The trading price of the company's Class A ordinary shares may be volatile.
• The sale or availability for sale of substantial amounts of the company's Class A ordinary shares could adversely affect their market price.

Future Outlook

The company intends to expand the number of B channels, increase its sales force, drive additional conversions for existing end customers, upgrade its digital insurance solutions and PaaS, and expand the scale of its MGU business.

Industry Context

The document notes that the 2B2C digital insurance brokerage services sector is the fastest growing segment within the digital insurance brokerage service industry in China.

Comparison to Industry Standards

• The Frost & Sullivan Report indicates that 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% and revenue of approximately RMB 140.6 million.
• The report estimates the 2B2C digital insurance brokerage services sector will reach approximately RMB 6.2 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 still pending.
• Shanghai Chenxi Technology Group Co., Ltd. filed a lawsuit against Sunshine Insurance Brokers and Zhibao China, which is still pending.
• Shanghai Chenxi Technology Group Co., Ltd. filed a lawsuit against Shanghai Anyi, which is still pending.
• Guangdong Zhongkang Yongdao Insurance Brokerage Co., Ltd. filed a lawsuit against Sunshine Insurance Brokers and Zhibao China, and Sunshine Insurance Brokers filed a counterclaim, which is still 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 still 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, 2022, the company borrowed approximately RMB 6.9 million, RMB 1.1 million and RMB 0.3 million, respectively, from Shanghai Xinhui, Mr Botao Ma and Mr. Yuanwen Xia, the Chief Executive Officer and Chief Financial Officer of the Company, respectively.
• For the fiscal year ended June 30, 2022, the company repaid approximately RMB 7.5 million, RMB 0.3 million and RMB 0.1 million, respectively, to Shanghai Xinhui, Mr Botao Ma, and Mr. Yuanwen Xia.
• For the fiscal year ended June 30, 2023, the company borrowed RMB 0.2 million from Mr. Yuanwen Xia, unsecured, interest-free, and due on demand.
• For the fiscal year ended June 30, 2023, the company repaid Mr. Yuanwen Xia in full.
• For the six months ended December 31, 2023, the company borrowed RMB 26.5 million from Shanghai Xinhui and repaid borrowings of RMB 15.0 million to Shanghai Xinhui.
• For the fiscal year ended June 30, 2022, the company made loans of approximately RMB 0.4 million to Ningbo Shenan, and we also collected approximately RMB 2.8 million from Mr. Botao Ma.
• For the fiscal year ended June 30, 2023, the company made loans of approximately RMB 15,500 to Ningbo Shenan Enterprise Management Center LLP (Ningbo Shenan), a limited liability company organized under the laws of PRC and controlled by Mr. Botao Ma, and we also collected approximately RMB 0.7 million from Shanghai Shenbao Enterprise Management Center LLP (Shanghai Shenbao), a limited liability company organized under the laws of PRC and controlled by Mr. Botao Ma, and RMB30,000 from Ningbo Shenan.
• For the fiscal year ended June 30, 2022 and 2023, the company made payments of RMB 5.4 million (US$0.8 million) and RMB nil (US$ nil), respectively, on behalf of Mr. Botao Ma.
• For the fiscal year ended June 30, 2023, Botao Ma made repayments of RMB 15.0 million (US$2.1 million) to Zhibao China Group, and settled payable of RMB 0.8 million (US$0.1 million) with receivables.
• In addition, Xinhui settled payable of RMB 0.5 million (US$63,409) with receivables due from Botao Ma.
• On May 24, 2023, the Company issued 1,220,374 ordinary shares to Shanghai Xinhui in exchange for cash consideration of RMB 5,820,049, or RMB 4.77 per share.

Stakeholder Impact

• Shareholders may experience volatility in the trading price of Class A ordinary shares.
• Shareholders may face difficulties in protecting their interests due to the company's incorporation under Cayman Islands law and the concentrated voting power of the CEO.
• Customers may be affected by changes in the company's services or data protection practices.
• Employees may be affected by changes in compensation or employment practices.

Next Steps

• The company is required to submit the filing report to the CSRC within three business days upon the first closing of the transactions contemplated under the Securities Purchase Agreements and report share issuance status to the CSRC upon completion of all subsequent closings.
• The company intends to use the net proceeds from any cash exercise of the Warrants for working capital and general corporate purposes.
• The company intends to establish its subsidiary reinsurance company in Labuan, Malaysia and begin operations in the 4th quarter of 2024.

Key Dates

Keywords

Zhibao Technology, Class A ordinary shares, resale, private placement, convertible note, warrants, China, regulation, HFCA Act, CSRC, PCAOB, cybersecurity, financial risk, insurance