F-1: Waton Financial Launches Best-Efforts Share Offering

Waton Financial Limited, a BVI holding company, is offering up to 5.36 million ordinary shares in a best-efforts offering on Nasdaq, aiming to raise approximately $27.94 million for R&D, business expansion, and working capital.

Summary

• Waton Financial Limited is conducting a best-efforts offering of up to 5,359,719 ordinary shares on the Nasdaq Capital Market at an assumed price of $5.68 per share.
• The offering aims to raise estimated net proceeds of approximately $27.94 million, which will be allocated to research and development (30%), expansion of existing securities brokerage and asset management businesses (30%), sales and promotion activities (20%), and working capital and general corporate purposes (20%).
• The company reported a significant decrease in total revenues by 25.9% to $7.45 million for the fiscal year ended March 31, 2025, from $10.06 million in 2024.
• A net loss of approximately $12.0 million was recorded for FY2025, a substantial decline from net incomes of $2.5 million in FY2024 and $3.1 million in FY2023.
• Adjusted net loss for FY2025 was $3.2 million, compared to adjusted net incomes of $2.5 million in FY2024 and $3.4 million in FY2023.
• The company's largest customer, WGI (a related party), which contributed 64.2% of total revenues in FY2025, ceased being a customer in October 2025, posing a significant revenue risk.
• Waton Financial is a British Virgin Islands holding company operating primarily through Hong Kong subsidiaries, WSI and WTI, offering securities brokerage and fintech services.
• The company completed its IPO on April 2, 2025, raising $20.125 million gross proceeds by issuing 5,031,250 Ordinary Shares at $4.00 per share.

Sentiment

Score: 3

Explanation: The company is actively raising capital and expanding into new areas like asset management and AI strategy. However, recent financial performance shows a significant decline in revenue and a substantial net loss. The loss of a major related-party customer and reliance on a single related-party supplier introduce considerable operational and financial risks. The best-efforts nature of the offering and high dilution for new investors also contribute to a cautious outlook.

Positives

• The company is actively raising capital to fund strategic initiatives, including R&D for its global AI strategy and expansion of core businesses.
• Successful completion of an IPO on Nasdaq Capital Market in April 2025, demonstrating access to public markets.
• Launch of Z Navigation Option Hedge Fund S.P. by WSI through WIG SPC, indicating expansion into asset management.
• Divestment of 55% interest in LeFeng Hainan Private Equity Fund Management Limited for approximately US$900,000, realizing an investment and allowing focus on current business.
• The company's auditor, UHY LLP, is a PCAOB-inspected firm, mitigating delisting risks under the HFCAA.

Negatives

• Significant decline in total revenues by 25.9% from FY2024 to FY2025, and a substantial net loss of $12.0 million in FY2025 compared to net incomes in prior years.
• High customer concentration risk, with WGI (a related party) accounting for 64.2% of FY2025 revenues and ceasing to be a customer in October 2025.
• Dependence on a single related party supplier, Shenzhen Jinhui Technology Co., Ltd., for critical software development and support services, which is anticipated to be acquired by a third party, potentially leading to service interruptions or increased costs.
• The offering is a 'best-efforts' offering with no minimum amount, meaning the company may not raise sufficient capital for its business plans.
• New investors will experience immediate and substantial dilution of approximately $4.60 per Ordinary Share.
• The company is a 'controlled company' and 'foreign private issuer,' which allows it to rely on certain Nasdaq corporate governance exemptions, potentially reducing shareholder protections.

Risks

• **Customer Concentration**: Historical reliance on WGI, a single related party customer, which ceased being a customer in October 2025, will adversely impact near-term revenues if not replaced by new customers generating similar volumes.
• **Supplier Concentration**: Dependence on Shenzhen Jinhui Technology Co., Ltd., a single related party supplier, for critical software licensing and support services, exposes the company to risks if the relationship deteriorates or if the anticipated acquisition by a third party leads to adverse changes in business terms or service interruptions.
• **Best-Efforts Offering**: No minimum number or dollar amount of securities is required to be sold, potentially leaving the company with insufficient capital for its business plans and requiring additional fundraising.
• **Share Price Volatility**: The trading price of Ordinary Shares has been and will likely continue to be highly volatile, potentially leading to substantial losses for purchasers.
• **Market Sales by Existing Shareholders**: Sales of substantial amounts of Ordinary Shares by existing shareholders after the offering could adversely affect the market price.
• **Dilution**: Purchasers will experience immediate and substantial dilution in net tangible book value per share.
• **Discretionary Use of Proceeds**: Management has considerable discretion in applying the proceeds, which may not align with investor expectations or improve financial results.
• **PRC Regulatory Risks**: Although current operations are in Hong Kong, potential future application of evolving PRC laws and regulations (e.g., data security, anti-monopoly) could materially affect operations, restrict foreign investments, impact U.S. listing, or cause securities value to decline.
• **HFCAA Delisting Risk**: While the current auditor is PCAOB-inspected, future obstruction by PRC authorities could lead to a new determination and potential delisting under the Holding Foreign Companies Accountable Act.
• **Holding Company Structure**: Reliance on dividends from subsidiaries for cash requirements, which may be restricted by subsidiary debt or applicable laws, affecting the ability to finance operations or pay shareholder dividends.
• **Lack of Dividend Policy**: No present plan to pay cash dividends in the foreseeable future, requiring investors to rely on price appreciation.
• **Corporate Governance Exemptions**: As a foreign private issuer and controlled company, the company may rely on Nasdaq exemptions, potentially reducing shareholder protections compared to fully compliant U.S. domestic companies.

Future Outlook

The company intends to use the net proceeds from this offering for research and development under its global AI strategy, expansion of existing securities brokerage and asset management businesses, sales and promotion activities to promote its global AI strategy, and for working capital and general corporate purposes. It anticipates a new New Zealand customer may contribute substantial revenue to offset the loss of WGI, but provides no assurance of this. The company does not currently intend to distribute dividends in the future and does not have a fixed dividend policy, planning to retain funds for operations and business growth.

Management Comments

• "We are committed to the digital transformation of financial services in the securities brokerage industry through the following key strategies: Continue to expand our customer base in the financial services industry through software licensing services. Enhance our existing services, develop our asset management business and expand our service offerings. Focus on product and technology innovation and further strengthen our securities brokerage services and software licensing services. Pursue investment, acquisition and strategic opportunities. Continue to attract and retain top talents."
• "Our management will have considerable discretion in deciding how to apply the proceeds of this offering."
• "We do not have any present plan to pay any cash dividends on our Ordinary Shares in the foreseeable future after this offering. We currently intend to retain most, if not all, of our available funds and any future earnings to support operations and to finance the growth and development of our business."

Industry Context

The company operates in the securities brokerage and financial technology (fintech) services industries, primarily in Hong Kong. It aims to capitalize on the digital transformation of financial services, targeting small and medium-sized securities brokers with integrated software solutions. The industry is characterized by evolving regulations, particularly concerning data and cyberspace security, and anti-monopoly concerns, especially for companies with ties to PRC nationals or operations. The company's strategy to expand its customer base and enhance services aligns with broader trends of digitalization and diversification in financial services.

Comparison to Industry Standards

• The filing does not provide specific comparisons to global benchmarks or comparable companies/projects.
• The company's auditor, UHY LLP, is a registered public accounting firm as required by the Exchange Act, with its last inspection report dated March 2025.
• As a foreign private issuer and controlled company, the company may rely on certain Nasdaq corporate governance exemptions, which is a deviation from typical U.S. domestic public company governance standards.

Management Changes

Corporate Governance

Legal Proceedings

• No action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority that could result in a Material Adverse Effect, except as may be set forth on Schedule 3.1(j) (not provided in the filing excerpt).
• Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty, which could have or reasonably be expected to result in a Material Adverse Effect.
• There has not been, and to the knowledge of the Company, there is not pending or contemplated or threatened, any investigation by the Commission involving the Company or any current or former director or officer of the Company.
• The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

Related Party Transactions

• **Wealth Guardian Investment Limited (WGI)**: A related party that was the largest customer, contributing 64.2% of total revenues in FY2025, 39.5% in FY2024, and 81.5% in FY2023. WGI ceased being a customer effective October 2025. Receivables from WGI were $5,426,387 (2025), $14,114,118 (2024), $5,538,025 (2023). Payables to WGI were $1,492,289 (2025), $14,031,458 (2024), $7,101,004 (2023). WSI extended a $6.2 million credit line to WGI for margin transactions in FY2025.
• **Shenzhen Jinhui Technology Co., Ltd. (Shenzhen Jinhui)**: A related party controlled by Mr. Zhou Kai (Chairman, CTO, and 5%+ shareholder). It is the single outsourced supplier for trading platform APP development and related support services. Unpaid service fees (due to related parties) were $1,766,092 (2025), $772,040 (2024), $611,566 (2023). The company purchased outsourcing and related support services of approximately $1.0 million (2025), $0.7 million (2024), and $0.6 million (2023). Shenzhen Jinhui is anticipated to be acquired by a third party.
• **Mr. Zhou Kai**: Principal shareholder, Chief Technology Officer, and Chairman of the Board. Borrowings from Mr. Zhou Kai for daily operational purposes were $31,682 (2025), $1,830,092 (2024), $5,276,423 (2023), which are interest-free, unsecured, and due on demand. The company disposed of a portion of its other investment to Mr. Zhou Kai for approximately $2.0 million in FY2024, settled with payable.
• **ST MA Ltd**: A related party at the time, to which the company made a loan of US$447,000 (HK$3.5 million) in April 2023. ST MA Ltd ceased to be a related party in June 2023. The loan was unsecured (April 2023-Oct 2024), then collateralized by securities, bears no interest, and is due on demand.
• **Waton Investment Global SPC (WIG SPC)**: A wholly-owned subsidiary. WSI applied to subscribe for and purchase Class VI shares in WIG SPC attributable to Z Navigation Option Hedge Fund S.P. in the amount of $1.0 million in July 2025.

Stakeholder Impact

• **Shareholders**: Potential for significant dilution from the offering. Increased risk due to reliance on related parties and the loss of a major customer. Benefits from potential growth strategies (AI, business expansion) if successful. Reduced corporate governance protections if the company relies on foreign private issuer/controlled company exemptions.
• **Employees**: Continued focus on attracting and retaining top talents as part of growth strategies.
• **Customers**: Expansion of services and product innovation aims to benefit customers. Transition from WGI may impact service continuity or terms for some.
• **Suppliers**: Dependence on Shenzhen Jinhui creates risk, especially with its anticipated acquisition.
• **Creditors**: The company's ability to service debt relies on subsidiary dividends, which could be restricted. The offering proceeds are intended for working capital and general corporate purposes, which could improve liquidity.

Next Steps

• Complete the best-efforts offering of up to 5,359,719 Ordinary Shares.
• Allocate net proceeds for research and development, business expansion, sales and promotion, and working capital.
• Seek to replace WGI's revenue contribution with new customers, potentially a new New Zealand incorporated customer.
• Monitor the anticipated acquisition of Shenzhen Jinhui Technology Co., Ltd. by a third party and manage potential impacts on service provision.
• Complete the payment for the divestment of LeFeng Hainan Private Equity Fund Management Limited by the end of 2025.
• Continue to develop asset management business through WIG SPC, including launching additional segregated portfolios.
• Maintain listing on Nasdaq Capital Market and comply with all reporting and listing requirements.
• File a press release and Form 6-K disclosing the material terms of the transactions contemplated by the Securities Purchase Agreement by the Disclosure Time.

Key Dates

Recommendation

The company faces significant headwinds, including a substantial net loss of $12.0 million in the most recent fiscal year and a 25.9% decline in revenues. The loss of WGI, a related party customer that accounted for 64.2% of FY2025 revenues, creates a major revenue gap and introduces considerable uncertainty regarding future financial performance. Furthermore, the dependence on a single related-party supplier for critical services, coupled with its anticipated acquisition, presents additional operational risks. While the capital raise provides some liquidity, the 'best-efforts' nature of the offering means the full amount may not be secured, and new investors face immediate and substantial dilution. The overall financial performance and high concentration risks suggest a challenging outlook, warranting a 'sell' recommendation for investors.

Keywords

Waton Financial Limited, SEC F-1, Securities Offering, Ordinary Shares, Nasdaq Capital Market, Fintech, Securities Brokerage, Asset Management, Hong Kong, British Virgin Islands, Capital Raise, Dilution, Related Party Transactions, Customer Concentration, Supplier Concentration, IPO, Financial Results, Net Loss, Revenue Decline, Global AI Strategy