F-1/A: Waton Financial Limited Files Amendment for IPO of 5,000,000 Ordinary Shares

Waton Financial Limited files an amendment to its Form F-1 registration statement for an initial public offering of 5,000,000 ordinary shares, with an expected price range of $4.00 to $6.00 per share.

Summary

• Waton Financial Limited, a British Virgin Islands holding company, is planning an initial public offering (IPO) of 5,000,000 ordinary shares.
• The expected initial public offering price is between US$4.00 and US$6.00 per share.
• The company has applied to list its Ordinary Shares on the Nasdaq Capital Market under the symbol WTF.
• The offering is contingent upon the company listing its Ordinary Shares on the Nasdaq Capital Market.
• Waton Financial Limited conducts its operations in Hong Kong primarily through its subsidiaries, Waton Securities International Limited (WSI) and Waton Technology International Limited (WTI).
• WSI is licensed to conduct Type 1, Type 4, Type 5 and Type 9 regulated activities under HKSFO in Hong Kong.
• The company derived a substantial portion of its revenues from Wealth Guardian Investment Limited (WGI), a related party.
• The company's total revenues grew by approximately 75.2% from approximately US$5.7 million for the fiscal year ended March 31, 2023 to approximately US$10.1 million for the fiscal year ended March 31, 2024.
• The company's net income was approximately US$2.5 million for the fiscal year ended March 31, 2024, compared to approximately US$3.1 million for the fiscal year ended March 31, 2023.
• The company's net loss was approximately US$1.1 million for the six months ended September 30, 2024, compared to approximately US$0.4 million for the same period in 2023.
• The company is an emerging growth company and a foreign private issuer, which allows it to take advantage of reduced public reporting requirements.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company shows revenue growth, it also reports a net loss for the recent period and relies heavily on a related party for revenue. The risks associated with regulatory uncertainties and competition temper the positive aspects.

Positives

• WSI is licensed to conduct Type 1, Type 4, Type 5 and Type 9 regulated activities under HKSFO in Hong Kong.
• The company's total revenues grew by approximately 75.2% from approximately US$5.7 million for the fiscal year ended March 31, 2023 to approximately US$10.1 million for the fiscal year ended March 31, 2024.
• The company's net income was approximately US$2.5 million for the fiscal year ended March 31, 2024.
• The company is an emerging growth company and a foreign private issuer, which allows it to take advantage of reduced public reporting requirements.

Negatives

• The company's net loss was approximately US$1.1 million for the six months ended September 30, 2024, compared to approximately US$0.4 million for the same period in 2023.
• The company derived a substantial portion of its revenues from Wealth Guardian Investment Limited (WGI), a related party, accounting for approximately 39.5% and 81.5% of total revenues in fiscal years 2024 and 2023, respectively.

Risks

• There remain regulatory and legal uncertainties with respect to the implementation of the PRC laws and regulations to Hong Kong.
• The PRC government may intervene or influence the Hong Kong operations of an offshore holding company, such as our subsidiaries, at any time, which could result in a material change to our subsidiaries operations and/or the value of our Ordinary Shares.
• We and our subsidiaries face uncertainties arising from the possible revision regarding the interpretation and implementation of current and any future PRC laws and regulations related to part of our subsidiaries' business operation.
• If we and our subsidiaries were to be required to comply with cybersecurity, data privacy, data protection, or any other PRC laws and regulations related thereto and we and our subsidiaries are unable to comply with such PRC laws and regulations, our financial condition, and results of operations may be materially and adversely affected.
• If we were to be required to obtain any permission or approval from or complete any filing procedures with the CSRC, the CAC, or other PRC governmental authorities in connection with this offering under the PRC laws, we may be fined or subject to other sanctions.
• The enactment of the Law of the Peoples Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (the Hong Kong National Security Law) could impact our Hong Kong subsidiaries, which represent substantially all of our business.
• There are political risks associated with conducting business in Hong Kong.
• Our historical growth rates may not be indicative of our future growth.
• Our subsidiaries limited operating history with regards to software licensing and related support services may not provide an adequate basis to judge our future prospects and results of operations.
• WSI is subject to extensive and evolving regulatory requirements in Hong Kong, non-compliance with which, may result in penalties, limitations and prohibitions on its future business activities or suspension or revocation of its licenses and trading rights, and consequently may materially and adversely affect the business of WSI and our financial condition, operations and prospects.
• WSI may be subject to disciplinary actions of the HKSFC as a result of contraventions of regulations by WSIs substantial shareholders.
• We derived a substantial portion of revenue from a small number of key customers.
• We derived a substantial portion of revenue from WGI, a single related party customer.
• WSI and WTI are dependent on a single related party supplier, Shenzhen Jinhui Technology Co., Ltd., an information technology company and a related party controlled by Mr. Zhou Kai, our Chairman of the Board, Director, Chief Technology Officer and shareholder, for providing software licensing and other related support services.
• WSIs activities may be deemed as provision of securities brokerage services in Mainland China, and thus may subject WSI to rectifications.
• WSI faces risks related to the know-your-customer, or KYC, procedures when WSIs customers provide outdated, inaccurate, false or misleading information.
• WSIs customers may engage in fraudulent or illegal activities.
• Non-compliance with applicable regulations and illegal activities on the part of third parties with which our subsidiaries conduct business could disrupt our subsidiaries' business and adversely affect our results of operations.
• The impairment or negative performance of other participants in the financial services industry could adversely affect us.
• Any failure to ensure and protect the confidentiality of the personal data of our subsidiaries customers could lead to legal liability, adversely affect our reputation and have a material adverse effect on our subsidiaries business and our financial condition or results of operations.
• Any failure to comply with applicable anti-money laundering laws and regulations by us or in our subsidiaries business could damage our reputation.
• Our subsidiaries risk management policies and procedures may not be fully effective in identifying or mitigating risk exposure in all market environments or against all types of risk, including employee misconduct.
• If our subsidiaries fail to respond in a timely and cost-effective manner to the needs of their customers or if our subsidiaries new service offerings do not achieve sufficient market acceptance, the business of our subsidiaries, and our results of operations may be materially and adversely affected.
• Unexpected network interruptions, security breaches or computer virus attacks and failures in our information technology systems could have a material adverse effect on the business of our subsidiaries, and our financial condition and results of operations.
• Failure or poor performance of third-party software, infrastructure or systems on which our subsidiaries rely could adversely affect the business of our subsidiaries.
• Our subsidiaries rely on a number of external service providers for certain key market information and data, technology, processing and supporting functions.
• If major mobile application distribution channels change their standard terms and conditions in a manner that is detrimental to WSI, or terminate their existing relationship with WSI, WSIs business, and our financial condition and results of operations may be materially and adversely affected.
• WSI may fail to obtain and maintain licenses and permits necessary to conduct its operations in Hong Kong, and WSIs business may be materially and adversely affected as a result of any changes in the laws and regulations governing the financial services industry in Hong Kong.
• Our shareholders who are PRC residents may not comply with the PRCs regulations relating to offshore investment activities by PRC residents, and as a result, such shareholders may be subject to penalties.
• If WSI is to provide asset management services in the future, poor performance of the funds that WSI manages or a decline in the value of the underlying assets to WSIs funds would cause a decline in our revenues, income and cash flow, and could adversely affect WSIs ability to raise capital for future investment funds.
• If we are deemed to be an investment company under the Investment Company Act of 1940, as amended (1940 Act), applicable restrictions could make it impractical for WSI to continue its business as contemplated and could have a material adverse impact on WSIs business and operations, and our financial condition.
• If we are deemed to be an investment adviser subject to registration and regulation under the Investment Advisers Act of 1940, as amended (Advisers Act), applicable restrictions could make it more difficult for us to continue our subsidiaries business and could have a material adverse impact on our subsidiaries business and operations, and our financial condition.
• Any harm to our subsidiaries reputation or failure to enhance our subsidiaries brand recognition may materially and adversely affect the business of our subsidiaries, and our financial condition and results of operations.
• We and our subsidiaries may be subject to litigation, arbitration or other legal proceeding risks.
• We may not be able to obtain additional capital when desired, on favorable terms or at all.
• Our results of operations are subject to fluctuations in the exchange rate between the U.S. dollar and the Hong Kong dollar.
• We and our subsidiaries may not be able to prevent others from unauthorized use of our intellectual property, which could harm the business of our subsidiaries and their competitive position.
• We and our subsidiaries may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt the business and operations of our subsidiaries.
• WSI faces significant competition in the fintech services industry, and WSI is unable to compete effectively, WSI may lose its market share and our results of operations and financial condition may be materially and adversely affected.
• If WSI is unable to retain existing customers or attract new customers to increase its trading volume, or if WSI fails to offer services to address the needs of customers as they evolve, our results of operations may be materially and adversely affected.
• Because our revenues and profitability depend largely on customers trading volume, they are prone to significant fluctuations and are difficult to predict.
• Our success depends on the continuing service of our and our subsidiaries key employees, including our senior management members and other talents.
• Increases in labor costs in Hong Kong may adversely affect the business of our subsidiaries in Hong Kong and our results of operations.
• If our subsidiaries insurance coverage is insufficient, our subsidiaries may be subject to significant costs and business disruption.
• Any lack of effective internal controls over financial reporting may affect our ability to accurately report our financial results or prevent fraud which may affect the market for and price of the Ordinary Share.
• An outbreak of the COVID-19, natural disasters and other calamities could have a material adverse impact on our operating results and financial condition.
• We rely on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments may restrict our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders.
• Our shareholder has substantial influence over our Company and his interests may not be aligned with the interests of our other shareholders.
• As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain Nasdaq corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our Ordinary Shares.
• Although as a foreign private issuer we are exempt from certain corporate governance standards applicable to U.S. issuers, if we cannot satisfy, or continue to satisfy, the initial listing requirements and other rules of Nasdaq, our securities may be delisted, which could negatively impact the price of our securities and your ability to sell them.
• If we cease to qualify as a foreign private issuer, we would be required to comply fully with the reporting requirements of the Exchange Act applicable to U.S. domestic issuers, and we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer.
• You may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against us or our management named in the prospectus based on Hong Kong laws.
• We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.
• As an emerging growth company under applicable law, we will be subject to lessened disclosure requirements. Such reduced disclosure may make our Ordinary Shares less attractive to investors.
• We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.
• Since we are a controlled company within the meaning of the Nasdaq listing rules, we may follow certain exemptions from certain corporate governance requirements that could adversely affect our public shareholders.
• Anti-takeover provisions in our memorandum and articles of association may discourage, delay or prevent a change in control.
• The exclusive jurisdiction provision in our articles of association may limit our shareholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.
• There has been no public market for our Ordinary Shares prior to this offering, and if an active trading market does not develop you may not be able to resell our Ordinary Shares at or above the price you paid, or at all.
• Nasdaq may apply additional and more stringent criteria for our initial and continued listing because we plan to have a small public offering and insiders will hold a large portion of the Companys listed securities.
• Our Ordinary Shares may be delisted or prohibited from being traded over-the-counter under the HFCAA if the PCAOB is unable to inspect or investigate completely the Companys auditor for two consecutive years.
• Our Ordinary Shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
• The initial public offering price for our Ordinary Shares may not be indicative of prices that will prevail in the trading market and such market prices may be volatile.
• You will experience immediate and substantial dilution in the net tangible book value of Ordinary Shares purchased.
• Substantial future sales of our Ordinary Shares or the anticipation of future sales of our Ordinary Shares in the public market could cause the price of our Ordinary Shares to decline.
• Because the amount, timing, and whether or not we distribute dividends at all is entirely at the discretion of our board of directors, you must rely on price appreciation of our Ordinary Shares for return on your investment.
• If securities or industry analysts do not publish research or reports about us or the business of our subsidiaries, or if they publish a negative report regarding our Ordinary Shares, the price of our Ordinary Shares and trading volume could decline.
• Volatility in our Ordinary Shares price may subject us to securities litigation.
• We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
• The laws of the British Virgin Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
• British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of the ability to protect their interests.
• If we are classified as a passive foreign investment company, U.S. taxpayers who own our Ordinary Shares may have adverse U.S. federal income tax consequences.
• The price of our Ordinary Shares could be subject to rapid and substantial volatility.

Future Outlook

The company is committed to the digital transformation of financial services in the securities brokerage industry and plans to expand its customer base, enhance existing services, develop its asset management business, focus on product and technology innovation, pursue investment, acquisition and strategic opportunities, and continue to attract and retain top talents.

Industry Context

The document indicates that the company operates in the fintech and securities brokerage industries, which are subject to evolving regulations and competition. The company aims to capitalize on the digital transformation of financial services and the increasing demand for fintech solutions among small and medium-sized brokers.

Comparison to Industry Standards

• The document mentions that the company is a pioneer of business-to-business fintech services in the Asia-Pacific region to offer one-stop brokerage software solutions to small and medium-sized brokers, according to Frost & Sullivan Limited.
• The document also states that the company is able to optimize its development cost structure and lower the average ordinary trading platform APP initial delivery costs to less than HK$100,000 (approximately US$12,821), which is significantly below the estimated industry average of more than HK$1 million (approximately US$128,205), according to Frost & Sullivan.

Legal Proceedings

• As of the date of this prospectus, WSI has been involved in certain inquiries from the HKSFC concerning its practices relating to (i) protection of client assets where WSI failed to deposit client money of RMB 200,000 into a segregated bank account between July 29, 2022 and September 27, 2022, due to staff oversight, and subsequently rectified the non-compliance by depositing the relevant money balance into a segregated bank account, and (ii) WSIs substantial shareholders, where, during the period between November 2, 2023 and December 4, 2023, two companies, each being the associate (as defined under the HKSFO) of Mr. Zhou Kai, an existing HKSFC-approved individual substantial shareholder of WSI and our Chairman of the Board, Director and Chief Technology Officer, as well as a shareholder who owns more than 5% of our issued and outstanding Ordinary Shares as of the date of this prospectus, by acquiring the shares of Waton Corporation Limited, became a substantial shareholder of WSI without the HKSFCs prior approval, due to inadvertent oversight.

Related Party Transactions

• The company derived a substantial portion of its revenues from Wealth Guardian Investment Limited (WGI), a related party, accounting for approximately 39.5% and 81.5% of total revenues in fiscal years 2024 and 2023, respectively.
• WSI and WTI have outsourced the software licensing and related support services to Shenzhen Jinhui Technology Co., Ltd., a related party of the Company.

Stakeholder Impact

• The IPO will provide the company with additional capital to fund its growth strategies.
• The company's performance will impact its shareholders, employees, customers, and suppliers.
• The company's ability to comply with regulations will impact its stakeholders.

Next Steps

• The company intends to use the net proceeds from this offering to enhance the functionalities and technicalities of its trading platform APP and the software licensing and related support services, launch its asset management business and other new business lines, expand its array of investments available for its customers on its trading platform APP, and for general working capital purposes.

Key Dates

Keywords

IPO, ordinary shares, Waton Financial Limited, initial public offering, securities brokerage, financial technology, Hong Kong, Nasdaq, WSI, WTI