Waton Financial : Annual Report for Fiscal Year Ending March 31, 2026 (Form 20-F)

About this update from Waton Financial Limited

OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report. This annual report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption "Item 3. Key Information-D. Risk Factors" in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. A. Operating Results Comparison of Results of Operations for the Fiscal Years Ended March 31, 2026, 2025 and 2024 The following tables set forth a summary of our consolidated results of operations, in an amount and as a percentage of our total revenues for the years or periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The results of operations in any period are not necessarily indicative of the results that may be expected for any future period. Years Ended March 31 Increase (Decrease) For Years Ended March 31 2026 2025 2024 2026 and 2025 2025 and 2024 Revenues Brokerage and commission income $ 5,757,763 $ 1,824,412 $ 6,472,535 3,933,351 215.6 % (4,648,123 ) (71.8 )% Brokerage and commission income - related party 1,390,497 2,539,260 1,757,731 (1,148,763 ) (45.2 )% 781,529 44.5 % Principal transactions and proprietary trading 520,264 105,483 (715,309 ) 414,781 393.2 % 820,792 (114.7 )% Interest income 1,638,632 135,938 150,819 1,502,694 1,105.4 % (14,881 ) (9.9 )% Interest income - related party 452,808 1,040,634 1,016,179 (587,826 ) (56.5 )% 24,455 2.4 % Software licensing and related support services income 922,960 602,217 176,303 320,743 53.3 % 425,914 241.6 % Software licensing and related support services income - related party 400,000 1,200,000 1,197,551 (800,000 ) (66.7 )% 2,449 0.2 % Total revenues $ 11,082,924 $ 7,447,944 $ 10,055,809 3,634,980 48.8 % (2,607,865 ) (25.9 )% Operating costs and expenses Commissions and brokerage fees 3,052,843 246,259 401,843 2,806,584 1,139.7 % (155,584 ) (38.7 )% Software licensing and related support outsourcing cost 328,236 - - 328,236 - - - Software licensing and related support outsourcing cost - related party 552,795 975,865 802,745 (423,070 ) (43.4 )% 173,120 21.6 % Interest expenses 922,556 289,943 158,441 632,613 218.2 % 131,502 83.0 % Compensation and benefits 4,676,168 3,222,730 2,108,656 1,453,438 45.1 % 1,114,074 52.8 % Share-based compensation expenses 7,060,640 8,788,109 - (1,727,469 ) (19.7 )% 8,788,109 - Research and development expenses 726,299 427,672 - 298,627 69.8 % 427,672 - Professional service fees 2,562,180 1,747,163 1,957,781 815,017 46.6 % (210,618 ) (10.8 )% Market information 1,428,199 880,827 580,584 547,372 62.1 % 300,243 51.7 % Lease costs 564,547 532,552 435,824 31,995 6.0 % 96,728 22.2 % Allowance for expected credit losses 1,256,873 - - 1,256,873 - - - Marketing fees 829,539 - - 829,539 - - - Other general and administrative expenses 1,648,841 988,179 666,741 660,662 66.9 % 321,438 48.2 % Total 25,609,716 18,099,299 7,112,615 7,510,417 41.5 % 10,986,684 154.5 % Operating (loss) income (14,526,792 ) (10,651,355 ) 2,943,194 (3,875,437 ) 36.4 % (13,594,549 ) (461.9 )% Other (loss) income: Income from foreign currency spread 501,867 150,987 49,694 350,880 232.4 % 101,293 203.8 % Equity in losses of equity method investment (31,603 ) (578,256 ) - 546,653 (94.5 )% (578,256 ) - Impairment loss on investment, cost (126,637 ) (618,630 ) - 491,993 (79.5 )% (618,630 ) - Disposal loss from investment in equity securities, at NAV (929,344 ) - - (929,344 ) - - - Others (39,829 ) (116,823 ) (56,400 ) 76,994 (65.9 )% (60,423 ) 107.1 % Total other loss (625,546 ) (1,162,722 ) (6,706 ) 537,176 (46.2 )% (1,156,016 ) 17,238.5 % (Loss) income before income tax expenses (15,152,338 ) (11,814,077 ) 2,936,488 (3,338,261 ) 28.3 % (14,750,565 ) (502.3 )% Income tax expense - (153,428 ) (439,934 ) 153,428 (100.0 )% 286,506 (65.1 )% Net (loss) income (15,152,338 ) (11,967,505 ) 2,496,554 (3,184,833 ) 26.6 % (14,464,059 ) (579.4 )% Revenue Our revenues, which consist of (i) brokerage and commission income, (ii) interest income, (iii) software licensing (including subscription based) and related support services income and (iv) principal transactions and proprietary trading, significantly increased by approximately 48.8%, from approximately US$7.4 million for the fiscal year ended March 31, 2025 to approximately US$11.1 million for the fiscal year ended March 31, 2026. This increase was primarily attributable to the increase in brokerage and commission income and partially the increase in principal transactions and proprietary trading. Our revenues significantly decreased by approximately 25.9%, from approximately US$10.1 million for the fiscal year ended March 31, 2024 to approximately US$7.4 million for the fiscal year ended March 31, 2025. This decrease was primarily attributable to the decrease in brokerage and commission income; and partially offset by the increase in principal transactions and proprietary trading, and software licensing and related support services income. Brokerage and commission income Our brokerage and commission income increased by approximately 63.8%, from approximately US$4.4 million for the fiscal year ended March 31, 2025, to approximately US$7.1 million for the fiscal year ended March 31, 2026, which is primarily attributable to the increase in brokerage commission income from US$3.0 million in the fiscal year ended March 31, 2025 to US$7.1 million in the fiscal year ended March 31, 2026, primarily driven by the increase in daily trading volume in Hong Kong stock market in the fiscal year ended March 31, 2026 and the increase in number of Hong Kong IPO subscriptions, partially offset by the decrease in the bond distribution services income from US$1.3 million in the fiscal year ended March 31, 2025, to US$0.1 million in the fiscal year ended March 31, 2026, primarily due to the inherent uncertainty brought by the project-by-project basis of these projects. Our brokerage and commission income decreased by approximately 47.0%, from approximately US$8.2 million for the fiscal year ended March 31, 2024, to approximately US$4.4 million for the fiscal year ended March 31, 2025, which is primarily attributable to the decrease in bond distribution services income from US$5.8 million in the fiscal year ended March 31, 2024 to US$1.3 million in the fiscal year ended March 31, 2025, primarily due to inherent uncertainty brought by the project-by-project basis of these projects, partially offset by the increase in the brokerage commission income from US$1.8 million in the fiscal year ended March 31, 2024, to US$3.0 million in the fiscal year ended March 31, 2025. Software licensing and related support services income Our software licensing and related support services income decreased by approximately 26.6%, from approximately US$1.8 million for the fiscal year ended March 31, 2025 to approximately US$1.3 million for the fiscal year ended March 31, 2026, primarily attributable to decrease in the number of customers to whom WTI provided software licensing and related support services, from 4 customers in the fiscal year ended March 31, 2025 to 3 customers in the fiscal year ended March 31, 2026. Our software licensing and related support services income increased by approximately 31.2%, from approximately US$1.4 million for the fiscal year ended March 31, 2024 to approximately US$1.8 million for the fiscal year ended March 31, 2025, primarily attributable to increase in the number of customers to whom WSI and WTI provided software licensing and related support services, from three customers in the fiscal year ended March 31, 2024 to four customers in the fiscal year ended March 31, 2025. Principal transactions and proprietary trading For the fiscal year ended March 31, 2026, we recorded principal transactions and proprietary trading profits of approximately US$0.5 million, compared to profits of US$0.1 million in the fiscal year ended March 31, 2025. This improvement resulted from a shift to a more conservative trading strategy, emphasizing prudent security selection and enhanced risk management practices, which contributed to the positive financial outcome. For the fiscal year ended March 31, 2025, we recorded principal transactions and proprietary trading profits of approximately US$0.1 million, compared to a loss of US$0.7 million in the fiscal year ended March 31, 2024. This improvement resulted from a shift to a more conservative trading strategy, emphasizing prudent security selection and enhanced risk management practices, which contributed to the positive financial outcome. Operating costs and expenses Our operating costs and expenses, which consists of (i) commissions and brokerage fees, (ii) interest expenses, (iii) software licensing and related support outsourcing cost, (iv) compensation and benefits, and related share based payment expenses, (v) professional service fees, (vi) market information, lease costs, allowance for expected credit losses and other general and administrative expenses, increased by approximately 41.5%, from approximately US$18.1 million for the fiscal year ended March 31, 2025 to approximately US$25.6 million for the fiscal year ended March 31, 2026. This increase was primarily attributable to the increases in commissions and floor brokerage fees, compensation and benefits, research and development, professional service fees, and allowance for expected credit losses during the fiscal year ended March 31, 2026. Our operating costs and expenses increased by approximately 153.5%, from approximately US$7.1 million for the fiscal year ended March 31, 2024 to approximately US$18.1 million for the fiscal year ended March 31, 2025. This increase was primarily attributable to the increases in share-based compensation expenses incurred prior to the Company's IPO during the fiscal year ended March 31, 2025. Commissions and brokerage fees Our commissions and brokerage fees increased by 1,139.7%, from approximately US$0.2 million for the fiscal year ended March 31, 2025, to approximately US$3.1 million for the fiscal year ended March 31, 2026, primarily attributable to (i) the increase in handling charges and other costs payable to third party broker dealers in Hong Kong, resulting from the increase in the number of Hong Kong IPO subscriptions in the fiscal year ended March 31, 2026; and (ii) the increase in Hong Kong stock trading volume for the fiscal year ended March 31, 2026 in comparison with the fiscal year ended March 31, 2025. Our commissions and brokerage fees decreased by approximately 38.7%, from approximately US$0.4 million for the fiscal year ended March 31, 2024, to approximately US$0.2 million for the fiscal year ended March 31, 2025, primarily attributable to the increases in Hong Kong stock trading volume and corresponding decreases in the U.S. stock trading volume for the fiscal year ended March 31, 2025 in comparison with the fiscal year ended March 31, 2024. The overall commissions and brokerage fees associated with Hong Kong stocks are lower as compared to the U.S. stocks, which resulted in a decrease in overall commissions and brokerage fees, although trading volume slightly increased during the same period. Interest expenses Our interest expenses increased by 218.2%, from approximately US$0.3 million for the fiscal year ended March 31, 2025 to approximately US$0.9 million for the fiscal year ended March 31, 2026, which was primarily attributable to the increase in the use of third party broker dealers margin services during the fiscal year ended March 31, 2026, resulting from the booming Hong Kong stock market in the fiscal year ended March 31, 2026. Our interest expenses increased by approximately 83.0%, from approximately US$158,000 for the fiscal year ended March 31, 2024 to approximately US$290,000 for the fiscal year ended March 31, 2025, which was primarily attributable to the increase in the use of third party broker dealers margin services during the fiscal year ended March 31, 2025. Software licensing and related support outsourcing cost Our software licensing and related support outsourcing cost decreased by 9.7%, from approximately US$1.0 million for the fiscal year ended March 31, 2025 to approximately US$0.9 million for the fiscal year ended March 31, 2026, primarily because WTI outsourced less software licensing and related support services to a related party, Shenzhen Jinhui, in view of fewer existing customers in the fiscal year ended March 31, 2026. Our software licensing and related support outsourcing cost increased by approximately 21.6%, from approximately US$0.8 million for the fiscal year ended March 31, 2024 to approximately US$1.0 million for the fiscal year ended March 31, 2025, primarily because WSI and WTI outsourced software licensing and related support services to a related party, Shenzhen Jinhui, in order to (i) provide the software licensing and related support services to five existing customers in the fiscal year ended March 31, 2025, and (ii) provide continued upgrades to software and related support services. Compensation and benefits Our compensation and benefits increased by 45.1%, from approximately US$3.2 million for the fiscal year ended March 31, 2025 to approximately US$4.7 million for the fiscal year ended March 31, 2026, which was generally in line with (i) the increase in the number of employees in the fiscal year ended March 31, 2026; and (ii) the increase of average level of salary, as we have hired more experienced employees, such as responsible officers, representatives and senior management members, to strengthen our subsidiaries' capabilities to support the business expansion. Our compensation and benefits increased by approximately 52.8%, from approximately US$2.1 million for the fiscal year ended March 31, 2024 to approximately US$3.2 million for the fiscal year ended March 31, 2025, which was generally in line with (i) the increase in the number of employees in the fiscal year ended March 31, 2025; and (ii) the increase of average level of salary, as we have hired more experienced employees, such as responsible officers, representatives and senior management members, to strengthen our subsidiaries' capabilities to support the preparation of the IPO and the process of business expansion. Share-based compensation expenses Our share-based compensation expenses decreased by 19.7%, from approximately US$8.8 million for the fiscal year ended March 31, 2025, to approximately US$7.1 million for the fiscal year ended March 31, 2026, which was attributable to the adoption of the 2024 Global Equity Incentive Plan and the granting of certain RSUs to eligible employees. Our share-based compensation expenses increased to $8.8 million for the fiscal year ended March 31, 2025, which was attributable to the adoption of our 2024 Global Equity Incentive Plan and the granting of certain RSUs to eligible employees. Professional service fees Our professional service fees increased by 46.6%, from approximately US$1.7 million for the fiscal year ended March 31, 2025 to approximately US$2.6 million for the fiscal year ended March 31, 2026, which was primarily attributable to the rising demand for Hong Kong market research from the Company during the fiscal year ended March 31, 2026 in view of the booming trading demand. Our professional service fees decreased by approximately 10.8%, from approximately US$2.0 million for the fiscal year ended March 31, 2024 to approximately US$1.7 million for the fiscal year ended March 31, 2025, which was primarily attributable to the decrease in expenses relating to the Company's bond distribution business during the fiscal year ended March 31, 2025. Market information Our market information expenses increased by 62.1%, from approximately US$0.9 million for the fiscal year ended March 31, 2025 to approximately US$1.4 million for the fiscal year ended March 31, 2026, as the market information expenses increased alongside with the increase in trading volume and we expanded the types of market data subscription in order to support the growth and enhancement of WSI's securities brokerage business. Our market information expenses increased by 51.7%, from approximately US$0.6 million for the fiscal year ended March 31, 2024 to approximately US$0.9 million for the fiscal year ended March 31, 2025, as the market information expenses increased alongside the increase in trading volume and we expanded the types of market data subscriptions in order to support the growth and enhancement of WSI's securities brokerage business. Research and development expenses Our research and development expenses increased by 69.8%, from approximately US$0.4 million during the fiscal year ended March 31, 2025 to approximately US$0.7 million for the fiscal year ended March 31, 2026, which was primarily attributable to external procurements and purchases that the Company incurred for its initiatives in AI related infrastructure and functionality upgrades. Our research and development expenses of $0.4 million during the fiscal year ended March 31, 2025 was primarily attributable to external procurements and purchases that the Company incurred for its initiatives in AI related infrastructure and functionality upgrades. Allowance for expected credit losses Our allowance for expected credit losses for the year ended March 31, 2026 was approximately US$1.3 million, primarily reflecting an allowance of US$1.1 million for expected credit losses under ASC 326 on aged software licensing and related support service receivables previously due from WGI, which receivables became uncollateralized after that customer relationship ended in October 2025. In addition, we recognized a full allowance of approximately US$0.9 million on the receivable arising from the divestment of our 55% interest in LeFeng Hainan Private Equity Fund Management Limited ("LeFeng"). In February 2024, WSI, through equity method investment at the cost of RMB5,500,000, acquired a 55% interest in LeFeng. On October 10, 2024, WSI and the sole director of LeFeng (the "Purchaser") entered into a share transfer agreement, pursuant to which WSI agreed to sell and the Purchaser agreed to purchase the 55% equity interest in LeFeng for a consideration of HK$7,000,000 (equivalent to approximately US$900,000). After offsetting the gain on this divestiture, the net impairment recognized during the year was approximately US$0.2 million. Marketing fees Marketing expenses increased from nil for the fiscal year ended March 31, 2025 to approximately US$0.8 million for the fiscal year ended March 31, 2026. This increase was primarily attributable to the intensified marketing efforts following the Company's IPO since April 2025, which were undertaken to support brand awareness and customer acquisition, in line with the expanded scale of its operations and the significant growth in total revenues during the year. Other income (loss) We recorded other loss of approximately US$0.6 million and other loss of approximately US$1.2 million for the fiscal years ended March 31, 2026 and 2025, respectively. Such decrease in loss was primarily because of an increase in income from the foreign currency spread for the fiscal year ended March 31, 2026. We recorded other loss of approximately US$1.2 million and US$0.007 million for the fiscal years ended March 31, 2025 and 2024, respectively. Such increase in other loss was primarily because an equity in losses of equity method investment increased to $0.6 million and impairment loss on investment increased to $0.6 million for the fiscal year ended March 31, 2025. Net income (loss) As a result of the foregoing, we recorded a net loss of approximately US$15.2 million, a net loss of US$12.0 million and a net income of US$2.5 million for the fiscal years ended March 31, 2026, 2025 and 2024, respectively. B. Liquidity and Capital Resources As of the date of this annual report, we have financed our operating and investing activities through cash generated from operating activities, loans provided by a related party and capital contributions by our shareholders. As of March 31, 2026, 2025, and 2024, we had cash and cash equivalents of approximately US$10.4 million, US$7.7 million, and US$4.9 million, respectively. Our cash and cash equivalents primarily consist of cash on hand and deposits with banks or other financial institutions, which are unrestricted for withdrawal or use, and which have original maturities of three months or less. We believe that our current cash and cash equivalents and forecasted net cash flows will be sufficient to meet our forecasted working capital requirements and capital expenditures in the ordinary course of business over the next twelve months following the fiscal year ended on March 31, 2026. We intend to finance our future working capital requirements primarily from cash generated from operating activities, and then from funds raised from financing activities, if necessary. We believe that our current cash and cash equivalents, forecasted net cash flows, and our net proceeds from our IPO will be sufficient to meet our forecasted working capital requirements and capital expenditures in the ordinary course of business beyond the next twelve months following the fiscal year ended on March 31, 2026. Our future capital requirements depend on many factors, including our growth rate, the continuing market acceptance of our offerings, the timing and extent of spending to support our efforts to develop our products and services, the expansion of sales and marketing activities, and the expansion and penetration of our business presence into different geographic regions and markets. To enhance our liquidity position or increase our cash reserve for future investments or operations through additional financing activities, we may in the future seek equity financing or obtain credit facilities. The issue of additional equity securities, including convertible debt securities, would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all. Cash Flow Analysis Cash Flows for the Fiscal Years ended March 31, 2026, 2025 and 2024 For the years ended March 31, 2026 2025 2024 US$ US$ US$ Net cash provided by (used in) operating activities $ (7,060 , 432 ) $ 359,965 $ (1,847,147 ) Net cash used in investing activities (2,030,002 ) (13,744 ) (8,209,437 ) Net cash provided by (used in) financing activities 19,577,861 2,756,121 (8,299,468 ) Effect of exchange rate changes (113,481 ) 145,791 148,996 Net increase (decrease) in cash, cash equivalents, cash segregated for regulatory requirements and restricted cash 10,373,946 3,248,133 (18,207,056 ) Cash, cash equivalents and cash segregated for regulatory requirements at the beginning of the year 13,900,319 10,652,186 28,859,242 Cash, cash equivalents and cash segregated for regulatory requirements at the end of the year $ 24,274,265 $ 13,900,319 $ 10,652,186 Operating Activities Net cash used in operating activities was approximately US$7.1 million for the fiscal year ended March 31, 2026, which primarily reflected our net loss of approximately US$15.1 million as mainly adjusted for 1) depreciation and amortization expenses of approximately US$0.2 million; 2) the non-cash equity in losses of equity method investment of US$0.03 million and the non-cash impairment loss on investment of US$0.1 million; 3) non-cash share-based compensation expenses of US$7.1 million; 4) non-cash depreciation and amortization expenses of US$0.5 million; and 5) changes in working capital. Adjustments for changes in working capital primarily consisted of (i) an increase of approximately US$8.6 million in payables to clients; (ii) an increase of approximately US$5.5 million in payables to brokers and clearing organization; (iii) an increase of approximately US$9.6 million in receivables from clients; (iv) an increase of approximately US$2.6 million in financial instruments owned, at fair value, US$1.2 million in other receivables, and (v) an increase of approximately US$1.2 million in payables of software licensing and related support services due to Shenzhen Jinhui. Net cash provided by operating activities was approximately US$0.4 million for the fiscal year ended March 31, 2025, which primarily reflected our net loss of approximately US$12.0 million as mainly adjusted for 1) the deferred tax expense of approximately US$0.2 million; 2) the non-cash lease expense of approximately US$0.1 million; 3) the non-cash loss on share of equity investment of US$ 0.6 million and the non-cash loss on impairment of US$ 0.6 million; 4) non-cash share-based compensation expenses of US$8.8 million; 5) non-cash depreciation and amortization expenses of US$0.1 million; and 6) changes in working capital. Adjustments for changes in working capital primarily consisted of (i) a decrease of approximately US$7.9 million in payable to clients; (ii) an increase of approximately US$5.1 million in payables to brokers and clearing organization; (iii) a decrease of approximately US$6.6 million in receivables from clients; (iv) an increase of approximately US$1.4 million in receivables from broker-dealers and clearing organization; (v) an increase of approximately US$0.6 million in receivables from software licensing and related support services; and (vi) an increase of approximately US$1.0 million in due to Shenzhen Jinhui. Net cash used in operating activities was approximately US$1.8 million for the fiscal year ended March 31, 2024, which primarily reflected our net income of approximately US$2.5 million as mainly adjusted for 1) the deferred tax expense of approximately US$0.4 million; 2) the non-cash lease expense of approximately US$0.4 million; and 3) changes in working capital. Adjustments for changes in working capital primarily consist of (i) an increase of approximately US$2.0 million in payables to clients; (ii) a decrease of approximately US$3.3 million in payables to brokers and clearing organization; (iii) an increase of approximately US$7.2 million in receivables from clients; (iv) a decrease of approximately US$3.9 million in receivables from broker-dealers and clearing organization; and (v) an increase of approximately US$0.2 million in due to Shenzhen Jinhui. Investing Activities Net cash used in investing activities for the fiscal year ended March 31, 2026 was approximately US$2.0 million comprising (i) US$1.1 million for the purchase of investment in equity securities at NAV, and (ii) US$0.8 million for a convertible promissory note due from PandaAI Quantum Holdings Limited, with the remaining balance used to purchase property and equipment. Net cash used in investing activities for the fiscal year ended March 31, 2025 was approximately US$0.01 million which was used to purchase property and equipment. Net cash used in investing activities for the fiscal years ended March 31, 2024 was approximately US$8.2 million, approximately US$7.5 million of which was attributable to payment to purchase investments, approximately US$0.4 million of which was attributable to a loan to ST MA Ltd, and approximately US$0.3 million of which was attributable to purchases of property and equipment. Financing Activities Net cash provided by financing activities for the fiscal year ended March 31, 2026 was approximately US$19.6 million, primarily representing the net proceeds from initial public offering and exercise of overallotment option of US$18.2 million, payment for deferred offering costs of approximately US$0.2 million, and the proceeds from bank overdrafts of approximately US$1.5 million. Net cash provided by financing activities for the fiscal year ended March 31, 2025 was approximately US$2.8 million, primarily representing the proceeds of issuance of ordinary share of US$5.1 million, payment for deferred offering costs of approximately US$0.6 million and the repayment of borrowings from a related party, Mr. Zhou Kai, of approximately US$1.8 million. Net cash used in financing activities for the fiscal year ended March 31, 2024 was approximately US$8.3 million, primarily for the repurchase and retirement of our ordinary shares of approximately US$6.0 million, payment for deferred offering costs of approximately US$0.8 million and the repayment of borrowings from a related party, Mr. Zhou Kai, of approximately US$1.5 million. Contractual obligations The following table sets forth our contractual obligations as of March 31, 2026: Payment due by schedule Less than 1 year 1-3 year more than 3 years Total US$ Operating leases 564,547 469,023 - 1,044,807 Operating leases represent the non-cancellable operating leases for our office space and employee residence, we also have a finance lease for a printer, which is deemed not material for accounting purposes. Other than those shown above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of March 31, 2026. Capital Expenditures We do not have any significant capital expenditures in the fiscal years ended March 31, 2026, 2025 and 2024. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us. C. Research and Development, Patents and Licenses, etc. See "Item 4. Information on the Company-B. Business Overview-Intellectual Property." D. Trend Information Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenue, income from continuing operations, profitability, liquidity, or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition. Factors Affecting Our Results of Operations The business of our subsidiaries and our operating results are influenced by general factors that affect the financial and securities services industry, including economic and political conditions, changes in demand for financial services, the needs of securities investment in global capital markets, the growth of the online brokerage and related service markets, changes in wealth and availability of funds of our existing and target customers, and regulatory changes governing the financial and securities services industry. In addition, our results of operations are more directly affected by certain company specific factors, including: Our ability to retain existing customers and develop new customers across different geographical locations Our brokerage and commission income mainly depends upon the trading volume, and in particular, the number of transactions introduced by securities broker customers. We aspire to provide small and medium-sized securities brokers with cost-effective solutions to digitize their trading platform APP and offer our insights into products and investments in the financial market, to enhance such brokers' competitiveness and their ability to attract and engage their end users. For example, WSI's share subscription services for Hong Kong initial public offerings ("HKIPO") built in the trading platform APP allows the brokers' end users to get access to high-quality HKIPO investment opportunities. However, there is no assurance that the customers will continue to retain WSI for its services. In addition, WSI's growth in trading volume also depends on its efforts in developing new customers. While WSI has provided services to securities brokers in Hong Kong and New Zealand and accumulated operational experience, WSI continues to strive to promote the adoption of its solutions and services by enhancing its product and service offerings to address the specific needs of customers across different geographical locations. As such, we believe WSI's expansion into different markets and regions with its offerings of products and services to more customers will likely lead to our revenue growth. Our ability to enhance our subsidiaries' existing services and expand product and service offerings Our results of operations are affected by, and our growth has depended on, our ability to enhance existing services and expand new product and service offerings to meet customers' demands and our ability to enhance their usage and user experience. WSI offers its customers a variety of securities traded on the Hong Kong Stock Exchange and the U.S. major stock exchanges. With WSI's footprint expanding in different markets and regions, we have made and will continue to make substantial efforts to strengthen WSI's securities brokerage services, by exploring and offering new categories of tradable products with demand potential to the customers and their end users. We aim to offer a more diversified array of investment products, such as securities traded in other stock exchanges and to leverage WSI's customer networks to seek additional cross-selling opportunities in our subsidiaries' services and enhance customers' loyalty. For example, on June 8, 2023, WSI entered into a share subscription agreement to acquire less than 1% of Series C preferred shares of New Markets (BVI) Limited, the holding company of The Micro Connect, a new financial market exchange platform in Macau for investing and trading of Daily Revenue Contracts (DRCs), for a total consideration of US$6.8 million. Pursuant to the shareholders agreement dated August 1, 2023 entered into by and among New Markets (BVI) Limited, being the holding company of The Micro Connect, the founders of The Micro Connect, WSI and other investors thereto, WSI and other investors are subject to pre-emptive rights and transfer restrictions set forth thereunder. We aim to incorporate the DRCs trading function in WSI's trading platform APP and, as of the date of this annual report, because the parties have not entered into any formal agreement, there remains uncertainty and no guarantee that WSI will ever be able to integrate the trading function of The Micro Connect's Daily Revenue Contracts in WSI's trading platform APP and publicly offer such function to its users. Subsequently, during fiscal year ended March 31, 2024, WSI has sold 29.5%, 19.2% and 51.3% of the shares it owned in The Micro Connect to Mr. Zhou Kai, who is a related party of us, a third party, and the Company respectively, and for US$2.0 million, US$1.3 million and US$3.5 million, respectively, with no gain or loss recognized. On the other hand, we have allocated resources to the development of asset management business by launching or planning to launch funds with different types of investments portfolios to expand customers' investment options and to expand our variety of service offerings by applying for applicable licenses from the HKSFC. We anticipate that the proper development of our asset management and other services will broaden our revenue base by generating asset management fees and expanding the types of service offered to the customers which we believe could lead to synergistic growth in WSI's securities brokerage services. We believe that our capability for enhancing existing services and developing new products and services will enable us to capture new market opportunities and diversify our sources of revenue. Failure to successfully enhance the existing services and broaden future product and service offerings could adversely affect our operating results and we may not be able to recoup the costs of developing and launching new products and services. Our ability to adopt a competitive pricing strategy and effective resources allocation Our operating income is dependent on our pricing strategy and resource allocation. We face competition from financial service providers of various sizes which offer similar range of services. Intensified competition may create an unfavorable pricing environment in the markets in which our subsidiaries operate. Our ability to adopt a competitive pricing strategy in different markets and adjust pricing strategy on a timely basis for market demand, while leaving room for a healthy margin, is critical to retaining existing customers, achieving market expansion and maintaining our profitability. While we believe WSI has been successful in attracting and retaining some of its top customers with the competitive pricing strategy, we will continue to closely monitor the customers' perception on our subsidiaries' services and will endeavor to adopt competitive pricing strategies based on our understanding of the markets and needs of customers. Ability to effectively maintain our development cost curve Software licensing and related support outsourcing cost was the eighth largest category of costs and expenses that we incurred in our operations for the fiscal year ended March 31, 2026, compared with that being the fifth largest costs and expenses for the fiscal year ended March 31, 2025. Our ability to secure ample technology and product development service supply with low cost is underpinned by the outsourced software licensing and related support services provided by a sub-contractor. Our senior management understands the critical needs of the small and medium-sized securities brokers as well as the complex and continuously evolving global landscape of competition. They strive to build extensive connections with software services suppliers, to give WSI a cost advantage for the APP development in software licensing and related support services among our competitors. We believe our current and future cost-saving efforts or our outsourcing strategy in this regard is effective for optimizing our development cost curve. Our ability to attract and retain high caliber team members with global vision and industry insights The management of our subsidiaries' operations and the strategic development of the business of our subsidiaries are largely attributable to the global vision and industry insights of our management team and its ability to assess customers' demands and industry technology development trends, and identify, develop and commercialize new initiatives for services and solutions in a timely and cost-effective manner. We have a global visionary team that is tech savvy and equipped with industry knowledge. We rely on our employees to provide reliable, quality and customized services to the customers, and we believe that our team members have established strong relationships with, and know the needs of, local securities brokers in different jurisdictions and geographic locations. In addition to maintaining relationships with existing customers, we also rely on them to generate user referrals. We plan to continue to recruit, retain and motivate talented employees while controlling our personnel-related expenses, including share-based compensation expenses. There is no guarantee that they will, or are willing to, continue to remain employed with us for a certain period of time as we expect. Were they to determine to cease their engagements with us, or enter into material variations of their existing terms of engagement, our operating performance and financial results would be materially and adversely affected. Our ability to navigate through uncertainties in macro-economic and political conditions and regulatory environment in the markets we operate Economic and political conditions, which are beyond our control, such as macroeconomic and monetary policies, legislation and regulations affecting the financial and securities industries, upward and downward trends in the business and financial sectors, inflation, currency fluctuations, availability of short-term and long-term funding sources, cost of funding and the level and volatility of interest rates could positively or negatively impact our revenues and profitability. Our operations, through our subsidiaries, are located in Hong Kong. Accordingly, the business of our subsidiaries, and our prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic and social conditions in Hong Kong and Mainland China generally and by continued economic growth in Hong Kong and Mainland China as a whole. Economic conditions in Hong Kong and Mainland China are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may affect potential customers' confidence in financial markets as a whole and have a negative impact on the business of our subsidiaries, and our results of operations and financial condition. In addition, brokerage and other financial services are highly regulated in Hong Kong. We are subject to the relevant laws and regulations, in particular, the HKSFO, under the supervision of the HKSFC. Any such change or tightening of regulations and/or requirements may require us to incur additional costs for compliance and our ability to carry on the business activities of our subsidiaries. Moreover, any non-compliance with applicable laws, regulations, guidance or codes or negative findings made by the regulators may result in fines, disciplinary actions against us, or suspension of revocation of some or all of our registrations or licenses for carrying on the business activities of our subsidiaries. Accordingly, the business of our subsidiaries, and our reputation, financial condition and results of operations might be materially and adversely affected. E. Critical Accounting Estimates Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with the generally accepted accounting principles in the United States ("U.S. GAAP"), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. We continue to evaluate the estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this annual report reflect the more significant judgements and estimates used in preparation of our consolidated financial statements. Revenue recognition The Company generates its revenues as follows: Brokerage and commission income WSI earns fees and commissions from securities brokerage services based on a fixed rate for each transaction. When a customer executes a securities trading transaction, brokerage commission is recognized at a point in time when the performance obligation has been satisfied by the completion of trades and the service has been passed to the customer. Brokerage commission income is accrued on a trade-date basis because this is when the underlying financial instrument is identified, the pricing of brokerage service is agreed upon and the promised services are delivered to customers. The commission fees are directly charged from the customer's account when the transactions are settled. The securities trading transaction could not be cancelled once it is executed and is not refundable. Handling charge income arises from services such as clearing and settlement services, new share subscription services in relation to initial public offerings, and dividend collection services, are accrued on a trade-date basis or at the completion of transaction. Clearing and settlement service income is recognized at a point in time when the transactions are executed. The transaction price is determined to be a fixed percentage of the transaction amount. New share subscription handling income is recognized at the time when the performance obligation has been satisfied by a successfully completed IPO subscription on behalf of customers. The transaction price of new share subscription services is a fixed amount per IPO subscription order and no variable consideration exists in the transaction. Dividend collection handling income is recognized at the time when the performance obligation has been satisfied by receiving dividends by WSI on behalf of customers. When WSI receives the cash dividend distributed by the stocks on behalf of customers, the net dividend will be distributed and deposited into the account of the customers, after deducting the dividend collection handling fees. Dividend collection handling income is charged at a fixed percentage of dividend collected. Handling income is directly charged from the client's account when the transactions are settled. WSI also provides distribution services by acting as a manager, a placement agent or a non-syndicate capital market intermediary, to procure subscribers to subscribe and pay for bonds in principal amounts, in return for commission income. WSI enters into a distinct subscription agreement with its customers, i.e. corporate issuers, for the provision of distribution services. The distribution service is distinct and is identified as one performance obligation. As stipulated in the subscription agreement, WSI will charge a distribution commission income based on certain percentage of the funds raised in the transaction. For certain lower profile projects that will not be listed on relevant exchanges, WSI will reduce its exposure by entering non-syndicate capital market intermediary agreements with the global coordinators or a manager, as a sub-distributor for them. Revenue from providing bond distribution services to customers is recognized at a point in time when the transaction and the performance is completed, which is generally at the completion of the public offering, i.e., listing of the bond on relevant exchanges, or the acceptance by the global coordinator or lead manager for non-syndicate projects. During the year ended March 31, 2025, receivables from revenues related to bond distribution services were fully collected. WSI generally offers no discount to its brokerage and commission clients. Principal transactions and proprietary trading Transactions in proprietary securities and related revenue and expenses are recorded on a trade date basis. Securities owned are reported at fair value generally based upon quoted prices. Realized and unrealized changes in fair value are recognized in principal transactions, net in the period in which the change occurs. During the years ended March 31, 2026, 2025 and 2024, WSI reported principal transaction and proprietary trade income of $0.5 million, and trade income of $0.1 million and trade loss of $0.7 million, respectively. Interest income WSI earns interest income primarily from the margin financing services it offered in relation to the securities brokerage services. Margin financing services refer to the margin loans provided by WSI to its clients for their purchase of securities on the secondary market or for their subscription to shares offered under IPOs. WSI acts as a principal in such transactions. Interest income is recognized with a fixed percentage over the period that the financing amount is outstanding. Software licensing and related support services income WSI's and WTI's contracts typically involve the sales of on-premise licenses ("software licensing"), and often bundled with maintenance and support ("M&S") services, which are typically capable of being distinct. If goods or services are determined to be distinct, they are accounted for as separate performance obligations. Perpetual on-premise licenses of broker-dealer business related software permit customers to use the software as it exists. The licenses are usually priced as a fixed upfront fee based on the level of complexity and functionalities. The customers take possession of the software, which provides a mature interface to licensed broker-dealer companies for securities trading in a mobile application. Revenues from on-premise licenses are recognized at a point in time when the software is made available to the customer to download or use. WSI and WTI also provide maintenance and support services for customers who purchase on-premise licenses at the option of the customers. These services include troubleshooting, technical support, and the right to receive unspecified software updates. Revenues from maintenance and support services are recognized ratably over the term of the contracts because WSI and WTI are obligated to make the maintenance and support services available continuously throughout the contract period, and the customers simultaneously receive and benefit from these services throughout the contract period. WSI entered a bundled arrangement with Wealth Guardian Investment Limited ("WGI"), which includes three promises: (1) to deliver a software license, (2) and to provide customized modules and updates that are critical to the core functionality of the license and are essential to fulfilling the intended purpose of the license, and (3) to provide M&S services. The Company determines the customized modules and updates are highly interdependent or interrelated with the license and should be combined with the license as a single performance obligation. As WGI simultaneously received and benefited from the WSI's performance, obtained control of the initial software license and the customized modules and updates as soon as they were made available, the Company recognized the revenue of the performance obligation using the output method based on measurements of the value of the goods or services transferred to date relative to the remaining goods or services promised under the contract. The promise to provide M&S services at the option of WGI, including troubleshooting, technical support, unspecified software updates, and other related services, is a separate performance obligation from software licensing and the customized modules and updates since the M&S services are capable of being distinct and separately identifiable. As WGI continuously received and benefited from the M&S services, the Company recognized the revenue from the M&S services ratably over the term of the contract. Revenues under the bundled arrangements are allocated based on the relative stand-alone selling prices ("SSP") of on-premise license, customized modules and updates (if any), and maintenance and support services. The SSP for on-premise licenses is estimated based on observable transactions when those services are sold on a standalone basis. The SSP of M&S is typically estimated using the adjusted market assessment approach. The Company considers a competitor's pricing for similar services in the market, adjusted for the Company's position in the market, expected profit margin and cost structure. Contracts for software licensing and M&S services generally include a renewal option for the M&S services; however, the renewal option to acquire additional goods or services is neither free nor discounted and does not represent a material right. Contracts are generally fixed price and may be invoiced on a regular basis ranging from monthly to semi-annually, with standard payment terms ranging from 30 to 180 days. The timing of revenue recognition may differ from the timing of invoicing customers due to the existence of these invoicing practices as well as the requirement to recognize revenue on a relative stand-alone selling price basis. The Company elects as a practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component if the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service is one year or less. WSI and WTI act as principals in the forgoing contracts, as they are primarily responsible for fulfilling the promise to provide the goods or services to the customers. Expected Credit Losses on Accounts Receivable We maintain an allowance for expected credit losses on our accounts receivable, including receivables arising from software licensing and related support services, in accordance with ASC 326. The determination of the allowance requires significant judgment and involves estimating the expected credit losses over the contractual life of the receivables based on historical loss experience, current conditions, and reasonable and supportable forecasts. For software licensing and related support service receivables, which are generally unsecured, management also considers the aging of the balances, the customer's financial condition and payment history, any subsequent collections, and other relevant factors (including commercial dependence and available sources of repayment). Changes in these estimates or in the underlying assumptions could materially affect the amount of the allowance and our results of operations. Fair Value of Derivative Financial Instruments The Group's derivative financial instrument is a total return swap contract, which is recorded at fair value in the consolidated balance sheets (included in financial instruments owned, at fair value). Changes in the fair value of the total return swap, both realized and unrealized, are recognized in principal transactions and proprietary trading in the consolidated statements of operations. The fair value of the total return swap is generally determined based on the value of the underlying instruments and the terms of the contract. Determining the fair value requires significant judgment, including the selection of valuation techniques and the assessment of the reliability of observable market inputs. When quoted market prices for the underlying instruments are not available or are not considered reliable, the Group may use valuation models that incorporate unobservable inputs, which increases the level of estimation uncertainty. Changes in the fair value of the underlying instruments, interest rates, or other market factors could result in material gains or losses being recognized in the period in which they occur. Recent Accounting Pronouncements A list of recently issued accounting pronouncements relevant to us is included in Note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies", included elsewhere in this annual report.

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