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Xiao-I Corp

Xiao-I CorpAIXI财报

Nasdaq · 信息技术 · 服务-预包装软件

Xiao-i is a Chinese cognitive artificial intelligence enterprise founded in 2001.

What changed in Xiao-I Corp's 20-F — 2022 vs 2023

Top changes in Xiao-I Corp's 2023 20-F

556 paragraphs added · 453 removed · 345 edited across 5 sections

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

165 edited+63 added−42 removed534 unchanged
Risks Relating to Our Business and Industry ● We have had net losses (except for 2021) and negative cash flows from operating activities in the past, and we may not achieve or sustain profitability. ● If we fail to maintain and grow our customer base, keep our customers engaged through our products and solutions, our business growth may not be sustainable. ● If we fail to maintain and enhance the functions, performance, reliability, design, security, and scalability of our platforms to meet our customers’ evolving needs, we may lose our customers. ● If our products and solutions do not achieve sufficient market acceptance, our business and competitive position will suffer. ● If our expansion into new industries is not successful, our business, prospects and growth momentum may be materially and adversely affected. ● The market in which we participate is competitive, and if we do not compete effectively, our business, operating results and financial condition could be harmed. 1 ● If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences, our business may be materially and adversely affected. ● To support our business growth, we continue to invest heavily in our research and development efforts, the expenses of which may negatively impact our cash flow, and may not generate the results we expect to achieve. ● If our platforms experience material errors, defects or security issues, we may lose our customers, fail to honor our obligations in respect of our contract liabilities, and incur significant remedial costs. ● Our brand is integral to our success.
Risks Relating to Our Business and Industry ● We have had net losses (except for 2021) and negative cash flows from operating activities in the past, and we may not achieve or sustain profitability. ● If we fail to maintain and grow our customer base, keep our customers engaged through our products and solutions, our business growth may not be sustainable. ● If we fail to maintain and enhance the functions, performance, reliability, design, security, and scalability of our platforms to meet our customers’ evolving needs, we may lose our customers. ● If our products and solutions do not achieve sufficient market acceptance, our business and competitive position will suffer. ● If our expansion into new industries is not successful, our business, prospects and growth momentum may be materially and adversely affected. 1 ● The market in which we participate is competitive, and if we do not compete effectively, our business, operating results and financial condition could be harmed. ● If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards, changing regulations, and changing customer needs, requirements or preferences, our business may be materially and adversely affected. ● To support our business growth, we continue to invest heavily in our research and development efforts, the expenses of which may negatively impact our cash flow, and may not generate the results we expect to achieve. ● If our platforms experience material errors, defects or security issues, we may lose our customers, fail to honor our obligations in respect of our contract liabilities, and incur significant remedial costs. ● Our brand is integral to our success.
The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements.
The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements.
However, Xiao-I cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to it after considering the effectiveness of its auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as related to the audit of our financial statements.
However, Xiao-I cannot assure you whether Nasdaq or regulatory authorities would apply additional and more stringent criteria to it after considering the effectiveness of its auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as related to the audit of our financial statements.
Furthermore, there is a risk that Xiao-I’s auditor cannot be inspected by the PCAOB because of a position taken by an authority in a foreign jurisdiction in the future, and that the PCAOB may re-evaluate its determination as a result of any obstruction with the implementation of the Statement of Protocol.
Furthermore, there is a risk that Xiao-I’s auditor cannot be inspected by the PCAOB because of a position taken by an authority in a foreign jurisdiction in the future, and that the PCAOB may re-evaluate its determination as a result of any obstruction with the implementation of the Statement of Protocol.
Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism.
Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absence of a mutual and practical cooperation mechanism.
Therefore, you may not be able to enjoy the protection of such laws in an effective manner. ● As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards. ● Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including Ordinary Shares represented by the ADSs, at a premium, as a result, it could materially adversely affect the rights of holders of our ADSs. ● We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements. ● We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. ● We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” ● There can be no assurance we will not be a passive foreign investment company (“PFIC”), for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our ADSs or Ordinary Shares. ● We are not required to disclose compensation of Directors and Officers under Cayman Islands law. 7 Holding Foreign Companies Accountable Act Pursuant to the HFCAA if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
Therefore, you may not be able to enjoy the protection of such laws in an effective manner. ● As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards. ● Our articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including Ordinary Shares represented by the ADSs, at a premium, as a result, it could materially adversely affect the rights of holders of our ADSs. ● We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements. ● We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies. ● We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an “emerging growth company.” ● There can be no assurance we will not be a passive foreign investment company (“PFIC”), for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. investors in our ADSs or Ordinary Shares. ● We are not required to disclose compensation of Directors and Officers under Cayman Islands law. 8 Holding Foreign Companies Accountable Act Pursuant to the HFCAA if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following: ● variations in our net revenue, earnings and cash flows; ● announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; ● announcements of new offerings and expansions by us or our competitors; ● changes in financial estimates by securities analysts; ● detrimental adverse publicity about us, our shareholders, affiliates, directors, officers or employees, our business model, our services or our industry; ● announcements of new regulations, rules or policies relevant for our business; ● additions or departures of key personnel; ● release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and ● potential litigation or regulatory investigations.
In addition to market and industry factors, the price and trading volume for the ADSs may be highly volatile for factors specific to our own operations, including the following: ● variations in our net revenue, earnings and cash flows; ● announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors; ● announcements of new offerings and expansions by us or our competitors; 48 ● changes in financial estimates by securities analysts; ● detrimental adverse publicity about us, our shareholders, affiliates, directors, officers or employees, our business model, our services or our industry; ● announcements of new regulations, rules or policies relevant for our business; ● additions or departures of key personnel; ● release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and ● potential litigation or regulatory investigations.
These exemptions include: ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002; 8 ● not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); not being required to submit some executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes;” and ● not being required to disclose some executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
These exemptions include: ● not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002; ● not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis); not being required to submit some executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency” and “say-on-golden parachutes;” and ● not being required to disclose some executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
Any intellectual property litigation to which we become a party may require us to do one or more of the following: ● cease selling, licensing, or using products or features that incorporate the intellectual property rights that we allegedly infringe, misappropriate, or violate; ● make substantial payments for legal fees, settlement payments, or other costs or damages, including indemnification of third parties; 17 ● obtain a license or enter into a royalty agreement, either of which may not be available on reasonable terms or at all, in order to obtain the right to sell or use the relevant intellectual property; or ● redesign the allegedly infringing products to avoid infringement, misappropriation, or violation, which could be costly, time-consuming, or impossible.
Any intellectual property litigation to which we become a party may require us to do one or more of the following: ● cease selling, licensing, or using products or features that incorporate the intellectual property rights that we allegedly infringe, misappropriate, or violate; ● make substantial payments for legal fees, settlement payments, or other costs or damages, including indemnification of third parties; ● obtain a license or enter into a royalty agreement, either of which may not be available on reasonable terms or at all, in order to obtain the right to sell or use the relevant intellectual property; or ● redesign the allegedly infringing products to avoid infringement, misappropriation, or violation, which could be costly, time-consuming, or impossible.
These developments could add uncertainties to our offering and listing on the Nasdaq Global Market, and Nasdaq may determine to delist our securities if in the future the PCAOB determines that it cannot inspect or fully investigate our auditor.” Permissions, Approvals, Licenses and Permits Required from the PRC Government Authorities for Our Operations and for Offering of Our Securities to Foreign Investors The PRC operating entities’ operations in China are governed by PRC laws and regulations.
These developments could add uncertainties to our offering and listing on the Nasdaq Global Market, and Nasdaq may determine to delist our securities if in the future the PCAOB determines that it cannot inspect or fully investigate our auditor.” 9 Permissions, Approvals, Licenses and Permits Required from the PRC Government Authorities for Our Operations and for Offering of Our Securities to Foreign Investors The PRC operating entities’ operations in China are governed by PRC laws and regulations.
Given that the above mentioned newly promulgated laws, regulations and policies were recently promulgated or issued, and have not yet taken effect (as applicable), their interpretation, application and enforcement are subject to substantial uncertainties. The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
Given that the above mentioned newly promulgated laws, regulations and policies were recently promulgated or issued, and have not yet taken effect (as applicable), their interpretation, application and enforcement are subject to substantial uncertainties. The custodians or authorized users of our controlling non-tangible assets, including seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
Given recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
Recent statements by the Chinese government indicating an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, any such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or become worthless.
The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information. 33 In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States.
The PRC Data Security Law also provides for a national security review procedure for data activities that may affect national security and imposes export restrictions on certain data an information. In early July 2021, regulatory authorities in China launched cybersecurity investigations with regard to several China-based companies that are listed in the United States.
In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. 43 Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.
In addition, in your capacity as an ADS holder, you will not be able to call a shareholders’ meeting. Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests.
In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in all cases the types of content that could result in our liability as a platform operator. Advertisements shown on our platform may subject us to penalties and other administrative actions.
In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in all cases the types of content that could result in our liability as a platform operator. 33 Advertisements shown on our platform may subject us to penalties and other administrative actions.
Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. 41 Risks Relating to the ADSs In the following discussion of risks relating to the ADSs “we,” “us,” or “our” refer to Xiao-I.
Such a judgment must be for a fixed sum and must also come from a “competent” court as determined by the private international law rules applied by the Hong Kong courts. Risks Relating to the ADSs In the following discussion of risks relating to the ADSs “we,” “us,” or “our” refer to Xiao-I.
We may also incur significant costs for using alternative providers or taking other actions in preparation for, or in response to, events that damage the third-party hosting services we use. 13 Furthermore, these third-party service providers may not continue to be available to us on commercially reasonable terms, or at all.
We may also incur significant costs for using alternative providers or taking other actions in preparation for, or in response to, events that damage the third-party hosting services we use. Furthermore, these third-party service providers may not continue to be available to us on commercially reasonable terms, or at all.
It is difficult to predict how market forces or the PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future. 39 Any significant depreciation of the RMB may materially adversely affect the value of, and any dividends payable on, our Ordinary Shares in U.S. Dollars.
It is difficult to predict how market forces or the PRC or U.S. government policy may impact the exchange rate between Renminbi and the U.S. dollar in the future. Any significant depreciation of the RMB may materially adversely affect the value of, and any dividends payable on, our Ordinary Shares in U.S. Dollars.
We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other holders or the availability of these securities for future sale will have on the market price of the ADSs. Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other holders or the availability of these securities for future sale will have on the market price of the ADSs. 49 Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights.
If we fail to effectively maintain, promote and enhance our brand, our business and competitive advantage may be harmed. ● Security breaches and attacks against our systems and network, and any failure to otherwise protect personal, confidential and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results of operations. ● We partially rely on third-party service providers to conduct our business and any interruption or delay in such third parties or our own failure may impair our customers’ experience. ● Our products and solutions rely on the stable performance of servers, and any disruption to our servers due to internal and external factors could diminish demand for our products and solutions, harm our business, our reputation and results of operations and subject us to liability. ● Our and our business partners’ business operations have been adversely affected by the COVID-19 outbreak, and may in the future continue to be affected by the COVID-19 outbreak. ● If the adoption of our products and solutions by our customers are slower than we expected, our business, results of operations and financial condition may be adversely affected. ● We may fail to conduct our sales and marketing activities in a cost-effective manner and we are subject to limitations in promoting our products and solutions. ● If we fail to provide high quality customer services, our brand, business, and results of operations may be harmed. ● We had a concentration of major customers during the years ended December 31, 2020, 2021 and 2022 (the “Track Record Period”) and if our existing major customers cease to engage our services, we may be unable to find new customers with similar attributable revenue within a reasonable time or at all. ● The intensifying competition, change in sector trend and landscape and government policies may have a direct impact on the industries where our clients operate their businesses, and negatively affect the stability of our clients, which may subsequently have negative impact on our business. ● Our reliance on a limited number of suppliers for certain essential services could adversely affect our ability to manage our business effectively and subsequently harm our business. ● We may fail to obtain or maintain all required licenses, permits and approvals to operate our business. ● We may fail to obtain, maintain and protect our intellectual property rights and proprietary information or prevent third parties from any unauthorized use of our technologies. 2 ● We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of business. ● We and our management may from time to time be subject to claims, disputes, lawsuits and other legal and administrative proceedings. ● Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our products and solutions and have a negative impact on our business. ● We are dependent on the continuous services of our senior management and other key employees.
If we fail to effectively maintain, promote and enhance our brand, our business and competitive advantage may be harmed. ● Security breaches and attacks against our systems and network, and any failure to otherwise protect personal, confidential and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results of operations. ● We partially rely on third-party service providers to conduct our business and any interruption or delay in such third parties or our own failure may impair our customers’ experience. ● Our products and solutions rely on the stable performance of servers, and any disruption to our servers due to internal and external factors could diminish demand for our products and solutions, harm our business, our reputation and results of operations and subject us to liability. ● Our and our business partners’ business operations have been adversely affected by the COVID-19 outbreak, and may in the future continue to be affected by the COVID-19 outbreak. ● If the adoption of our products and solutions by our customers are slower than we expected, our business, results of operations and financial condition may be adversely affected. ● We may fail to conduct our sales and marketing activities in a cost-effective manner and we are subject to limitations in promoting our products and solutions. ● If we fail to provide high quality customer services, our brand, business, and results of operations may be harmed. ● We had a concentration of major customers during the years ended December 31, 2021, 2022 and 2023 and if our existing major customers cease to engage our services, we may be unable to find new customers with similar attributable revenue within a reasonable time or at all. ● The intensifying competition, change in sector trend and landscape and government policies may have a direct impact on the industries where our clients operate their businesses, and negatively affect the stability of our clients, which may subsequently have negative impact on our business. 2 ● Our reliance on a limited number of suppliers for certain essential services could adversely affect our ability to manage our business effectively and subsequently harm our business. ● We may fail to obtain or maintain all required licenses, permits and approvals to operate our business. ● We may fail to obtain, maintain and protect our intellectual property rights and proprietary information or prevent third parties from any unauthorized use of our technologies. ● We may become subject to intellectual property disputes, which are costly and may subject us to significant liability and increased costs of business. ● We and our management may from time to time be subject to claims, disputes, lawsuits and other legal and administrative proceedings. ● Changes in laws and regulations related to the internet or changes in the internet infrastructure itself may diminish the demand for our products and solutions and have a negative impact on our business. ● We are dependent on the continuous services of our senior management and other key employees.
Any resulting liabilities or expenses or any changes to our products or solutions that we have to make to limit future liabilities may have a material adverse effect on our business, results of operations, and prospects. We and our management may from time to time be subject to claims, disputes, lawsuits and other legal and administrative proceedings.
Any resulting liabilities or expenses or any changes to our products or solutions that we have to make to limit future liabilities may have a material adverse effect on our business, results of operations, and prospects. 20 We and our management may from time to time be subject to claims, disputes, lawsuits and other legal and administrative proceedings.
Due to the uncertainties associated with the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in the PRC, it may be costly to adjust some of our business practice in order to comply with these laws, regulations, rules, guidelines and implementations, and any incompliance or associated inquiries, investigations and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, and/or materially and adversely affect our financial conditions, operations and business prospects. 40 Risks Relating to Doing Business in Hong Kong In the following discussion of risks relating to doing business in Hong Kong “we,” “us,” or “our” refer to the PRC operating entities.
Due to the uncertainties associated with the evolving legislative activities and varied local implementation practices of anti-monopoly and competition laws and regulations in the PRC, it may be costly to adjust some of our business practice in order to comply with these laws, regulations, rules, guidelines and implementations, and any incompliance or associated inquiries, investigations and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, and/or materially and adversely affect our financial conditions, operations and business prospects. 46 Risks Relating to Doing Business in Hong Kong In the following discussion of risks relating to doing business in Hong Kong “we,” “us,” or “our” refer to the PRC operating entities.
A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable. We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States.
A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere. 54 United States civil liabilities and certain judgments obtained against us by our shareholders may not be enforceable. We are a Cayman Islands exempted company and substantially all of our assets are located outside of the United States.
If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. 44 You may be subject to limitations on transfers of your ADSs.
If the depositary does not distribute the rights, it may, under the deposit agreement, either sell them, if possible, or allow them to lapse. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. You may be subject to limitations on transfers of your ADSs.
Any limitation on the ability of our WFOE to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 26 In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
Any limitation on the ability of our WFOE to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. 29 In addition, the Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.
Failure of the VIE’s PRC stock option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adversely affect our business. 38 PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using our available funds to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand the business of our PRC subsidiary and consolidated affiliated entities.
Failure of the VIE’s PRC stock option holders to complete their SAFE registrations may subject these PRC residents to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adversely affect our business. 43 PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using our available funds to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand the business of our PRC subsidiary and consolidated affiliated entities.
We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations, and we may not be able to recover our loss due to such misuse or misappropriation if the third party relies on the apparent authority of such employees and acts in good faith. 34 In the following discussion of risks relating to doing business in China “we,” “us,” or “our” refer to Xiao-I.
We may have to take corporate or legal action, which could involve significant time and resources to resolve and divert management from our operations, and we may not be able to recover our loss due to such misuse or misappropriation if the third party relies on the apparent authority of such employees and acts in good faith. 38 In the following discussion of risks relating to doing business in China “we,” “us,” or “our” refer to Xiao-I.
If any of our entities is deemed by governmental authorities to be operating without appropriate permits and licenses or outside of their authorized scopes of business or otherwise fail to comply with relevant laws and regulations, we may be subject to penalties and our business, financial condition, and results of operation may be materially and adversely affected. 16 We may fail to obtain, maintain and protect our intellectual property rights and proprietary information or prevent third parties from any unauthorized use of our technologies.
If any of our entities is deemed by governmental authorities to be operating without appropriate permits and licenses or outside of their authorized scopes of business or otherwise fail to comply with relevant laws and regulations, we may be subject to penalties and our business, financial condition, and results of operation may be materially and adversely affected. 19 We may fail to obtain, maintain and protect our intellectual property rights and proprietary information or prevent third parties from any unauthorized use of our technologies.
As of the date of this annual report, we have not commenced the application process for a Hong Kong tax resident certificate from the relevant Hong Kong tax authority, and there is no assurance that we will be granted such a Hong Kong tax resident certificate. 36 Even after we obtain the Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate.
As of the date of this annual report, we have not commenced the application process for a Hong Kong tax resident certificate from the relevant Hong Kong tax authority, and there is no assurance that we will be granted such a Hong Kong tax resident certificate. 40 Even after we obtain the Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate.
In addition, if any of such customers default or delay on their payment or settlement of our trade and other receivables, our liquidity, financial condition and results of operations may be adversely affected. 15 The intensifying competition, change in sector trend and landscape and government policies may have a direct impact on the industries where our clients operate their businesses, and negatively affect the stability of our clients, which may subsequently have negative impact on our business.
In addition, if any of such customers default or delay on their payment or settlement of our trade and other receivables, our liquidity, financial condition and results of operations may be adversely affected. 18 The intensifying competition, change in sector trend and landscape and government policies may have a direct impact on the industries where our clients operate their businesses, and negatively affect the stability of our clients, which may subsequently have negative impact on our business.
Failure to overcome any of these difficulties could harm our business. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country.
Failure to overcome any of these difficulties could harm our business. 22 In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country.
We elect to use this extended period. transition period, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. 50 We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
We elect to use this extended period. transition period, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. 58 We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
To the extent those chops are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.
To the extent those seals are not kept safe, are stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised and those corporate entities may be bound to abide by the terms of any documents so chopped, even if they were chopped by an individual who lacked the requisite power and authority to do so.
Key Information—D. Risk Factors —Risks Relating to Doing Business in China— The newly enacted HFCCA and the AHFCCA passed by the U.S. Senate, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
Key Information—D. Risk Factors —Risks Relating to Doing Business in China— The HFCCA and the AHFCCA passed by the U.S. Senate, all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 21 We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our business operations.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 24 We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our business operations.
The Foreign Investment Law and Implementation Regulations embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. 27 However, since these rules are relatively new, uncertainties still exist in relation to their interpretation.
The Foreign Investment Law and Implementation Regulations embody an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. 30 However, since these rules are relatively new, uncertainties still exist in relation to their interpretation.
These short attacks have, in the past, led to selling of shares in the market. Public companies that have substantially all of their operations in China have been the subject of short selling.
These short attacks have, in the past, led to selling of shares in the market. 53 Public companies that have substantially all of their operations in China have been the subject of short selling.
In addition to this mandatory company chop, companies may have several other chops which can be used for specific purposes. The chops of our PRC subsidiary, the VIE and its subsidiaries generally held securely by personnel designated or approved by us in accordance with our internal control procedures.
In addition to this mandatory company chop, companies may have several other seals which can be used for specific purposes. The seals of our PRC subsidiary, the VIE and its subsidiaries generally held securely by personnel designated or approved by us in accordance with our internal control procedures.
Additionally, our ADSs may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of the VIE that conducts all or substantially our operations. 23 These contractual arrangements may not be as effective as equity ownership in providing us with control over the VIE.
Additionally, our ADSs may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of the VIE that conducts all or substantially our operations. 26 These contractual arrangements may not be as effective as equity ownership in providing us with control over the VIE.
No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder. 45 The deposit agreement may be amended or terminated without your consent.
No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder. 52 The deposit agreement may be amended or terminated without your consent.
As a result, our ADSs may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of the VIE that conducts all or substantially our operations. 25 The contractual arrangements with the VIE are governed by PRC law.
As a result, our ADSs may decline in value dramatically or even become worthless should we become unable to assert our contractual rights over the assets of the VIE that conducts all or substantially our operations. 28 The contractual arrangements with the VIE are governed by PRC law.
It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for us. 22 Risks Relating to Our Corporate Structure In the following discussion of risks relating to our corporate structure, “we,” “us,” or “our” refer to Xiao-I.
It is unclear how long this designation will remain in place and what ramifications, if any, the designation will have for us. 25 Risks Relating to Our Corporate Structure In the following discussion of risks relating to our corporate structure, “we,” “us,” or “our” refer to Xiao-I.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations initiated outside China.
Shareholder claims or regulatory investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigation initiated outside China.
See “ Risk Factors — Risks Relating to Our Business and Industry — Our and our business partners’ business operations have been adversely affected by the COVID-19 outbreak, and may in the future continue to be affected by the COVID-19 outbreak. ” Economic substance legislation of the Cayman Islands may adversely impact us or our operations.
See “ Risk Factors — Risks Relating to Our Business and Industry — Our and our business partners’ business operations have been adversely affected by the COVID-19 outbreak, and may in the future continue to be affected by the COVID-19 outbrea k.” Economic substance legislation of the Cayman Islands may adversely impact us or our operations.
The laws and regulations of advertising are relatively new and evolving and there is substantial uncertainty as to the interpretation of “false advertisement” by the State Administration for Market Regulation (formerly known as the State Administration for Industry and Commerce), or the SAMR. The newly enacted HFCCA and the AHFCCA passed by the U.S.
The laws and regulations of advertising are relatively new and evolving and there is substantial uncertainty as to the interpretation of “false advertisement” by the State Administration for Market Regulation (formerly known as the State Administration for Industry and Commerce), or the SAMR. The HFCCA and the AHFCCA passed by the U.S.
In addition, in order to maintain the physical security of our chops, we generally have them stored in secured locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence.
In addition, in order to maintain the physical security of our seals, we generally have them stored in secured locations accessible only to authorized employees. Although we monitor such authorized employees, the procedures may not be sufficient to prevent all instances of abuse or negligence.
As a substantial amount of revenues were generated from a relatively small number of major customers during the Track Record Period, in the event that these existing major customers cease to engage our services and we are unable to find new customers with similar attributable revenue within a reasonable period of time or at all, our business and profitability may be adversely affected.
As a substantial amount of revenues were generated from a relatively small number of major customers, in the event that these existing major customers cease to engage our services and we are unable to find new customers with similar attributable revenue within a reasonable period of time or at all, our business and profitability may be adversely affected.
GAAP. 24 The contractual arrangements with the VIE and its shareholders may not be as effective as equity ownership in providing operational control. We have to rely on the contractual arrangements with the VIE and its shareholders to operate our business in China.
GAAP. 27 The contractual arrangements with the VIE and its shareholders may not be as effective as equity ownership in providing operational control. We have to rely on the contractual arrangements with the VIE and its shareholders to operate our business in China.
We have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that we obtained from third-party sources, and such information involves assumptions and liabilities.
We have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that we obtained from third-party sources, and such information involves assumptions and limitations.
Specifically, we are working to develop and implement a staffing plan for hiring additional accounting and finance personnel in 2023, hire additional qualified resources with appropriate knowledge and expertise to handle complex accounting issues and effectively prepare financial statements and conduct regular and continuous U.S. GAAP accounting and financial reporting training programs for our financial reporting and accounting personnel.
Specifically, we are still working to develop and implement a staffing plan for hiring additional accounting and finance personnel in 2024, hire additional qualified resources with appropriate knowledge and expertise to handle complex accounting issues and effectively prepare financial statements and conduct regular and continuous U.S. GAAP accounting and financial reporting training programs for our financial reporting and accounting personnel.
In addition, seven of our shareholders did not register according to the registration procedures stipulated in Circular 37 Registration of the SAFE when they conducted their other external investment activities unrelated to us.
In addition, as of 2023, seven of our shareholders did not register according to the registration procedures stipulated in Circular 37 Registration of the SAFE when they conducted their other external investment activities unrelated to us.
If any employee obtains, misuses or misappropriates our chops and seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations.
If any employee obtains, misuses or misappropriates our seals or other controlling non-tangible assets for whatever reason, we could experience disruption to our normal business operations.
Marcum Asia, whose audit report is included in this annual report, is headquartered in New York, New York, and, as of the date of this annual report, was not included in the list of PCAOB Identified Firms in the Determination Report.
Marcum Asia, is headquartered in New York, New York, and, as of the date of this annual report, was not included in the list of PCAOB Identified Firms in the Determination Report.
Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ADSs. ● If the chops of our PRC subsidiary, the VIE, is not kept safely, is stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised. ● We may lose the ability to use and enjoy assets held by the VIE that are critical to the operation of our business if the VIE declares bankruptcy or become subject to a dissolution or liquidation proceeding. ● Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations. ● Some of our shareholders are not in compliance with the PRC’s regulations relating to offshore investment activities by PRC residents, and as a result, the shareholders may be subject to penalties if we are not able to remediate the non-compliance.
Any limitation on the ability of our subsidiaries to make dividend payments to us, or any tax implications of making dividend payments to us, could limit our ability to pay our parent company expenses or pay dividends to holders of our ADSs. ● If the seals of our PRC subsidiary and the VIE are not kept safely, are stolen, or used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised. ● We may lose the ability to use and enjoy assets held by the VIE that are critical to the operation of our business if the VIE declares bankruptcy or become subject to a dissolution or liquidation proceeding. ● Substantial uncertainties exist with respect to the interpretation and implementation of the newly enacted PRC Foreign Investment Law and how it may impact the viability of our current corporate structure and business operations. ● Some of our shareholders are not in compliance with the PRC’s regulations relating to offshore investment activities by PRC residents.
If the chops of our PRC subsidiary, the VIE, is not kept safely, is stolen or are used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
If the seals of our PRC subsidiary and the VIE are not kept safely, are stolen, or used by unauthorized persons or for unauthorized purposes, the corporate governance of these entities could be severely and adversely compromised.
Risk Factors —Risks Relating to Doing Business in China—The approval, filing or other requirements of the CSRC or other PRC government authorities may be required under PRC laws.” Implications of Being an Emerging Growth Company and a Foreign Private Issuer Emerging Growth Company We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
Risk Factors —Risks Relating to Doing Business in China—The approval, filing or other requirements of the CSRC or other PRC government authorities may be required under PRC laws.” Implications of Being an Emerging Growth Company We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
Due to the limited number of relevant suppliers available in China, we rely on a limited number of suppliers for cloud, internet data center services and hardware. Our purchase from top-three suppliers in aggregate accounted for 62.5%, 79.2% and 66.8% of total purchase for the years ended December 31, 2020, 2021 and 2022, respectively.
Due to the limited number of relevant suppliers available in China, we rely on a limited number of suppliers for cloud, internet data center services and hardware. Our purchase from top-three suppliers in aggregate accounted for 79.2%, 66.8% and 73.2% of total purchase for the years ended December 31, 2021, 2022 and 2023, respectively.
We had a concentration of major customers during the years ended December 31, 2020, 2021 and 2022 (the “Track Record Period”) and if our existing major customers cease to engage our services, we may be unable to find new customers with similar attributable revenue within a reasonable time or at all.
We had a concentration of major customers during the years ended December 31, 2021, 2022 and 2023 and if our existing major customers cease to engage our services, we may be unable to find new customers with similar attributable revenue within a reasonable time or at all.
Moreover, our future capital needs may require us to sell additional equity or debt securities that may dilute our shareholders’ shareholdings or subject us to covenants that may restrict our operations or our ability to pay dividends. ● We have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that we obtained from third-party sources, and such information involves assumptions and liabilities. ● We have identified two material weaknesses in our internal control over financial reporting.
Moreover, our future capital needs may require us to sell additional equity or debt securities that may dilute our shareholders’ shareholdings or subject us to covenants that may restrict our operations or our ability to pay dividends. ● We have not independently verified the accuracy or completeness of data, estimates, and projections in this annual report that we obtained from third-party sources, and such information involves assumptions and liabilities. ● We have identified one material weakness in our internal control over financial reporting as of December 31, 2023.
SAT Bulletin 45 clarified certain issues in the areas of resident status determination, post-determination administration and competent tax authorities’ procedures. 35 According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its “ de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (1) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (2) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (3) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (4) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC.
According to SAT Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered as a PRC tax resident enterprise by virtue of having its “ de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following conditions are met: (1) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (2) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (3) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (4) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC.
Under the deposit agreement for the ADSs, if you do not vote, the depositary will deem that you have instructed the depositary to give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs at shareholders’ meetings unless we have timely provided the depositary with notice of meeting and related voting materials and ● we have instructed the depositary that we do not wish a discretionary proxy to be given; ● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; ● a matter to be voted on at the meeting would have a material adverse impact on shareholders; or ● the voting at the meeting is to be conducted via a show of hands unless voting by poll is required by the applicable listing rules or our articles of association.
Under the deposit agreement for the ADSs, if you do not vote, the depositary will deem that you have instructed the depositary to give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs at shareholders’ meetings unless we have timely provided the depositary with notice of meeting and related voting materials and ● we have instructed the depositary that we do not wish a discretionary proxy to be given; ● we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; ● a matter to be voted on at the meeting would have a material adverse impact on shareholders; or ● the voting at the meeting is to be conducted via a show of hands unless voting by poll is required by the applicable listing rules or our articles of association. 50 The effect of this discretionary proxy is that you cannot prevent our Ordinary Shares underlying your ADSs from being voted, except under the circumstances described above.
We will remain an emerging growth company until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $ $1.235billion; (ii) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt securities during any three-year period.
We will remain an emerging growth company until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion; (ii) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter; or (iv) the date on which we have issued more than $1 billion in non-convertible debt securities during any three-year period. 10 Implications of Being a Foreign Private Issuer We report under the Exchange Act as a non-U.S. company with foreign private issuer status.
We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. ● China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. ● PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law. ● Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. ● PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using our available funds to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand the business of our PRC subsidiary and consolidated affiliated entities. ● Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment. ● If additional remedial measures are imposed on major PRC-based accounting firms, including our independent registered public accounting firm, our financial statements could be determined not to be in compliance with the SEC requirements. ● We face uncertainties with respect to the enactment, interpretation and implementation of draft Anti-Monopoly Guidelines for the Internet Platform Economy Sector. 5 Risks Relating to Doing Business in Hong Kong ● We may be subject to uncertainty about any changes in the economic, political and legal environment in Hong Kong, and it is possible that most of the legal and operational risks associated with operating in the PRC may also apply to operations in Hong Kong in the future. ● Our operations in Hong Kong are governed by the laws and regulations in Hong Kong.
We face uncertainties regarding the reporting on and consequences of previous private equity financing transactions involving the transfer and exchange of shares in our company by non-resident investors. ● China’s M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China. ● PRC regulations relating to offshore investment activities by PRC residents may limit our PRC subsidiary’s ability to increase its registered capital or distribute profits to us or otherwise expose us to liability and penalties under PRC law. ● Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions. ● PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may delay us from using our available funds to make loans to our PRC subsidiary and consolidated affiliated entities, or to make additional capital contributions to our PRC subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand the business of our PRC subsidiary and consolidated affiliated entities. ● Fluctuation in the value of the RMB may have a material adverse effect on the value of your investment. ● If additional remedial measures are imposed on major PRC-based accounting firms, including our independent registered public accounting firm, our financial statements could be determined not to be in compliance with the SEC requirements. ● We face uncertainties with respect to the enactment, interpretation and implementation of draft Anti-Monopoly Guidelines for the Internet Platform Economy Sector.
Xiao-I’s ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to Xiao-I, may depend on the relevant positions of U.S. and Chinese regulators. Marcum Asia’s audit working papers related to Xiao-I are located in China.
Xiao-I’s ability to retain an auditor subject to the PCAOB inspection and investigation, including but not limited to inspection of the audit working papers related to Xiao-I, may depend on the relevant positions of U.S. and Chinese regulators.
Our R&D expenses incurred were US$4.2 million, US$5.4 million and US$24.0 million, respectively, for the years ended December 31, 2020, 2021 and 2022, accounting for 29.2%, 32.2% and 70.7% of our operating expenses for each of the corresponding periods. The industry in which we operate is subject to rapid technological changes and is evolving quickly in terms of technological innovation.
Our R&D expenses incurred were US$5.36 million, US$24.00 million and US$52.39 million, respectively, for the years ended December 31, 2021, 2022 and 2023, accounting for 32.2%, 70.7% and 85.4% of our operating expenses for each of the corresponding periods. The industry in which we operate is subject to rapid technological changes and is evolving quickly in terms of technological innovation.
We generated approximately 11.7%, 2.3% and 0.9% of our revenues from Hong Kong in fiscal year 2020,2021 and 2022, respectively.
We generated approximately 2.3%, 0.9% and 0.9% of our revenues from Hong Kong in fiscal year 2021, 2022 and 2023, respectively.
Further, there is uncertainty as to whether the courts of China would: ● recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or ● entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Further, there is uncertainty as to whether the courts of Hong Kong would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in Hong Kong against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Risks Relating to the ADSs ● Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of the ADSs for a return on your investment. ● A large, active trading market for the ADSs may not develop and you may not be able to resell your ADSs at or above the public offering price. ● The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. ● The sale or availability for sale of substantial amounts of ADSs could adversely affect their market price. ● Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights. ● Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests. ● You may not receive distributions on the ADSs or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you. ● Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. ● You may be subject to limitations on transfers of your ADSs. ● Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement. ● ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. ● The deposit agreement may be amended or terminated without your consent. ● Holders or beneficial owners of the ADSs have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement. 6 ● Techniques employed by short sellers may drive down the market price of the ADSs. ● If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ADSs and trading volume could decline. ● Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADSs. ● Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S.
If there is significant change to current political arrangements between mainland China and Hong Kong, the PRC government may intervene or influence our Hong Kong operations, which could result in a material change in our operations in Hong Kong. ● You may incur additional costs and procedural obstacles in effecting service of legal process, enforcing foreign judgments or bringing actions in Hong Kong against Xiao-I or its management named in the annual report based on Hong Kong laws. 6 Risks Relating to the ADSs ● Because we do not expect to pay dividends in the foreseeable future, you must rely on a price appreciation of the ADSs for a return on your investment. ● A large, active trading market for the ADSs may not develop and you may not be able to resell your ADSs at or above the public offering price. ● The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors. ● The sale or availability for sale of substantial amounts of ADSs could adversely affect their market price. ● Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise their rights. ● Except in limited circumstances, the depositary for our ADSs will give us a discretionary proxy to vote the Ordinary Shares underlying your ADSs if you do not vote at shareholders’ meetings, which could adversely affect your interests. ● You may not receive distributions on the ADSs or any value for them if such distribution is illegal or impractical or if any required government approval cannot be obtained in order to make such distribution available to you. ● Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. ● You may be subject to limitations on transfers of your ADSs. ● Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement. ● ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action. ● The deposit agreement may be amended or terminated without your consent. ● Holders or beneficial owners of the ADSs have limited recourse if we or the depositary fail to meet our respective obligations under the deposit agreement. ● Techniques employed by short sellers may drive down the market price of the ADSs. ● If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the ADSs and trading volume could decline. ● Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of the ADSs. 7 ● Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S.
There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet information services, online games, online audio-visual program services and related businesses requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review. 37 In the future, we may grow our business by acquiring complementary businesses.
There is no explicit provision or official interpretation stating that the merging or acquisition of a company engaged in the internet information services, online games, online audio-visual program services and related businesses requires security review, and there is no requirement that acquisitions completed prior to the promulgation of the Security Review Circular are subject to MOFCOM review.
Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions.
In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts may delay or inhibit our ability to complete such transactions.
Such failures could subject us to claims and proceedings, which could be costly and time-consuming. Our business, financial condition and results of operations could be adversely affected. We are dependent on the continuous services of our senior management and other key employees. If we fail to attract, retain and motivate qualified personnel, our business could be materially and adversely affected.
Such failures could subject us to claims and proceedings, which could be costly and time-consuming. Our business, financial condition and results of operations could be adversely affected. 21 We are dependent on the continuous services of our senior management and other key employees.
In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, and the fact that the PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to PRC subsidiaries or future capital contributions by us to our PRC subsidiary.
Since Circular 28 was issued only recently, its interpretation and implementation in practice are still subject to substantial uncertainties. 44 In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, and the fact that the PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans to PRC subsidiaries or future capital contributions by us to our PRC subsidiary.
For the years ended December 31, 2020, 2021 and 2022, the percentage of our revenue attributable to our largest customer amounted to 17.7%, 41.2% and 20.4%, respectively, while the percentage of our revenue attributable our five largest customers for the years ended December 31, 2021 and 2022 amounted to 42.8%, 67.1% and 58.4%, respectively.
For the years ended December 31, 2021, 2022 and 2023, the percentage of our revenue attributable to our largest customer amounted to 41.2%, 20.4% and 29.3%, respectively, while the percentage of our revenue attributable our five largest customers for the years ended December 31, 2021, 2022 and 2023 amounted to 67.1%, 58.4% and 69.7%, respectively.
Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer. RISK FACTORS An investment in Xiao-I’s ADSs involves significant risks.
Thus, even if we no longer qualify as an emerging growth company, but remain a foreign private issuer, we will continue to be exempt from the more stringent compensation disclosures required of companies that are neither an emerging growth company nor a foreign private issuer.
In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason. 51 Your rights to pursue claims against the depositary as a holder of ADSs are limited by the terms of the deposit agreement.
In circumstances involving serious violations by us, PRC governmental authorities may force us to terminate our advertising operations or revoke our licenses. 30 While we have made significant efforts to ensure that the advertisements shown on our platform are in full compliance with applicable PRC laws and regulations, we cannot assure you that all the content contained in such advertisements or offers is true and accurate as required by the advertising laws and regulations or otherwise in full compliance with applicable PRC laws and regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations.
While we have made significant efforts to ensure that the advertisements shown on our platform are in full compliance with applicable PRC laws and regulations, we cannot assure you that all the content contained in such advertisements or offers is true and accurate as required by the advertising laws and regulations or otherwise in full compliance with applicable PRC laws and regulations, especially given the uncertainty in the interpretation of these PRC laws and regulations.
However, the common law permits an action to be brought upon a foreign judgment. That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it.
That is to say, a foreign judgment itself may form the basis of a cause of action since the judgment may be regarded as creating a debt between the parties to it.
In addition, if the management team or key employees of an acquired company fail to perform as expected, this may affect the business performance of such acquired company and, in turn, have a material adverse effect on our business, financial conditions, and results of operations. 19 We may, in the future, grow and expand our international operations, which may expose us to significant risks.
In addition, if the management team or key employees of an acquired company fail to perform as expected, this may affect the business performance of such acquired company and, in turn, have a material adverse effect on our business, financial conditions, and results of operations.
These developments could add uncertainties to our offering and listing on the Nasdaq Global Market, and Nasdaq may determine to delist our securities if in the future the PCAOB determines that it cannot inspect or fully investigate our auditor. 4 ● It may be difficult for overseas regulators to conduct investigation or collect evidence within China. ● The approval, filing or other requirements of the CSRC or other PRC government authorities may be required under PRC laws. ● The Chinese government exerts substantial influence over the manner in which we must conduct our business activities and may intervene or influence our operations at any time, which could result in a material change in our operations and the value of Xiao-I’s ADSs. ● The custodians or authorized users of our controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets. ● Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment. ● There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. ● We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.
These developments could add uncertainties to our offering and listing on the Nasdaq Global Market, and Nasdaq may determine to delist our securities if in the future the PCAOB determines that it cannot inspect or fully investigate our auditor. ● It may be difficult for overseas regulators to conduct investigation or collect evidence within China. ● The approval, filing or other requirements of the CSRC or other PRC government authorities may be required under PRC laws. ● If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of Xiao-I’s ADSs to significantly decline or become worthless. ● The custodians or authorized users of our controlling non-tangible assets, including seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets. ● Under the PRC Enterprise Income Tax Law, we may be classified as a PRC “resident enterprise,” which could result in unfavorable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your investment. ● There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. 5 ● We face uncertainty with respect to indirect transfer of equity interests in PRC resident enterprises by their non-PRC holding companies.
Such lack of inspection or re-evaluation could cause trading in Xiao-I’s securities to be prohibited on a national exchange or in the over-the-counter trading market under the HFCAA, and, as a result, Nasdaq may determine to delist Xiao-I’s securities, which may cause the value of Xiao-I’s securities to decline or become worthless. 32 It may be difficult for overseas regulators to conduct investigation or collect evidence within China.
Such lack of inspection or re-evaluation could cause trading in Xiao-I’s securities to be prohibited on a national exchange or in the over-the-counter trading market under the HFCAA, and, as a result, Nasdaq may determine to delist Xiao-I’s securities, which may cause the value of Xiao-I’s securities to decline or become worthless.

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Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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To date, we have developed and commercialized six core technologies based on CIAI: (1) natural language processing, (2) speech processing, (3) computer vision, (4) machine learning, (5) affective computing and (6) data intelligence and hyperautomation. ● Natural Language Processing ● CIAI’s multilingual, natural language processing capability extracts and analyzes information, mines text, constructs knowledge, and performs knowledge representation and reasoning based on words, phrases, sentences, and text, providing solutions to the human-computer interaction needs of diverse enterprises and professional users. ● Speech Processing ● The hybrid architecture of Time-Delay Neural Network + Deep Feedforward Sequential Memory Network + attention, in combination with our vast corpus accumulation of more than ten years, has enabled us to train our intelligent voice technology for end-to-end application across various scenarios in numerous fields.
To date, we have developed and commercialized six core technologies based on CIAI: (1) natural language processing, (2) speech processing, (3) computer vision, (4) machine learning, (5) affective computing and (6) data intelligence and hyperautomation. 65 ● Natural Language Processing ● CIAI’s multilingual, natural language processing capability extracts and analyzes information, mines text, constructs knowledge, and performs knowledge representation and reasoning based on words, phrases, sentences, and text, providing solutions to the human-computer interaction needs of diverse enterprises and professional users. ● Speech Processing ● The hybrid architecture of Time-Delay Neural Network + Deep Feedforward Sequential Memory Network + attention, in combination with our vast corpus accumulation of more than ten years, has enabled us to train our intelligent voice technology for end-to-end application across various scenarios in numerous fields.
Advantages of Our Products and Services ● We develop and commercialize Metaverse-related offerings, including Virtual Humans and AR/VR. ● We help our clients with their digital transformation using our cognitive intelligence and AI technologies. ● We enable our customers to reap economies of scale by providing one-stop shop service from our extensive network of service hubs in their vicinity. ● Our deep-rooted attention to quality assurance in our product and service offerings puts us ahead of our competitors. ● We have a proven monetization model based on product differentiation, revenue source diversification, and customer loyalty. ● Our products and services meet the needs of different customers and we maintain frequent client engagement for continuous business development and customer loyalty cultivation. ● While our customer contracts vary, they generally represent multi-year engagements, giving us visibility into future revenue.
Advantages of Our Products and Services ● We develop and commercialize Metaverse-related offerings, including Virtual Humans and AR/VR. ● We help our clients with their digital transformation using our cognitive intelligence and AI technologies. ● We enable our customers to reap economies of scale by providing one-stop shop service from our extensive network of service hubs in their vicinity. ● Our deep-rooted attention to quality assurance in our product and service offerings puts us ahead of our competitors. 72 ● We have a proven monetization model based on product differentiation, revenue source diversification, and customer loyalty. ● Our products and services meet the needs of different customers and we maintain frequent client engagement for continuous business development and customer loyalty cultivation. ● While our customer contracts vary, they generally represent multi-year engagements, giving us visibility into future revenue.
It helps enterprise-level intelligent applications, improves work efficiency, optimizes user experience, and reduces enterprise operating costs. ● Intelligent Voice Platform ● Our intelligent voice platform (“IVP”) uses natural language processing (“NLP”), automatic speech recognition, voiceprint recognition, and text-to-speech technologies with human-computer interaction as its core, in combination with various business scenarios, to comprehensively create or enhance business capabilities such as intelligent speech solutions, thereby realizing the macro processes of intelligent IVP, intelligent outbound calls, speech analysis, agent assistance, and human-computer interaction. ● Hyperautomation Platform ● The hyperautomation platform innovatively uses low code technology in combination with agents to realize and expand vast capabilities of the traditional low code platform and Robotic Process Automation.
It helps enterprise-level intelligent applications, improves work efficiency, optimizes user experience, and reduces enterprise operating costs. ● Intelligent Voice Platform ● Our intelligent voice platform (“IVP”) uses natural language processing (“NLP”), automatic speech recognition, voiceprint recognition, and text-to-speech technologies with human-computer interaction as its core, in combination with various business scenarios, to comprehensively create or enhance business capabilities such as intelligent speech solutions, thereby realizing the macro processes of intelligent IVP, intelligent outbound calls, speech analysis, agent assistance, and human-computer interaction. 67 ● Hyperautomation Platform ● The hyperautomation platform innovatively uses low code technology in combination with agents to realize and expand vast capabilities of the traditional low code platform and Robotic Process Automation.
Additionally, the platform realizes the business value of conversational AI in a variety of application scenarios, including intelligent customer service, smart marketing, intelligent hardware, intelligent assistant, agent assistance, and intelligent human-computer training. 57 ● Knowledge Fusion Platform ● The knowledge fusion platform integrates various types of knowledge such as Q&A, documents, multimedia, information forms, business processes, knowledge graphs, and multimodal to assist enterprises in improving knowledge management capabilities, building intelligent service cores, supporting intelligent knowledge management, retrieval, recommendation, application assistance, cognitive reasoning, and other capabilities.
Additionally, the platform realizes the business value of conversational AI in a variety of application scenarios, including intelligent customer service, smart marketing, intelligent hardware, intelligent assistant, agent assistance, and intelligent human-computer training. ● Knowledge Fusion Platform ● The knowledge fusion platform integrates various types of knowledge such as Q&A, documents, multimedia, information forms, business processes, knowledge graphs, and multimodal to assist enterprises in improving knowledge management capabilities, building intelligent service cores, supporting intelligent knowledge management, retrieval, recommendation, application assistance, cognitive reasoning, and other capabilities.
We have built affective computing, analysis, and interactive processing capabilities that process real-time perception, intelligent planning, automatic simulation, and this technology has been widely used in various practical business scenarios. ● Data Intelligence and Hyperautomation ● Large-scale machine learning technology mines, analyzes, and processes massive amounts of data, the assets of which are comprehensively integrated to extract information contained therein.
We have built affective computing, analysis, and interactive processing capabilities that process real-time perception, intelligent planning, automatic simulation, and this technology has been widely used in various practical business scenarios. 66 ● Data Intelligence and Hyperautomation ● Large-scale machine learning technology mines, analyzes, and processes massive amounts of data, the assets of which are comprehensively integrated to extract information contained therein.
Among the many other Chinese competitors, our products’ global competitors include Apple Siri, Microsoft Cortana and Amazon Echo. To gain market share, we have built good customer relationships with major banks and government departments in China. In addition, we also seek customers from different industries to maintain a long-term collaboration relationship. 67 C. Organizational Structure.
Among the many other Chinese competitors, our products’ global competitors include Apple Siri, Microsoft Cortana and Amazon Echo. To gain market share, we have built good customer relationships with major banks and government departments in China. In addition, we also seek customers from different industries to maintain a long-term collaboration relationship. C. Organizational Structure.
In city public services, we integrate urban service resources, providing urban residents with a multi-modal human-computer interaction interface on all media channels, and comprehensively improve the intelligence level of urban services. Our Growth Strategy We intend to achieve our mission and further grow our business by pursuing the following strategies: ● Continue to improve cognitive technology capability .
In city public services, we integrate urban service resources, providing urban residents with a multi-modal human-computer interaction interface on all media channels, and comprehensively improve the intelligence level of urban services. 76 Our Growth Strategy We intend to achieve our mission and further grow our business by pursuing the following strategies: ● Continue to improve cognitive technology capability .
We applied in 2004, and in 2009 were authorized a patented technology numbered ZL200410053749.9 (a chatbot system), which represented the world’s leading level of intelligent voice at that time. 66 In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls.
We applied in 2004, and in 2009 were authorized a patented technology numbered ZL200410053749.9 (a chatbot system), which represented the world’s leading level of intelligent voice at that time. In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls.
We have established joint laboratories with the Institute of Software of the Chinese Academy of Sciences, East China Normal University, Hong Kong University of Science and Technology, and have established in-depth cooperative relations with Tsinghua University, Fudan University, Shanghai Jiaotong University, Beijing University of Posts and Telecommunications and Peking University. Competition The competition in the AI services industry is intense.
We have established joint laboratories with the Institute of Software of the Chinese Academy of Sciences, East China Normal University, Hong Kong University of Science and Technology, and have established in-depth cooperative relations with Tsinghua University, Fudan University, Shanghai Jiaotong University, Beijing University of Posts and Telecommunications and Peking University. 79 Competition The competition in the AI services industry is intense.
Marketing and Sales We have built our Xiao-i (Chinese: 小i机器人) brand through a multitude sales channels, including: ● industry trade shows, ● academic seminars, ● publicity of major milestones and achievements, and ● collaboration with relevant academic, governmental and industrial parties. With these approaches, we have successfully built our brand and expanded customer markets.
Marketing and Sales We have built our Xiao-i (Chinese: 小i机器人) brand through a multitude sales channels, including: ● industry trade shows, ● academic seminars, ● publicity of major milestones and achievements, and ● collaboration with relevant academic, governmental and industrial parties. 78 With these approaches, we have successfully built our brand and expanded customer markets.
It enables the construction industry to reduce the cost of drawing review, improve per-capita energy efficiency, empowers the construction industry value chain, and facilitates the transformation and upgrading of intelligence and automation. 58 ● Vision Analysis Platform ● The vision analysis platform uses a variety of computer vision-related technologies to apply OCR, detection, video, and image analysis, helps clients extract and mine valuable information contained in images, and realizes business automation, industrial defect detection, monitoring analysis, and other innovative applications encountered in specific business scenarios. ● Intelligent Hardware Support Platform ● The intelligent hardware support platform provides the framework of signal collection, processing, analysis, prediction, and more.
It enables the construction industry to reduce the cost of drawing review, improve per-capita energy efficiency, empowers the construction industry value chain, and facilitates the transformation and upgrading of intelligence and automation. ● Vision Analysis Platform ● The vision analysis platform uses a variety of computer vision-related technologies to apply OCR, detection, video, and image analysis, helps clients extract and mine valuable information contained in images, and realizes business automation, industrial defect detection, monitoring analysis, and other innovative applications encountered in specific business scenarios. 68 ● Intelligent Hardware Support Platform ● The intelligent hardware support platform provides the framework of signal collection, processing, analysis, prediction, and more.
This high performance framework is adaptable to various environments. 56 ● Machine Learning ● Machine learning methods offered by us include everything from traditional machine learning to the latest deep learning, reinforcement learning, active learning, transfer learning, and generative adversarial networks (“GAN”).
This high performance framework is adaptable to various environments. ● Machine Learning ● Machine learning methods offered by us include everything from traditional machine learning to the latest deep learning, reinforcement learning, active learning, transfer learning, and generative adversarial networks (“GAN”).
Beijing Blanstar Technology Co., Ltd., a company established and existing under the laws of the PRC (“Blanstar”), was the VIE’s major service provider for the year ended December 31, 2021 and 2022 accounting for 73.8% and 34.6% of the Company’s total purchases, respectively.
Beijing Blanstar Technology Co., Ltd., a company established and existing under the laws of the PRC (“Blanstar”), was the VIE’s major service provider for the year ended December 31, 2021, 2022 and 2023 accounting for 73.8%, 34.6% and 37.6% of the Company’s total purchases, respectively.
The following diagram illustrates the corporate legal structure of Xiao-I as of the date of this annual report. The following diagram illustrates the ownership of the VIE, Shanghai Xiao-i as of the date of this annual report.
The following diagram illustrates the corporate legal structure of Xiao-I as of the date of this annual report. 80 The following diagram illustrates the ownership of the VIE, Shanghai Xiao-i as of the date of this annual report.
We offer AI-based platforms, software tools and services that leverage voice-based assistants to facilitate strong interactions and engagement in different industries, including both small and medium enterprises and large enterprises. (2) Architectural Design AI services We provide professional architectural drawing review solutions.
We offer AI-based platforms, software tools and services that leverage voice-based assistants to facilitate strong interactions and engagement in different industries, including both small and medium enterprises and large enterprises. (2) Architectural Design AI service s We provide professional architectural drawing review solutions.
The revenue recognized of technical services for the Drawing Platform was US$1.51 million in 2021 and US$3.24 million in 2022, respectively. Our Suppliers We maintain good relationships with suppliers that have a good record of performance.
The revenue recognized of technical services for the Drawing Platform was US$1.51 million, US$3.24 million and nil in 2021, 2022 and 2023, respectively. Our Suppliers We maintain good relationships with suppliers that have a good record of performance.
For example, our commercialization in the field of intelligent drawing review has met the needs of the construction industry for drawing review through our artificial intelligence technology. ● Further strengthen the leading position in the metaverse related product s. We began to design and produce a virtual human in 2016.
For example, our commercialization in the field of intelligent drawing review has met the needs of the construction industry for drawing review through our artificial intelligence technology. ● Further strengthen the leading position in the metaverse related products . We began to design and produce a virtual human in 2016.
For example: (i) the AI industry is highly competitive, Baidu, Alibaba and Tencent are all in this field, (ii) urban public services cover a wide range of areas which makes it difficult to fully and deeply understand customers’ businesses and their needs and (iii) the company’s investment may be insufficient. 62 Opportunities ● These challenges have created tremendous and growing market opportunities for artificial intelligence solution services in China.
For example: (i) the AI industry is highly competitive, OpenAI, Microsoft, Meta, Baidu, Alibaba and Tencent are all in this field, (ii) urban public services cover a wide range of areas which makes it difficult to fully and deeply understand customers’ businesses and their needs and (iii) the company’s investment may be insufficient. 74 Opportunities ● These challenges have created tremendous and growing market opportunities for artificial intelligence solution services in China.
We have also carried out in-depth cooperation with well-known domestic universities to jointly develop the latest and cutting-edge technologies. 64 ● Further develop and create long-term sustainable commercialization opportunities through technology innovation, application combination innovation, and AI product diversificatio n.
We have also carried out in-depth cooperation with well-known domestic universities to jointly develop the latest and cutting-edge technologies. ● Further develop and create long-term sustainable commercialization opportunities through technology innovation, application combination innovation, and AI product diversification.
We will gradually expand our target customers from the previous major customers to small and medium-sized customers, to provide services for a wider range of customer groups. ● Increase hardware product s.
We will gradually expand our target customers from the previous major customers to small and medium-sized customers, to provide services for a wider range of customer groups. ● Increase hardware products .
For the year ended December 31, 2022, our total sales to our top 3 customers accounted for 20.4%, 11.1% and 10.3% of our revenues, respectively. China Construction Third Engineering Bureau Group Limited, a government owned enterprise (“China Construction”) accounted for 41.2% and 11.1% of our revenue for the year ended December 31, 2021 and 2022.
For the year ended December 31, 2023, our total sales to our top 3 customers accounted for 29.3%, 12.4% and 10.6% of our revenues, respectively. 77 China Construction Third Engineering Bureau Group Limited, a government owned enterprise (“China Construction”) accounted for 41.2% and 11.1% of our revenue for the year ended December 31, 2021 and 2022.
During the term of the Support Agreement, China Construction, with the consent of the VIE, may license the use of the Drawing Platform to third parties. In such event, the VIE shall be entitled to receive 30% of the license fee paid to China Construction by any third party.
During the term of the Support Agreement, China Construction, with the consent of the VIE, may license the use of the Drawing Platform to third parties. In such event, the VIE shall be entitled to receive 30% of the license fee paid to China Construction by any third party. The technical support service was completed in 2022.
We have master similar commercial arrangements in place with many of our customers, retaining customers over the long term. 61 Our Robust Ecosystem of Partnerships ● We have various regional sales teams including Shanghai, Beijing and Hong Kong. ● We maintain good relationships with suppliers that have a good record of performance. ● Our products cover large and medium-sized contact centers, financial institutions, communication operators, government services, industrial manufacturing, healthcare, and other customer groups. ● We build strong and long-standing customer relationships with large enterprises in China.
Our Robust Ecosystem of Partnerships ● We have various regional sales teams including Shanghai, Beijing and Hong Kong. ● We maintain good relationships with suppliers that have a good record of performance. ● Our products cover large and medium-sized contact centers, financial institutions, communication operators, government services, industrial manufacturing, healthcare, and other customer groups. ● We build strong and long-standing customer relationships with large enterprises in China.
We closely attend to the needs of our customers and respond to their feedback and requests through developing new solutions or adding advanced or optimized features in existing solutions. As of March 31, 2023, we have 214 R&D personnel, accounting for about 60.8% of our personnel, including 143 with bachelor’s degrees, 17 with master’s degrees and 7 with doctorates.
We closely attend to the needs of our customers and respond to their feedback and requests through developing new solutions or adding advanced or optimized features in existing solutions. As of March 31, 2024, we have 158 R&D personnel, accounting for about 56.2% of our personnel, including 104 with bachelor’s degrees, 17 with master’s degrees and 7 with doctorates.
By using computer vision, natural language processing technology and our unique map, image morphology processing, pattern recognition, image segmentation, image target detection, path planning, OCR and many other independent research and development technologies, combined with the rich professional experience in architectural design, we have launched AI products for blueprint review to achieve automation and intelligence, enabling the architecture industry to reduce the cost of reviewing blueprints, improving the efficiency, and cross-institution collaborative drawing review. 59 (3) Smart City We use natural language processing, data intelligence and other technologies to build a cognitive brain for smart city public services, and continuously improves the level of urban intelligence from social service efficiency and public experience.
By using computer vision, natural language processing technology and our unique map, image morphology processing, pattern recognition, image segmentation, image target detection, path planning, OCR and many other independent research and development technologies, combined with the rich professional experience in architectural design, we have launched AI products for blueprint review to achieve automation and intelligence, enabling the architecture industry to reduce the cost of reviewing blueprints, improving the efficiency, and cross-institution collaborative drawing review.
As of March 31, 2023, we have 214 R&D personnel, accounting for about 60.8% of our personnel, including 143 with bachelor’s degrees, 17 with master’s degrees and 7 with doctorates. Our primary services are software services provided by our cloud platform.
As of March 31, 2024, we have 158 R&D personnel, accounting for about 56.2% of our personnel, including 104 with bachelor’s degrees, 17 with master’s degrees and 7 with doctorates. Our primary services are software services provided by our cloud platform.
Our technologies are based, in significant part, upon our proprietary intellectual property portfolio. As of December 1, 2022, we have applied for 554 patents, 281 of which have been granted and we have obtained 225 registered trademarks and 130 computer software copyrights. In June 2020, the company passed the national intellectual property management system certification and obtained the certificate.
Our technologies are based, in significant part, upon our proprietary intellectual property portfolio. As of March 31, 2024, we have applied for 578 patents, 334 of which have been granted and we have obtained 256 registered trademarks and 138 computer software copyrights. In June 2020, the company passed the national intellectual property management system certification and obtained the certificate.
Therefore, Zhizhen Technology, the WFOE of Xiao-i Technology Limited, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign investment laws. 68 D. Property, Plants and Equipment. Our current principal executive offices are located in 7 th floor, Building 398, No. 1555 West, Jinshajiang Rd, Shanghai, China.
Therefore, Zhizhen Technology, the WFOE of Xiao-i Technology Limited, should be regarded as a foreign-invested enterprise and comply with both the Company Law and other applicable foreign investment laws. 81 D. Property, Plants and Equipment. Our current principal executive offices are located in 5th Floor, Building 2, No. 2570 Hechuan Road, Minhang District, Shanghai, China.
For the year ended December 31, 2020, our total sales to our top 2 customers accounted for 17.7% and 12.8% of our revenues, respectively. For the year ended December 31, 2021, our total sales to our top 2 customers accounted for 41.2% and 10.3% of our revenues, respectively.
For the year ended December 31, 2021, our total sales to our top 2 customers accounted for 41.2% and 10.3% of our revenues, respectively. For the year ended December 31, 2022, our total sales to our top 3 customers accounted for 20.4%, 11.1% and 10.3% of our revenues, respectively.
We lease offices in other cities where we operate with an aggregate area of approximately 4,022.4 square meters as of December 1, 2022.
We lease offices in other cities where we operate with an aggregate area of approximately 4,139.96 square meters as of March 31, 2024.
As of March 31, 2023, we have applied for 557 patents, 282 of which have been granted and have obtained 228 registered trademarks and 131 computer software copyrights.
As of March 31, 2024, we have applied for 578 patents, 334 of which have been granted and have obtained 256 registered trademarks and 138 computer software copyrights.
Hui Yuan is a recognized AI industry Key Opinion Leader and domain expert. ● Our team has deep technical expertise and proven track record of constant innovation. ● We have proven ability to attract and retain highly qualified talent.
Hui Yuan is a recognized AI industry Key Opinion Leader and domain expert. ● Our team has deep technical expertise and proven track record of constant innovation. ● We have proven ability to attract and retain highly qualified talent. 73 Challenges and Opportunities Unique challenges and opportunities are presented for us to achieve continued growth in sales in each of the customer industries in which we operate.
Subsequently, we, through our WFOE, entered into a series of contractual arrangements with Shanghai Xiao-i and its shareholders whereby we were established as the primary beneficiary of Shanghai Xiao-i for accounting purposes.
Subsequently, we, through our WFOE, entered into a series of contractual arrangements with Shanghai Xiao-i and its shareholders whereby we were established as the primary beneficiary of Shanghai Xiao-i for accounting purposes. We have recognized the net assets of Shanghai Xiao-i at historical cost with no change in basis in the consolidated financial statements upon the completion of this reorganization.
Additional properties include: ● Compatibility with cloud native and private or third-party cloud platforms; ● Ubiquitous perception layer connection enabling integration with the Internet of Things, the Internet, 5G, and dedicated networks; and ● Multidimensional data collection and integration, including spatiotemporal, channels, and community. 55 Aggregation Empowerment Platform Layer AI Core Technology Platform — Cognitive Intelligence Artificial Intelligence (CIAI) Using proprietary intellectual property technologies, we have independently developed CIAI, our core technology platform.
Additional properties include: ● Compatibility with cloud native and private or third-party cloud platforms; ● Ubiquitous perception layer connection enabling integration with the Internet of Things, the Internet, 5G, and dedicated networks; and ● Multidimensional data collection and integration, including spatiotemporal, channels, and community.
Infrastructure Layer Our infrastructure layer provides the informational support for our products and technologies. Typically built with third-party products and technologies, we integrate the information into the infrastructure layer.
With the participation of Hua Zang LLM, we reformed the product line into Model as a service (MaaS) and non-MaaS. Infrastructure Layer Our infrastructure layer provides the informational support for our products and technologies. Typically built with third-party products and technologies, we integrate the information into the infrastructure layer.
Our CIAI platform products and services are marketed and sold primarily to customers in the following industries: (1) Contact Center, (2) Finance, (3) Urban Public Service, (4) Construction, (5) Metaverse, (6) Manufacturing and (7) Smart Healthcare. ● The following diagram shows the estimated market size of the artificial intelligence market in 2026 in China, according to Frost & Sullivan: 63 Our Solutions We provide our AI solutions and services to the following industries: In the contact center industry, we provide internet service intelligent solutions, hotline intelligent solutions and artificial intelligence solutions.
The following diagram shows the estimated market size of the artificial intelligence market in 2026 in China, according to Frost & Sullivan: 75 Our Solutions We provide our AI solutions and services to the following industries: In the contact center industry, we provide internet service intelligent solutions, hotline intelligent solutions and artificial intelligence solutions.
Challenges and Opportunities Unique challenges and opportunities are presented for us to achieve continued growth in sales in each of the customer industries in which we operate. Challenges, generally we found: ● In the contact center industry, high labor costs and the requirement for continuous improvement create constant margin challenges.
Challenges, generally we found: ● In the contact center industry, high labor costs and the requirement for continuous improvement create constant margin challenges.
These following facilities currently accommodate our management headquarters, as well as most of our sales and marketing, research and development, and general and administrative activities: Location Area (Square Meter) Term Use Floor 2/3/5/6/7/8 and basement 06, No. 398, floor 3 and basement 09/10, No. 399, Lane 1555, Jinsha Jiangxi Road, Jiading District, Shanghai 2171.2 2020.7.13-2024.7.12 July 13, 2020 to July 12, 2024 Office B1/1/2/3, No. 383, Lane 1555, Jinsha Jiangxi Road, Jiangqiao Town, Jiading District, Shanghai 1148.76 April 18, 2019 to April 17, 2023 Office Room 905, building 1, No. 46, dongzhimenwai street, Dongcheng District, Beijing 163.45 January 1, 2022 to December 31, 2023 Office Unit 1845, No. 167, Linhe West Road, Tianhe District, Guangzhou 162.15 July 5, 2022 to July 31, 2025 Office Zhongtian, Changling North Road, guanshanhu District, Guiyang city No. 1, floor 8, unit 3, building 5, East Fifth tower, East District, financial and business district, zone B, convention and Exhibition City 378 March 15, 2022 to March 14, 2024
These following facilities currently accommodate our management headquarters, as well as most of our sales and marketing, research and development, and general and administrative activities: Location Area (Square Meter) Term Use Room 602, Room 502, Building 2, No. 2570 Hechuan Road, Minhang District, Shanghai 3814.46 November 18, 2023 to November 17, 2026 Office Room 905, building 1, No. 46, dongzhimenwai street, Dongcheng District, Beijing 163.45 January 1, 2024 to December 31, 2025 Office Unit 1845, No. 167, Linhe West Road, Tianhe District, Guangzhou 162.15 July 5, 2022 to July 31, 2025 Office
Our CIAI platform products and services are marketed and sold primarily to customers in the following industries: (1) Contact Center, (2) Finance, (3) Urban Public Service, (4) Construction, (5) Metaverse, (6) Manufacturing and (7) Smart Healthcare. 54 Product and Technology Overview Overall Architecture of Xiao-i Products and Technologies The overall architecture of our products and technologies are divided into three layers: (1) infrastructure, (2) aggregation empowerment platform and (3) domain application.
We believe we are well-positioned to capture the growing market opportunities due to the infrastructure we have created. Our platform products and services are marketed and sold primarily to customers in the following industries: (1) Contact Center, (2) Finance, (3) Urban Public Service, (4) Construction, (5) Metaverse, (6) Manufacturing and (7) Smart Healthcare.
Following the acquisition, Incesoft was dissolved by de-registering with local company registrar in accordance with PRC law in 2012. Since 2009, Shanghai Xiao-i has become a leading artificial intelligence (“AI”) company by building on its wide technology commercialization, brand recognition and culture of innovation in China.
Since 2009, Shanghai Xiao-i has become a leading artificial intelligence (“AI”) company by building on its wide technology commercialization, brand recognition and culture of innovation in China. 62 Milestone Accomplishments over 20 Years History We are a global leading cognitive artificial intelligence company.
Between urban and rural areas, the number of health technicians in cities is almost twice that in rural areas. ● In city public services, the traditional urban public service supply model cannot meet new requirements of modern residents for the convenience, speed, efficiency and real-time urban government public services. ● As an AI solution company, we also face many other challenges.
Between urban and rural areas, the number of health technicians in cities is almost twice that in rural areas. ● In city public services, the traditional urban public service supply model cannot meet new requirements of modern residents for the convenience, speed, efficiency and real-time urban government public services. ● Technical Challenges, Talents and Investment: The development of large models necessitates a high level of specialized knowledge and technology, necessitating significant resource investments by companies to attract and cultivate top-tier talent.
GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP. B. Business Overview. In the following discussion of business, “we,” “us,” or “our” refer to Shanghai Xiao-i and its subsidiaries. Overview Xiao-I is a holding company incorporated in Cayman Islands.
If we rely on these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements. B. Business Overview. In the following discussion of business, “we,” “us,” or “our” refer to Shanghai Xiao-i and its subsidiaries. Overview Xiao-I is a holding company incorporated in Cayman Islands.
Blanstar agreed to provide the VIE with response, technical support and maintenance services 24 hours a day 7 days a week. Pursuant to the Services Agreement the VIE paid $3.8 million and $13.3 million to Blanstar for the year ended December 31, 2021, and 2022, respectively.
Blanstar agreed to provide the VIE with response, technical support and maintenance services 24 hours a day 7 days a week. The Service Agreement renewed on December 31, 2022 and expires December 31, 2023, subject to the right of the parties to negotiate a renewal one month prior to the expiration date.
We are committed to internationalizing our products and services and providing high-quality products and services to customers around the world. Our Customers We provide our products and services to hundreds of enterprises across various industries, including contact center, financial sector, government and healthcare.
Since the launch of the Hua Zang LLM, the company has been developing and expanding its 2C business, aiming to bring the benefits of AI to a wider range of consumers. Our Customers We provide our products and services to hundreds of enterprises across various industries, including contact center, financial sector, government and healthcare.
Sales to customers in Hong Kong, Macao, Taiwan and other countries accounted for approximately 11.7%, 2.3% and 0.9% of their total revenue in the fiscal years 2020, 2021 and 2022, respectively. 60 Our Competitive Advantages We believe we have the following competitive advantages and they distinguish us from our competitors: Our Pioneer Position in AI Technology and Focus on R&D ● We believe that we pioneered the industry’s first cognitive intelligence and narrow artificial intelligence technology and have built on our culture of innovation. ● Since its establishment in 2001, Xiao-i has focused on developing cognitive intelligence technologies based on its natural language processing and “AI” implementation in businesses, enjoying a privileged reputation in the “AI” industry.
The following table sets forth the components of our net revenues by amounts and percentages of our total net revenues for the periods presented: For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Sale of cloud platform products 5,550,959 17.1 % 25,742,135 53.4 % 47,007,556 79.5 % Technology development service 9,246,992 28.4 % 16,419,889 34.1 % 7,839,700 13.3 % Sale of software products 14,878,256 45.8 % 3,547,113 7.4 % 1,566,455 2.6 % M&S service 2,772,795 8.5 % 2,429,526 5.0 % 2,676,185 4.5 % Sale of hardware products 75,011 0.2 % 46,295 0.1 % 75,363 0.1 % Total 32,524,013 100.0 % 48,184,958 100.0 % 59,165,259 100.0 % 71 Our Competitive Advantages We believe we have the following competitive advantages and they distinguish us from our competitors: Our Pioneer Position in AI Technology and Focus on R&D ● We believe that we pioneered the industry’s first cognitive intelligence and narrow artificial intelligence technology and have built on our culture of innovation. ● Since its establishment in 2001, Xiao-i has focused on developing cognitive intelligence technologies based on its natural language processing and “AI” implementation in businesses, enjoying a privileged reputation in the “AI” industry.
We have recognized the net assets of Shanghai Xiao-i at historical cost with no change in basis in the consolidated financial statements upon the completion of this reorganization. 52 As of the date of this annual report, Al Plus, Xiao-i Technology and Zhizhen Technology do not have any substantive business operations.
On March 1, 2024, AI Plus established its wholly owned United Arab Emirates subsidiary, Xiao-I Super Ltd. 61 As of the date of this annual report, Al Plus, Xiao-i Technology, Zhizhen Technology, Xiao-I Plus Inc. and Xiao-I Super Ltd. do not have any substantive business operations.
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Milestone Accomplishments over 20 Years History Since our founding in 2001, we have developed a portfolio of cognitive intelligence technologies for businesses based on our natural language processing and AI implementation. Leveraging our cutting-edge technologies, dedicated services, and long-standing customer base, we have become a leading customer service solution company in China according to Frost & Sullivan.
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On May 18, 2023, AI Plus established its wholly owned US subsidiary, Xiao-I Plus Inc.
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We focus on the development and promotion of cognitive intelligence technology and products with natural language processing as the core, and we use cognitive intelligence products and services to enable and promote industrial digitization and intelligent upgrading and transformation. 53 We are a leading cognitive intelligence enterprise in China, integrating parts of perceptive intelligence like natural language processing and computer vision.
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GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP.
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We offer a wide range of business services in AI, covering natural language processing, computer vision, machine learning and cloud computing. We have multi-field data resources and multiple industry standards, a cutting-edge talent team training system and strong experience in resource integration. We primarily provide smart city, software business and architectural design AI services to our customers.
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On December 13, 2023, we issued 3,700,000 preferred shares, each with a par value of US$0.00005 and carrying a voting right equivalent to 20 votes (the “3.7 million Preferred Shares” or the “Preferred Shares”) to ZunTian Holding Limited (“ZunTian”), an existing shareholder of Xiao-I (the “Issuance”). ZunTian is a BVI-incorporated company wholly owned and controlled by Mr. Hui Yuan (“Mr.
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We have comprehensive business lines covering fundamental tech platform, conversation bot, cloud services, industry solutions and robotics solutions.
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Yuan”). Mr. Yuan is the CEO and Chairman of the Company and a recognized A1 industry key opinion leader and domain expert. As a result of the Issuance, Mr. Yuan beneficially owns more than 79% of the voting power of Xiao-I.
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We provide solutions such as smart city service hotline, smart public service and smart legal services. We generate revenue primarily from (i) sale of cloud platform products, (ii) technology development service, (iii) sale of software products, and (iv) M&S service.
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Under the Nasdaq listing rules, the Issuance resulted in a change in control and the Company became a “controlled company” as defined under those rules. As a “controlled company,” we are permitted to elect not to comply with certain corporate governance requirements.
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For the years ended December 31, 2020, 2021 and 2022, the total revenue was US$13.86 million, US$32.52 million, and US$48.18 million, respectively. 1. Our cloud platform products consist of standardized software products uploaded to our cloud platform.
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Following the acquisition, Incesoft was dissolved by de-registering with local company registrar in accordance with PRC law in 2012.
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The revenue from sales of cloud platform products increased from nil for the year ended December 31, 2020 to US$5.55 million for the year ended December 31, 2021.
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Since our establishment in 2001, We have been dedicated to continuous innovation and breakthroughs in core technologies related to cognitive intelligence rooted in natural language processing. our development goal is to achieve scalable implementation and commercialization of our innovative proprietary technologies.
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The revenue from sales of cloud platform products increased by 363.7% from US$5.55 million for the year ended December 31, 2021 to US$25.74 million for the year ended December 31, 2022 primarily due to the promotion of our AI super automation platform in 2022. 2. Our technology development service provided to customers comprises customized technology development services for specific needs.
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We, with over 22 years of technical accumulation and industry experiences, have become a leading force in the field of AI industrial application. The company adheres to the mission of “serve and benefit more people with our AI technology” and focuses on the continuous innovation and breakthrough of artificial intelligence technology development.
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The revenue from technology development service increased by 44.4% from US$6.40 million for the year ended December 31, 2020 to US$9.25 million for the year ended December 31, 2021, primarily due to one major contract to provide specific software upgrades for drawing review platform.
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We believe that we are the pioneer of virtual chatbot technology. We launched our first chatbot in 2004. Within two years, we applied chatbot technology to the field of intelligent services and took the lead in creating industry application benchmark cases.
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The revenue from technology development service increased by 77.6% from US$9.25 million for the year ended December 31, 2021 to US$16.42 million for the year ended December 31, 2022.
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We developed thousands of business cases, and provide our customers with a wide range of solutions from diversified products to superior customized services, formulating a scale of business applications and a mature commercialization path, establishing our leading position in the artificial intelligence industry.
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Our revenue generated from technology development services was primarily due from three major contracts, including one to provide specific software upgrades for drawing review platform, and two for developing and delivering the intelligent education products. 3. Our software products sold to customers comprising customized software products for specific needs.
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As a representative enterprise in the field of Cognitive AI, we led the development of the world’s first international standard in affective computing, contributed to the drafting of the “China Artificial Intelligence Industry Intellectual Property White Paper” for four consecutive years(from 2010 to 2013), demonstrated its influence in global artificial intelligence industry.
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The revenue from sales of software products increased by 191.8% from US$5.10 million for the year ended December 31, 2020 to US$14.88 million for the year ended December 31, 2021, primarily due to one major contract signed in 2021, providing smart graphic review software products amounted to US$11.88 million.
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As of the date of this annual report, Xiao-I have 334 authorized patents, along with 138 pieces of software copyrights, 256 registered trademarks, and its accumulation of intellectual property demonstrates the company’s fruitful achievements in technological innovation.
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The revenue from sales of software products decreased by 76.2% from US$14.88 million for the year ended December 31, 2021 to US$3.55 million for the year ended December 31, 2022.
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We are also regarded by Gartner as the “representative of Conversational Al enterprises”, proving the company’s outstanding position and influence in the industry worldwide. 63 On June 29, 2023, we launched “Our Own ChatGPT” – Hua Zang Universal Large Language Model, which has a comprehensive coverage of hundreds of capabilities of the LLM.
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The significant amount in 2021 was primarily due to the major contract of smart graphic review software products sales signed in 2021 amounted to US$11.88 million and the revenue was fully recognized in 2021. 4.
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It possesses the core features of “Controllable, Customizable, and Deliverable”, solving the key challenges faced by global AI models. Building on the solid foundation of the Hua Zang Universal Large Language Model, we launched the revolutionary Hua Zang Ecosystem on October 26, 2023 which carries significant implications in the industry.
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We provide M&S services for software products contracts which consist of future software updates, upgrades, and enhancements as well as technical product support services, and the provision of updates and upgrades on a when-and-if-available basis.
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Based on the Hua Zang Universal Large Language Model, through Hua Zang Developer Platform, it provides service guarantees such as cultivation, marketing, and investment, connecting global ecosystem partners, customers, and developers. It constantly promotes the implementation and commercialization of the customer application scenarios and use cases by Hua Zang LLM.
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The revenue from sales of M&S service increased by 43.1% from US$1.94 million for the year ended December 31, 2020 to US$2.77 million for the year ended December 31, 2021, primarily due to more residence service provided to customers in 2021.
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Currently, dozens of co-created achievements have been successfully implemented, helping partners further commercialize in vertical fields. Hua Zang Ecosystem is now continuously collaborating with thousands of ecosystem partners, covering 50+ industry fields, involving various fields such as IoT, finance, healthcare, maternal and infant, automobile, manufacturing, operator etc.
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The revenue from sales of M&S service decreased by 12.4% from US$2.77 million for the year ended December 31, 2021 to US$2.43 million for the year ended December 31, 2022, primarily due to the decrease of sale of software products, and the accompanying M&S services also decreased. We sell our products and services to end customers through our sales ecosystem.
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This validates the commercialization path of the Hua Zang Ecosystem and lays a solid foundation for further promoting the large-scale implementation of Hua Zang Universal Large Language Model in various industries. Actively expanding into the international markets is a key driver of future revenue growth for Xiao-I. We set up our APAC headquarter in Hong Kong in 2018.

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Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

75 edited+70 added−35 removed60 unchanged
Other income/(loss), net Other income primarily consists of: (i) government grants, which primarily include government support for project development; (ii) interest expense of borrowings from banks and third parties; (iii) investment gain/(loss), which represent gain or losses from long-term equity investment; and (iv) non-operating expenses, which primarily includes the loss of disposal of non-current assets.
Other income/(loss), net Other income primarily consists of: (i) government grants, which primarily include government support for project development; (ii) interest expense of borrowings from banks and third parties; (iii) investment gain/(loss), which represent gain or losses from long-term equity investment; and (iv) non-operating expenses, which primarily includes the loss of disposal of non-current assets.
The principal changes accounting for the difference between our net income and our net cash used in operating activities in 2022 were an adjustment of $3.71 million non-cash items, an increase in accounts receivable of US$15.01 million, and an increase in inventories of US$2.13 million, offset by the increase in accounts payable of US$4.12 million, and an increase in accrued expenses and other current liabilities of US$5.16 million.
The principal changes accounting for the difference between our net income and our net cash used in operating activities in 2022 were an adjustment of US$3.71 million non-cash items, an increase in accounts receivable of US$15.01 million, and an increase in inventories of US$2.13 million, offset by the increase in accounts payable of US$4.12 million, and an increase in accrued expenses and other current liabilities of US$5.16 million.
Investing Activities Our net cash used in investing activities amounted to US$2.86 million in 2022, primarily due to purchase of equity method investment of US$2.75 million.
Our net cash used in investing activities amounted to US$2.86 million in 2022, primarily due to purchase of equity method investment of US$2.75 million.
The fluctuation was primarily due to the increase valuation allowance of deferred tax assets we recognized in 2022, We will invest significantly in the research and development to improve our products and service, and as we are entitled to an additional deduction of 100% of research and development expenses from January 1, 2023, we expect it more likely than not that all of the deferred tax assets will not be realized as the VIE is not expect to generate enough taxable income to utilize all of the deferred tax assets in the future, and thus, we recognized an additional $1.72 million of valuation allowance of the deferred tax assets of the VIE.
The fluctuation was primarily due to the increase valuation allowance of deferred tax assets we recognized in 2022, We will invest significantly in the research and development to improve our products and service, and as we are entitled to an additional deduction of 100% of research and development expenses from January 1, 2023, we expect it more likely than not that all of the deferred tax assets will not be realized as the VIE is not expected to generate enough taxable income to utilize all of the deferred tax assets in the future, and thus, we recognized an additional $1.72 million of valuation allowance of the deferred tax assets of the VIE.
The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. 74 In accordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years.
The enterprise income tax is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. In accordance with the implementation rules of EIT Laws, a qualified “High and New Technology Enterprise” (“HNTE”) is eligible for a preferential tax rate of 15%. The HNTE certificate is effective for a period of three years.
Other than as disclosed elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2020, 2021 and 2022 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
Other than as disclosed elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments or events for the year ended December 31, 2021, 2022 and 2023 that are reasonably likely to have a material and adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.
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. 82 C. Research and Development, Patents and Licenses, etc. See “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects—A.
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. 100 C. Research and Development, Patents and Licenses, etc. See “Item 4. Information on the Company—B. Business Overview” and “Item 5. Operating and Financial Review and Prospects—A.
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000 ($14,930).
According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent. The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000 ($14,123).
An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted.
An allowance for credit losses is recorded in the period in which a loss is determined to be probable. Accounts receivable balances are written off after all collection efforts have been exhausted.
The increase of cost of materials in 2022 was primarily for the completion of technology development for Intelligent Platform Technical Service Agreement and Intelligent Virtual Simulation Platform Technical Service Agreement, and software products upgrade demand from customers. ● Staff costs increased by 33.1% from US$5.64 million for the year ended December 31, 2021 to US$7.50 million for the year ended December 31, 2022, primarily due to the fact that we provided more labor investment to support increased sale of cloud platform products and the continuing services provided to maintain the operation of Drawing Platform. ● Cloud hosting services fees decreased by 64.2% from US$3.67 million for the year ended December 31, 2021 to the US$1.31 million for the year ended December 31,2022, primarily due to our improved utilization of the cloud hosting services to reduce idle cost.
The increase of cost of materials in 2022 was primarily for the completion of technology development for Intelligent Platform Technical Service Agreement and Intelligent Virtual Simulation Platform Technical Service Agreement, and software products upgrade demand from customers. ● Staff costs increased by 33.1% from US$5.64 million for the year ended December 31, 2021 to US$7.50 million for the year ended December 31, 2022, primarily due to the fact that we provided more labor investment to support increased sale of cloud platform products and the continuing services provided to maintain the operation of Drawing Platform. ● Cloud hosting services fees decreased by 64.2% from US$3.67 million for the year ended December 31, 2021 to the US$1.31 million for the year ended December 31,2022, primarily due to our improved utilization of the cloud hosting services to reduce idle cost. 95 Gross Profit and Gross Profit Margin We have different types of products and services that have different profit margins.
Off-Balance Sheet Arrangements From February to October 2022, we pledged eleven patents to obtain US$ 28.6 million credit limits from banks, with one to five years term. In October and November 2022, we pledged five patents to a third party to obtain principal accounted for US$2,899,728 (RMB20 million) loans, and the interests were calculated under effective interest method.
From February to October 2022, we pledged 11 patents to obtain US$ 28.6 million credit limits from banks, with one to five years term. In October and November 2022, we pledged five patents to a third party to obtain principal accounted for US$2,899,728 (RMB20 million) loans, and the interests were calculated under effective interest method.
We recognized $1,937,887, $2,772,795 and $2,429,526 revenue of the 10% allocation to M&S service for the years ended December 31, 2020, 2021 and 2022, respectively. Recent Accounting Pronouncements A description of recent relevant accounting pronouncements is included in Note 2 “Summary of Principal Accounting Policies” of our Consolidated Financial Statements. 84
We recognized $2,772,795, $2,429,526 and $1,110,383 revenue of the 10% allocation to M&S service for the years ended December 31, 2021, 2022 and 2023, respectively. Recent Accounting Pronouncements A description of recent relevant accounting pronouncements is included in Note 2 “Summary of Principal Accounting Policies” of our Consolidated Financial Statements .
Changes in any of these general factors could affect the demand for our products and services and our results of operations.
Any changes in these general factors could potentially affect the demand for our products and services, consequently impacting our results of operations.
Selling expenses Our selling expenses decreased by 15.3% from US$4.62 million for the year ended December 31, 2021 to US$3.91 million for the year ended December 31, 2022, which was primarily attributable to (i) a decreased travel expenses and entertainment expenses of US$0.26 million due to the lock-down of Shanghai from March to May in 2022, and (ii) decreased staff salary of US$0.30 million in 2022. 76 General and administrative expenses Our general and administrative expenses decreased by 9.4% from US$6.66 million for the year ended December 31, 2021 to US$6.03 million for the year ended December 31, 2022, which was primarily attributable to (i) a decrease in professional service expenses of US$0.62 million as we recorded Initial Public Offering related professional service fees into deferred offering costs, and (ii) decreased rental and utilities expenses of US$0.42 million, primarily due to one of Hong Kong offices termination of the lease, partially offset by (i) increased bad debt expenses related to receivables of US$0.52 million.
General and administrative expenses Our general and administrative expenses decreased by 9.4% from US$6.66 million for the year ended December 31, 2021 to US$6.03 million for the year ended December 31, 2022, which was primarily attributable to (i) a decrease in professional service expenses of US$0.62 million as we recorded Initial Public Offering related professional service fees into deferred offering costs, and (ii) decreased rental and utilities expenses of US$0.42 million, primarily due to one of Hong Kong offices termination of the lease, partially offset by (i) increased bad debt expenses related to receivables of US$0.52 million.
The following table sets forth the components of our net revenues by amounts and percentages of our total net revenues for the periods presented: For the Years Ended December 31, 2020 2021 2022 USD % USD % USD % Sale of cloud platform products - - 5,550,959 17.1 % 25,742,135 53.4 % Technology development service 6,404,394 46.2 % 9,246,992 28.4 % 16,419,889 34.1 % Sale of software products 5,098,730 36.8 % 14,878,256 45.8 % 3,547,113 7.4 % M&S service 1,937,887 14.0 % 2,772,795 8.5 % 2,429,526 5.0 % Sale of hardware products 415,723 3.0 % 75,011 0.2 % 46,295 0.1 % Total 13,856,734 100.0 % 32,524,013 100.0 % 48,184,958 100.0 % Cost of revenues Our cost of revenues primarily consists of the following components: (i) staff costs (salaries and employee benefits), (ii) cost of materials, which primarily includes software and hardware purchased, (iii) cloud hosting service fees, and (iv) overhead costs relating to consumables and office expenses used for production.
The following table sets forth the components of our net revenues by amounts and percentages of our total net revenues for the periods presented: For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Sale of cloud platform products 5,550,959 17.1 % 25,742,135 53.4 % 47,007,556 79.5 % Technology development service 9,246,992 28.4 % 16,419,889 34.1 % 7,839,700 13.3 % Sale of software products 14,878,256 45.8 % 3,547,113 7.4 % 1,566,455 2.6 % M&S service 2,772,795 8.5 % 2,429,526 5.0 % 2,676,185 4.5 % Sale of hardware products 75,011 0.2 % 46,295 0.1 % 75,363 0.1 % Total 32,524,013 100.0 % 48,184,958 100.0 % 59,165,259 100.0 % 88 Cost of revenues Our cost of revenues primarily consists of the following components: (i) staff costs (salaries and employee benefits), (ii) cost of materials, which primarily includes software and hardware purchased, (iii) cloud hosting service fees, and (iv) overhead costs relating to consumables and office expenses used for production.
Research and development expenses Research and development expenses primarily include: (i) salaries and benefits for research and development personnel; (ii) professional services fees, which primarily represent fees paid for professional services in research and development activities; (iii) patent registration related expenses and patent litigation expenses; (iv) amortization, which represents amortization expenses for our intangible assets; and (v) others, which primarily include rental expenses, consumables, traveling expenses, utilities and miscellaneous expenses.
Research and development expenses Research and development expenses primarily include: (i) salaries and benefits for research and development personnel; (ii) service fees to purchase of computing power for R&D projects; (iii) professional services fees, which primarily represent fees paid for professional services in research and development activities; (iv) patent registration related expenses and patent litigation expenses; (v) amortization, which represents amortization expenses for our intangible assets; and (vi) others, which primarily include rental expenses, consumables, traveling expenses, utilities and miscellaneous expenses.
We have formed products in different industries. Our CIAI platform products and services are marketed and sold primarily to customers in the following industries: (1) Contact Center, (2) Finance, (3) Urban Public Service, (4) Construction, (5) Metaverse, (6) Manufacturing and (7) Smart Healthcare.
We have developed products and services in different industries. MaaS We currently provide CIAI model, image model and Hua Zang LLM. Our CIAI platform products and services are marketed and sold primarily to customers in the following industries: (1) Contact Center, (2) Finance, (3) Urban Public Service, (4) Construction, (5) Metaverse, (6) Manufacturing and (7) Smart Healthcare.
Due to our history of recurrent losses, we did not expect to generate enough profit to utilize the deferred tax assets in the future. We have recognized an increase to the valuation allowance of $570,253, $810,159 and $1,723,347 for the years ended December 31, 2020, 2021 and 2022, respectively.
Due to our history of recurrent losses, we do not expect to generate enough profit to utilize the deferred tax assets in the future. We have recognized an addition to the valuation allowance of $810,159, $1,723,347 and $15,013,296 for the years ended December 31, 2021, 2022 and 2023, respectively.
We recognized government subsidies for scientific research in the amount of US$0.85 million and US$0.22 million for the years ended December 31, 2021 and 2022, respectively. In addition, we recognized interest expenses of US$1.87 million and US$2.44 million for the years ended December 31, 2021 and 2022, respectively.
We recognized government subsidies for scientific research in the amount of US$0.85 million and US$0.22 million for the years ended December 31, 2021 and 2022, respectively.
Our net cash used in investing activities amounted to US$0.03 million in 2020, due mainly to purchase of property and equipment of US$0.02 million and purchase of intangible assets of US$0.02 million, partially offset by proceeds of US$0.01 million from disposal of property and equipment. 81 Financing Activities Our net cash provided by financing activities amounted to US$13.51 million in 2022, mainly due to proceeds of US$21.25 million from short-term borrowings from banks, proceeds of US$2.32 million from related parties and proceeds of US$7.95 million from third-parties borrowings, partially offset by repayments of short-term borrowings from banks of US$10.63 million, repayments of borrowings from related parties of US$2.31 million, repayments of borrowings from third-parties of US$2.07 million, repayments of convertible loans of US$1.63 million and deferred offering costs of US$1.36 million.
Our net cash provided by financing activities amounted to US$13.51 million in 2022, mainly due to proceeds of US$21.25 million from short-term borrowings from banks, proceeds of US$2.32 million from related parties and proceeds of US$7.95 million from third-parties borrowings, partially offset by repayments of short-term borrowings from banks of US$10.63 million, repayments of borrowings from related parties of US$2.31 million, repayments of borrowings from third-parties of US$2.07 million, repayments of convertible loans of US$1.63 million and deferred offering costs of US$1.36 million.
For the years ended December 31, 2020, 2021 and, 2022, our total revenue was US$13.86 million, US$32.52 million and US$48.18 million, respectively.
For the years ended December 31, 2021, 2022 and 2023, our total revenue was US$32.52 million, US$48.18 million and US$59.17 million, respectively.
Sale of software products Our software products sold to customers comprising customized software products for specific needs. The revenue from sales of software products decreased by 76.2% from US$14.88 million for the year ended December 31, 2021 to US$3.55 million for the year ended December 31, 2022.
The revenue from sales of software products decreased by 76.2% from US$14.88 million for the year ended December 31, 2021 to US$3.55 million for the year ended December 31, 2022.
Risk Factors” and elsewhere in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. A. Operating Results. Overview We are a leading cognitive intelligence company with strong brand recognition and profound industrial knowledge in China.
Risk Factors” and elsewhere in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties. A. Operating Results. Overview We are a leading cognitive artificial intelligence (“AI”) company.
(iii) Intelligent Virtual Simulation Platform Technical Service Agreement, also related to intelligent education products, pursuant to which we provided customized technology development services to develop and deliver the video, 3D and VR experimental teaching platforms for primarily, middle and high school. The revenue recognized was US$2.06 million for the year ended December 31, 2022.
(iii) Intelligent Virtual Simulation Platform Technical Service Agreement, also related to intelligent education products, pursuant to which we provided customized technology development services to develop and deliver the video, 3D and VR experimental teaching platforms for primarily, middle and high school.
Gross Profit and Gross Profit Margin We have different types of products and services that have different profit margins. For the years ended December 31, 2021 and 2022, our gross profit was US$21.64 million and US$30.81 million, respectively, and our gross profit margins were 66.5% and 63.9%, respectively.
For the years ended December 31, 2021 and 2022, our gross profit was US$21.64 million and US$30.81 million, respectively, and our gross profit margins were 66.5% and 63.9%, respectively.
As a leading AI technology and industrialization service platform in the world, through years of operation, Shanghai Xiao-I has established extensive cooperation with many leading companies amongst various industry verticals. As a result, we are well positioned to capture significant monetization opportunities.
As a leading AI technology and industrialization service platform in the world, through years of operation, Shanghai Xiao-I has established extensive cooperation with many leading companies amongst various industry verticals. As a result, we are well positioned to capture significant monetization opportunities. LLMs have demonstrated remarkable capabilities, however, standalone LLMs may face limitations in terms of domain specificity and actionability.
Major Factors Affecting Our Results of Operations Our business and operating results are affected by the general factors affecting the global robotics industry, and in particular the global software robotics industry, including technology development and breakthroughs in areas such as AI and cloud computing, increases in per capita disposable income, as well as shortage of labor supply.
Major Factors Affecting Our Results of Operations Our business and operating results are affected by the general factors that affect the global robotics industry, particularly the software robotics industry. These factors include technological advancements such as AI and cloud computing, increases in per capita disposable income, as well as shortage of labor supply.
The sale of software products accounted 36.8%, 45.8% and 7.4% of total revenue for the years ended December 31, 2020, 2021 and 2022, respectively. For sale of cloud platform products, revenue accounted 0.0%, 17.1% and 53.4% of total revenue for the years ended December 31, 2020, 2021 and 2022, respectively.
The sale of software products accounted 45.8%, 7.4% and 2.6% of total revenue for the years ended December 31, 2021, 2022 and 2023, respectively, while revenue from sale of cloud platform products accounted 17.1%, 53.4% and 79.5% of total revenue for the years ended December 31, 2021, 2022 and 2023, respectively.
While our business is influenced by factors affecting our industry generally, we believe our results of operations are more directly affected by the following specific factors: Continued Monetization of Robot Products and Services Our long-term growth will depend on our continued ability to expand our customer base and increase revenue from existing and new robot application scenarios.
While we acknowledge that our business is subject to general influences, we believe that our results of operations are more directly affected by the following specific factors: Continued Monetization of Robot Products and Services Our long-term growth will depend on our continued ability to expand our customer base and increase revenue from MaaS and non-MaaS business.
With these approaches, we have successfully built our brand and expanded customer markets. Our software business has experienced steady growth during the past few years. Competition The competition in the AI services industry is intense. We compete with various integrated AI services providers in chatbots and personal assistants as conversational intermediates.
With these approaches, we have successfully built our brand and expanded customer markets. Our software business has experienced steady growth during the past few years. Competition Industry competition is intense, but there is significant market potential in the rapidly growing AI industry. We compete with various integrated AI services providers in MaaS industry.
These patents were not recorded in our consolidated balance sheets as they do not meet all the capitalization criteria. Other than those shown above, 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.
Other than those shown above, 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.
We review the accounts receivable on a periodic basis and make specific allowances when there is doubt as to the collectability of individual balances. We consider many factors in assessing the collectability of its receivables, such as the age of the amounts due, the customer’s payment history, credit-worthiness and other specific circumstances related to the accounts.
We consider many factors in assessing the collectability of its receivables, such as the age of the amounts due, the customer’s payment history, credit-worthiness and other specific circumstances related to the accounts.
In March and April, 2023, the VIE has repaid principal and interest of the convertible loans to Senbiao Hu and Fumei Shi, in amount of US$0.46 million and US$1.77 million, respectively. 79 In March, 2023, we completed our initial public offering and was listed on the Nasdaq Global Market under the symbol “AIXI”. 5,700,000 American depositary shares (each, an “ADS”, collectively, “ADSs”), each represents one-third of an ordinary shares, were issued at a price of $6.8 per share for net proceeds of approximately $35.44 million, after deducting underwriting discounts, commissions and other offering expenses of $3.32 million.
In March 2023, we completed our initial public offering (“IPO”) and was listed on the Nasdaq Global Market under the symbol “AIXI”. 5,700,000 American depositary shares (each, an “ADS”, collectively, “ADSs”), each represents one-third of an ordinary shares, were issued at a price of $6.8 per share for net proceeds of approximately $33.11 million, after deducting underwriting discounts, commissions and other offering expenses of $5.65 million.
We generate the majority of our revenue from fees charged to our customers based on (i) sale of cloud platform products, (ii) technology development service, (iii) sale of software products, (iv) M&S service, and (v) sale of hardware products.
Within the year, non-MaaS business revenue grew by 13.4%, achieving US$39.97 million. By way of delivery, we generate the majority of our revenue from fees charged to our customers based on (i) sale of cloud platform products, (ii) technology development service, (iii) sale of software products, (iv) M&S service, and (v) sale of hardware products.
As of December 31 2021 and 2022, we had net operating loss carryforwards of approximately $36,288,770 and $28,198,108, respectively. As of December 31, 2021 and 2022, deferred tax assets from the net operating loss carryforwards amounted to $6,239,757 and $4,475,379, respectively.
As of December 31, 2022 and 2023, we had net operating loss carryforwards of approximately $28,198,108 and $103,051,391, respectively. As of December 31, 2022 and 2023, deferred tax assets from the net operating loss carryforwards amounted to $4,475,379 and $15,339,438, respectively.
Regulations on Intellectual Property Rights China has adopted legislation governing intellectual property rights, including trademarks, patents and copyrights. China is a signatory to the major international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.
China is a signatory to the major international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001. In China, holders of computer software copyrights enjoy protection under the Copyright Law.
According to Frost & Sullivan, Shanghai Xiao-i has been focusing on developing cognitive intelligence technologies based on its cutting-edge natural language processing and AI implementation in businesses, enjoying a privileged reputation in AI industry.
Non-MaaS We currently provide AI Chatbot, Live Chat, Smart Agent Assistant, Smart Coach, Intelligent Knowledge Management, Smart lVR, Smart Outbound Call, and RPA. According to Frost & Sullivan, Shanghai Xiao-i has been focusing on developing cognitive intelligence technologies based on its cutting-edge natural language processing and AI implementation in businesses, enjoying a privileged reputation in AI industry.
As of December 31, 2021 and 2022, US$1,254,528 and US$908,614 of cash and cash equivalents were denominated in RMB, US$15,170 and US$11,224 of cash and cash equivalents were denominated in US dollars, US$42,148 and US$106,407 of cash and cash equivalents were denominated in Hong Kong dollars, respectively. 80 Cash Flows The following table sets forth a summary of our cash flows for the periods indicated: For the Years Ended December 31, 2020 2021 2022 Net cash used in operating activities $ (3,463,094 ) $ (11,887,122 ) $ (10,923,346 ) Net cash (used in)/provided by investing activities (25,825 ) 77,259 (2,856,416 ) Net cash provided by financing activities 1,792,682 12,192,952 13,506,600 Effects of exchange rate changes on cash and cash equivalents and restricted cash (797,954 ) 101,728 (12,439 ) Net (decrease)/increase in cash, cash equivalents and restricted cash (2,494,191 ) 484,817 (285,601 ) Cash and cash equivalents at the beginning of the year 3,321,220 827,029 1,311,846 Cash and cash equivalents at the end of the year $ 827,029 $ 1,311,846 $ 1,026,245 Operating Activities Our net cash used in operating activities was US$10.92 million in 2022, compared to net loss of US$6.01 million.
Cash Flows The following table sets forth a summary of our cash flows for the periods indicated: For the Years Ended December 31, 2021 2022 2023 Net cash used in operating activities $ (11,887,122 ) $ (10,923,346 ) $ (15,789,498 ) Net cash provided by/(used in) investing activities 77,259 (2,856,416 ) (20,059,814 ) Net cash provided by financing activities 12,192,952 13,506,600 36,473,075 Effects of exchange rate changes on cash and cash equivalents and restricted cash 101,728 (12,439 ) (85,466 ) Net increase/(decrease) in cash, cash equivalents and restricted cash 484,817 (285,601 ) 538,297 Cash, cash equivalents and restricted cash at the beginning of the year 827,029 1,311,846 1,026,245 Cash, cash equivalents and restricted cash at the end of the year $ 1,311,846 $ 1,026,245 $ 1,564,542 98 Operating Activities Our net cash used in operating activities was US$15.79 million in 2023, compared to net loss of US$27.01 million.
While management believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions. We believe that the following critical accounting estimates involve the most significant judgments used in the preparation of our financial statements.
While management believes its judgments, estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates under different assumptions and conditions.
We did not accrue any liability, interest or penalties related to uncertain tax positions in its provision for income taxes line of its consolidated statements of operations for the years ended December 31, 2020, 2021 and 2022, respectively. We do not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months.
Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. 102 We did not accrue any liability, interest or penalties related to uncertain tax positions in its provision for income taxes line of its consolidated statements of operations for the years ended December 31, 2021, 2022 and 2023, respectively.
For the Years Ended December 31, 2020 2021 2022 USD % USD % USD % Net revenue 13,856,734 100.0 % 32,524,013 100.0 % 48,184,958 100.0 % Cost of revenues (7,228,046 ) (52.2 )% (10,885,731 ) (33.5 )% (17,379,144 ) (36.1 )% Gross profit 6,628,688 47.8 % 21,638,282 66.5 % 30,805,814 63.9 % Selling expenses (4,566,760 ) (33.0 )% (4,620,113 ) (14.2 )% (3,911,818 ) (8.1 )% General and administrative expenses (5,694,785 ) (41.1 )% (6,657,251 ) (20.5 )% (6,028,637 ) (12.5 )% Research and development expenses (4,236,723 ) (30.6 )% (5,363,909 ) (16.5 )% (24,001,138 ) (49.8 )% Other income/(loss), net 577,684 4.2 % (1,079,652 ) (3.3 )% (2,208,880 ) (4.6 )% (Loss)/Profit before tax (7,291,896 ) (52.6 )% 3,917,357 12.0 % (5,344,659 ) (11.1 )% Income tax benefits/(expenses) 235,854 1.7 % (552,355 ) (1.7 )% (660,655 ) (1.4 )% Net (loss)/income (7,056,042 ) (50.9 )% 3,365,002 10.3 % (6,005,314 ) (12.5 )% 72 KEY COMPONENTS OF RESULTS OF OPERATIONS Net revenues We generate revenue primarily from the (i) sale of cloud platform products, (ii) technology development service, (iii) sale of software products, (iv) M&S service, and (v) sale of hardware products.
For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Net revenue 32,524,013 100.0 % 48,184,958 100.0 % 59,165,259 100.0 % Cost of revenues (10,885,731 ) (33.5 )% (17,379,144 ) (36.1 )% (19,741,689 ) (33.4 )% Gross profit 21,638,282 66.5 % 30,805,814 63.9 % 39,423,570 66.6 % Selling expenses (4,620,113 ) (14.2 )% (3,911,818 ) (8.1 )% (4,550,997 ) (7.7 )% General and administrative expenses (6,657,251 ) (20.5 )% (6,028,637 ) (12.5 )% (4,407,215 ) (7.4 )% Research and development expenses (5,363,909 ) (16.5 )% (24,001,138 ) (49.8 )% (52,387,540 ) (88.5 )% Other loss, net (1,079,652 ) (3.3 )% (2,208,880 ) (4.6 )% (1,295,894 ) (2.2 )% Profit/(Loss) before tax 3,917,357 12.0 % (5,344,659 ) (11.1 )% (23,218,076 ) (39.2 )% Income tax expenses (552,355 ) (1.7 )% (660,655 ) (1.4 )% (3,787,692 ) (6.4 )% Net income/(loss) 3,365,002 10.3 % (6,005,314 ) (12.5 )% (27,005,768 ) (45.6 )% 87 KEY COMPONENTS OF RESULTS OF OPERATIONS Net revenues In terms of product lines, we generate revenue primarily from the (i) MaaS and (ii) non-MaaS.
Technology Xiao-i robot has a strong human-computer cognitive interaction ability, which is known as “representative of conversational AI enterprises” by Gartner. Our technical strength and academic status have also been recognized on the international platform. We are a technology-driven company and our research and development staffs are an important asset for us.
In addition, we will be actively seek for oversea market development to further expand our market size. Technology We have a strong human-computer cognitive interaction ability, which is known as “representative of conversational AI enterprises” by Gartner. Our technical strength and academic status have also been recognized on the international platform.
Our net cash used in operating activities was US$3.46 million in 2020, compared to net loss of US$7.06 million.
Our net cash used in operating activities was US$10.92 million in 2022, compared to net loss of US$6.01 million.
Disclosure of Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2022: Payment Due by Period Within one year 1 – 3 years Total Operating lease payment $ 526,810 $ 261,661 $ 788,471 Short-term bank borrowings $ 18,784,459 $ - $ 18,784,459 Convertible loans $ 3,754,269 $ - $ 3,754,269 Loans from related parties and third parties $ 7,049,601 $ 11,885,729 $ 18,935,330 Operating lease obligations consist of leases in relation to certain offices and buildings, plants and other property for our sales and after-sales network.
Disclosure of Contractual Obligations The following table sets forth our contractual obligations as of December 31, 2023: Payment Due by Period Within one year 1 – 3 years Total Operating lease payment $ 1,032,282 $ 1,541,173 $ 2,573,455 Short-term bank borrowings $ 26,760,940 $ - $ 26,760,940 Loans and other payables from related parties and third parties $ 6,076,864 $ 11,030,187 $ 17,107,051 Operating lease obligations consist of leases in relation to certain offices and buildings, plants and other property for our sales and after-sales network.
The revenue from sales of M&S service increased by 43.1% from US$1.94 million for the year ended December 31, 2020 to US$2.78 million for the year ended December 31, 2021, primarily due to more residence service provided to customers in 2021.
The revenue from sales of M&S service increased by 10.2% from US$2.43 million for the year ended December 31, 2022 to US$2.68 million for the year ended December 31, 2023.
Impact of Foreign Exchange Fluctuation As we derive our revenue in RMB, foreign exchange rate fluctuations may adversely affect our business and performance. The exchange rates between US$ and RMB are subject to continuous movements affected by international political and economic conditions and changes in the PRC government’s economic and monetary policies.
The exchange rates between US$ and RMB are subject to continuous movements affected by international political and economic conditions and changes in the PRC government’s economic and monetary policies. Any appreciation of RMB, against US$ will decrease our profit margin.
In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred.
In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion.
(c) transaction price allocation between software income and maintenance service income We provide M&S service along with the sale of software products and service for some contracts.
We do not expect that its assessment regarding unrecognized tax positions will materially change over the next 12 months. (c) transaction price allocation between software income and maintenance service income We provide M&S service along with the sale of software products and technology development service for some contracts.
We made a provision of bad debt allowance amounted to US$758,019, US$270,649 and US$2,149,176 as of December 31, 2020, 2021 and 2022, respectively. 83 (b) Valuation of deferred tax assets Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
(b) Valuation of deferred tax assets Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
To further strengthen our technological ability, we have set training courses and talent development plans to nurture the staffs. With aligned interests, we promote our research and development ability to respond to the rapidly changing market. Intellectual Property Our intellectual property includes trademarks related to our brands and services, copyrights in software, patents and other intellectual property rights and licenses.
We are a technology-driven company and our research and development staffs are an important asset for us. To further strengthen our technological ability, we have set training courses and talent development plans to nurture the staffs. With aligned interests, we promote our research and development ability to respond to the rapidly changing market.
In 2022, the tax holiday has expired and Guizhou Xiao-i applied qualification of HNTE, which allows Guizhou Xiao-i to enjoy a preferential tax rate of 15% from 2022 to 2024. Comparison of Years Ended December 31, 2021 and 2022 Net revenues Sale of cloud platform products Our cloud platform products consist of standardized software products uploaded to our cloud platform.
In 2022, the tax holiday has expired and Guizhou Xiao-i renewed qualification of HNTE, which allows Guizhou Xiao-i to enjoy a preferential tax rate of 15% from 2022 to 2025.
Our gross profit margin represents our gross profit as a percentage of our revenue. We have different types of products and services that have different profit margins. For the years ended December 31, 2020 and 2021, our gross profit was US$6.63 million and US$21.64 million, respectively, and our gross profit margins were 47.8% and 66.5%, respectively.
Gross Profit and Gross Profit Margin We have different types of products and services that have different profit margins. For the years ended December 31, 2022 and 2023, our gross profit was US$30.81 million and US$39.42 million, respectively.
The principal changes accounting for the difference between our net income and our net cash used in operating activities in 2020 were an adjustment of $2.25 million non-cash items, an increase in non-current accrued liabilities of US$5.04 million, an increase in accrued expenses and other current liabilities of US$1.02 million, and a decrease of prepaid expenses and other current assets of US$0.96 million, partially offset by an increase in prepaid expenses and other non-current assets of US$3.79 million and a decrease in lease payment liabilities of US$1.31 million.
The principal changes accounting for the difference between our net income and our net cash used in operating activities in 2023 were an adjustment of US$0.67 million non-cash items including reversal of allowance of accounts receivable and other receivables of US$6.20 million offset by the change of deferred tax assets of US$3.79 million, an increase in prepaid expenses and other current assets of US$2.50 million, offset by a decrease in accounts receivable of US$11.11 million due to the well collection, and an increase in accounts payable of US$4.77 million.
The significant amount in 2021 was primarily due to the major contract of smart graphic review software products sales signed in 2021 amounted to US$11.88 million and the revenue was fully recognized in 2021. 75 M&S service We provide M&S services for software products contracts which consist of future software updates, upgrades, and enhancements as well as technical product support services, and the provision of updates and upgrades on a when-and-if-available basis.
The significant amount in 2021 was primarily due to the major contract of smart graphic review software products sales signed in 2021 amounted to US$11.88 million and the revenue was fully recognized in 2021.
An entity could re-apply for the HNTE certificate when the prior certificate expires. Our subsidiary, Shanghai Xiao-i, is eligible to enjoy a preferential tax rate of 15% from 2020 to 2022 to the extent it has taxable income under the EIT Law.
Our subsidiary, Shanghai Xiao-i, were approved as a HNTE and is eligible to enjoy a preferential tax rate of 15% from 2020 to 2022 and renewed in 2023 to the extent it has taxable income under the EIT Law. 90 Our subsidiary, Guizhou Xiao-i was qualified as an eligible software enterprise before the income tax year-end final settlement in 2017.
The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
This information should be read together with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
Selling expenses Our selling expenses increased by 1.2% from US$4.57 million for the year ended December 31, 2020 to US$4.62 million for the year ended December 31, 2021, which remained relatively stable.
Selling expenses Our selling expenses increased by 16.3% from US$3.91 million for the year ended December 31, 2022 to US$4.55 million for the year ended December 31, 2023.
We recognized government subsidies for scientific research in the amount of US$1.70 million and US$0.85 million for the years ended December 31, 2020 and 2021, respectively. In addition, we recognized interest expenses of US$1.03 million and US$1.87 million for the years ended December 31, 2020 and 2021, respectively.
In addition, we recognized interest expenses of US$1.87 million and US$2.44 million for the years ended December 31, 2021 and 2022, respectively. 96 Income tax benefits/(expenses) Income tax expenses were US$0.66 million in 2022, compared with income tax expenses of US$0.55 million in 2021.
We gradually decreased the business focus on the sales of software products and in turn increased our revenue from sale of cloud platform products, which is based on Software as a Service (“SaaS”) and private cloud services.
The significant decrease in 2023 as we gradually decreased the business focus on the sales of software products and in turn increased our revenue from sale of cloud platform products. 91 M&S service We provide M&S services for software products contracts which consist of future software updates, upgrades, and enhancements as well as technical product support services, and the provision of updates and upgrades on a when-and-if-available basis.
We intend to use the net proceeds from the offering for research and development, investment in technology infrastructure, marketing and branding, and other capital expenditure, and other general corporate purpose. Xiao-I is a holding company with no operations of its own. Xiao-I conducts its operations in China primarily through the PRC operating entities in China.
We used the net proceeds from the offering for research and development, investment in technology infrastructure, marketing and branding, and other capital expenditure, and other general corporate purpose.
Net income As a result of the foregoing, we had net loss of US$6.01 million in 2022, compared with a net income of US$3.37 million in 2021. Comparison of Years Ended December 31, 2020 and 2021 Net revenues Sale of software products Our software products sold to customers comprising customized software products for specific needs.
Net income As a result of the foregoing, we had net loss of US$6.01 million in 2022, compared with a net income of US$3.37 million in 2021. B. Liquidity and Capital Resources. As of December 31, 2022 and 2023, we had US$1.03 million and US$1.56 million in cash and cash equivalents, respectively.
Our net cash provided by investing activities amounted to US$0.08 million in 2021, mainly due to proceeds of US$0.10 from disposal of property and equipment, partially offset by purchase of property and equipment of US$0.02 million.
Our net cash provided by investing activities amounted to US$0.08 million in 2021, mainly due to proceeds of US$0.10 from disposal of property and equipment, partially offset by purchase of property and equipment of US$0.02 million. 99 Financing Activities Our net cash provided by financing activities amounted to US$36.47 million in 2023, mainly due to proceeds of US$34.40 million from issuance of ordinary shares upon IPO, proceeds of US$26.83 million from short-term borrowings from banks, proceeds of US$4.59 million from third-parties borrowings, and partially offset by repayments of short-term borrowings from banks of US$18.30 million, repayments of borrowings from third parties of US$6.41 million, repayments of convertible loans of US$3.66 million and repayments of borrowings from related parties of US$1.36 million.
The revenue from technology development service increased by 44.4% from US$6.40 million for the year ended December 31, 2020 to US$9.25 million for the year ended December 31, 2021.
The revenue from technology development service decreased by 52.3% from US$16.42 million for the year ended December 31, 2022 to US$7.84 million for the year ended December 31, 2023.
Going forward, we plan to expand our product and service offerings, including our Metaverse-related offering and intelligent drawing review software products, which is expected to have a positive impact on our results of operations. 70 Sales and Marketing We have built our Xiao-i (Chinese: 小i机器人) brand through a multitude of avenues, including: ● industry trade shows; ● academic seminars; ● publicity of major milestones and achievements; and ● collaboration with relevant partners.
Thus, we intend to leverage our experience of traditional AI products, integrate non-MaaS product with LLM, and deliver AI product with better experiences in the near future. 85 Sales and Marketing We have built our Xiao-i (Chinese: 小i机器人) brand through a multitude of avenues, including: ● industry trade shows; ● academic seminars; ● publicity of major milestones and achievements; and ● collaboration with relevant partners.
Income tax benefits/(expenses) Income tax expenses were US$0.66 million in 2022, compared with income tax expenses of US$0.55 million in 2021.
Income tax benefits/(expenses) Income tax expenses were US$3.79 million in 2023, compared with income tax expenses of US$0.66 million in 2022. The fluctuation was primarily due to the full allowance of deferred tax assets we recognized in 2023.
Borrowings are short-term bank borrowings due in one year, and loans from related parties and third parties are for the purpose of ordinary business operation. Convertible loans could be extended with both parties’ consensus.
Borrowings are short-term bank borrowings due in one year, and loans from related parties and third parties are for the purpose of ordinary business operation. Other than those shown above, we did not have any other significant capital commitments and long-term obligations as of December 31, 2023.
Any appreciation of RMB, which is our reporting currency, against US$ will decrease our profit margin. On the other hand, any depreciation of RMB against US$ will adversely affect our ability to pay for foreign currency obligations.
On the other hand, any depreciation of RMB against US$ will adversely affect our ability to pay for foreign currency obligations. RESULTS OF OPERATIONS The following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amount and as a percentage of our revenues for the periods presented.
The following table sets forth the components of our cost of revenues by amounts and percentages of net revenues for the periods presented: For the Years Ended December 31, 2020 2021 2022 USD % USD % USD % Cost of materials 1,498,661 10.8 % 1,353,687 4.2 % 8,249,674 17.1 % Staff costs 5,405,015 39.0 % 5,636,003 17.3 % 7,499,583 15.6 % Cloud hosting services fees - - 3,671,322 11.3 % 1,313,492 2.7 % Others 324,370 2.3 % 224,719 0.7 % 316,395 0.7 % Total 7,228,046 52.1 % 10,885,731 33.5 % 17,379,144 36.1 % 73 Selling expenses Selling expenses primarily consist of: (i) salaries and benefits for our sales and marketing personnel; (ii) advertising costs and market promotion expenses; (iii) traveling expenses incurred by our sales and marketing personnel for business purposes; and (iv) others, which primarily include entertainment expenses related to selling and marketing functions, office expenses and consulting expenses.
The following table sets forth the components of our cost of revenues by amounts and percentages of net revenues for the periods presented: For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Cost of materials 1,353,687 4.2 % 8,249,674 17.1 % 4,656,013 7.9 % Staff costs 5,636,003 17.3 % 7,499,583 15.6 % 8,772,340 14.8 % Cloud hosting services fees 3,671,322 11.3 % 1,313,492 2.7 % 6,232,533 10.5 % Others 224,719 0.7 % 316,395 0.7 % 80,803 0.1 % Total 10,885,731 33.5 % 17,379,144 36.1 % 19,741,689 33.3 % The following table sets forth the cost of revenue of different product lines of our revenue by amounts and percentages of net revenue for the periods indicated: For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Cost of MaaS 1,474,239 4.5 % 1,590,936 3.3 % 6,537,836 11.1 % Cost of Non-MaaS 9,411,492 28.9 % 15,788,208 32.8 % 13,203,853 22.3 % Total 10,885,731 33.5 % 17,379,144 36.1 % 19,741,689 33.4 % The following table sets forth the cost of revenue of different revenue types by amounts and percentages of net revenue for the periods indicated: For the Years Ended December 31, 2021 2022 2023 USD % USD % USD % Cost of sale of cloud platform products 3,831,160 11.8 % 3,015,766 6.3 % 11,825,171 20.0 % Cost of technology development service 4,390,825 13.5 % 12,194,044 25.3 % 6,059,330 10.3 % Cost of sale of software products 771,293 2.4 % 888,220 1.8 % 834,570 1.4 % Cost of M&S service 1,862,483 5.7 % 1,255,973 2.6 % 971,417 1.6 % Cost of Sale of hardware products 29,970 0.1 % 25,141 0.1 % 51,201 0.1 % Total 10,885,731 33.5 % 17,379,144 36.1 % 19,741,689 33.4 % Selling expenses Selling expenses primarily consist of: (i) salaries and benefits for our sales and marketing personnel; (ii) advertising costs and market promotion expenses; (iii) traveling expenses incurred by our sales and marketing personnel for business purposes; and (iv) others, which primarily include entertainment expenses related to selling and marketing functions, office expenses and consulting expenses. 89 General and administrative expenses General and administrative expenses primarily consist of: (i) salaries and benefits for our administrative personnel; (ii) rental expenses relating to our leased properties used for administrative purposes and utilities which is primarily represented by water, electricity charges for administrative purposes; (iii) professional fees, which primarily represented fees we paid for legal services, audit services and consultation in the ordinary course of our business; (v) credit losses expenses, which primarily represented the credit losses of accounts receivable and prepaid expenses and other current assets, and (vi) others, which primarily include depreciation and amortization expenses, office expenses for office supplies and consumables, and other miscellaneous expenses for administrative purposes.
(a) Allowance for doubtful accounts Accounts receivable, net are stated at the original amount less an allowance for doubtful accounts. Accounts receivable are recognized in the period when we have provided services to its customers and when its right to consideration is unconditional.
Accounts receivable are recognized in the period when we have provided services to its customers and when its right to consideration is unconditional. Before January 1, 2023, we review the accounts receivable on a periodic basis and make specific allowances when there is doubt as to the collectability of individual balances.
The other income was US$0.58 million for the year ended December 31, 2020, compared with the other loss was US$1.08 million for the year ended December 31, 2021. The fluctuation was mainly due to the decrease of the government grants and the increase of interest expenses.
The fluctuation was mainly due to (i) the investment income of US$0.08 million for the year ended December 31, 2023, compared with the amount of investment loss of US$0.14 million for the year ended December 31, 2022, which was due to recovery from investee fully impaired in the prior years of US$0.16 million; (ii) an increase of the government grants, and we recognized government subsidies for scientific research in the amount of US$0.22 million and US$0.97 million for the year ended December 31, 2022 and 2023, respectively.
Cost of revenues Our cost of revenues increased by 50.6% from US$7.23 million for the year ended December 31, 2020 to US$10.89 million for the year ended December 31, 2021, which was primarily attributable to the increased cost of US$3.67 million in cloud hosting services fees for the new revenue stream.
Cost of revenues Our cost of revenues increased by 13.6% from US$17.38 million for the year ended December 31, 2022 to US$19.74 million for the year ended December 31, 2023, which was primarily attributed to the increase of cloud hosting services fees and staff costs, partially offset by the decreased cost of materials: ● The cost of materials decreased by 43.6% from US$8.25 million for the year ended December 31, 2022 to the US$4.66 million for the year ended December 31,2023.
Research and development expenses Our research and development expenses increased by 26.6% from US$4.24 million for the year ended December 31, 2020 to US$5.36 million for the year ended December 31, 2021, which was primarily attributable to the increase of salaries for research staff of US$0.69 million and professional service fee of US$0.31 million.
Selling expenses Our selling expenses decreased by 15.3% from US$4.62 million for the year ended December 31, 2021 to US$3.91 million for the year ended December 31, 2022, which was primarily attributable to (i) a decreased travel expenses and entertainment expenses of US$0.26 million due to the lock-down of Shanghai from March to May in 2022, and (ii) decreased staff salary of US$0.30 million in 2022.
The revenue recognized for license of the Drawing Platform was US$11.88 million in 2021. 77 Technology development service Our technology development service provided to customers comprises customized technology development services for specific needs.
We recognized revenue of US$0.57 million for M&S services provided for the customized technology development under the Intelligent Platform Technical Service Agreement and Intelligent Virtual Simulation Platform Technical Service Agreement in 2023, which resulted in a slight increase in revenue of M&S service. Sale of hardware products Our hardware products sold to customers comprising the hardware designed for specific needs.
Sale of cloud platform products Our cloud platform products, which is a newly established revenue stream in 2021, consist of standardized software products uploaded to our cloud platform. The revenue from sales of cloud platform products increased from nil for the year ended December 31, 2020 to US$5.55 million for the year ended December 31, 2021.
Sale of software products Our software products sold to customers comprising customized software products for specific needs. The revenue from sales of software products decreased by 55.8% from US$3.55 million for the year ended December 31, 2022 to US$1.57 million for the year ended December 31, 2023.
Cost of materials decreased by 9.7% from US$1.50 million for the year ended December 31, 2020 to US$1.35 million for the year ended December 31, 2021, primarily due to decreased demand of hardware products. Gross Profit and Gross Profit Margin Gross profit represents our revenue less cost of sales.
The revenue from sales of hardware products increased by 62.8% from US$0.05 million for the year ended December 31, 2022 to US$0.08 million for the year ended December 31, 2023.
Removed
We primarily provide cloud platform products, software business and architectural design AI services to our customers. Our software products mainly include intelligent interactive platform, intelligent voice platform, knowledge fusion platform, computer vision series platform and other core intelligent products. 69 The AI basic data service industry has plenty of opportunities for growth in the future.
Added
Since our establishment in 2001, we have been dedicated to continuous innovation and breakthroughs in core technologies related to cognitive intelligence rooted in natural language processing. Xiao-I’s development goal is to achieve scalable implementation and commercialization of our innovative proprietary technologies.
Removed
Participating in artificial intelligence technology since the inception, we have rich experience in independent research and development and industrial application of cognitive intelligence, multilingual natural language processing, deep semantic interaction, speech recognition and machine learning. We have provided services to nearly 1,000 enterprises and governments.
Added
We adhere to the mission of “serve and benefit more people with our AI technology” and provide our clients with a whole range of AI solutions, covering industries of customer service center, finance, urban public service, architecture, healthcare, manufacturing, metaverse and more. In 2023, the breakthroughs and applications of generative AI technology have continuously reshaped our understanding and expectations.
Removed
Our business covers communications, finance, government affairs, legal, medical, manufacturing and other industries, and we expanded steady growth in those industries for the next few years.

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Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

26 edited+4 added−0 removed48 unchanged
Compensation Committee . Our compensation committee consists of Hui Yuan, Jun Xu and Zhong Lin, and is chaired by Hui Yuan. Except for Hui Yuan, Jun Xu and Zhong Lin each satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Global Market.
Our compensation committee consists of Hui Yuan, Jun Xu and Zhong Lin, and is chaired by Hui Yuan. Except for Hui Yuan, Jun Xu and Zhong Lin each satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Global Market.
Our nominating and corporate governance committee consists of Hui Yuan, Jun Xu, Zhong Lin and H. David Sherman, and is chaired by Hui Yuan. Except for Hui Yuan, Jun Xu, Zhong Lin and H. David Sherman each satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Global Market.
Nominating and Corporate Governance Committee . Our nominating and corporate governance committee consists of Hui Yuan, Jun Xu, Zhong Lin and H. David Sherman, and is chaired by Hui Yuan. Except for Hui Yuan, Jun Xu, Zhong Lin and H. David Sherman each satisfies the “independence” requirements of Rule 5605(c)(2) of the Listing Rules of the Nasdaq Global Market.
The audit committee is responsible for, among other things: ● selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; ● reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; ● discussing the annual audited financial statements with management and the independent registered public accounting firm; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● meeting separately and periodically with management and the independent registered public accounting firm; and ● reporting regularly to the board.
The audit committee is responsible for, among other things: ● selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; ● reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; ● reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; ● discussing the annual audited financial statements with management and the independent registered public accounting firm; ● reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; ● annually reviewing and reassessing the adequacy of our audit committee charter; ● meeting separately and periodically with management and the independent registered public accounting firm; and ● reporting regularly to the board. 109 Compensation Committee .
Board Diversity Matrix Country of Principal Executive Offices China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 5 Part I: Gender Identity Female Male Non-Binary Did Not Disclose Gender Directors 1 4 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 1 LGBTQ+ 0 Did Not Disclose Demographic Background 0 86 Family Relationships There are no family relationships among the directors and executive officers of the Company.
Board Diversity Matrix Country of Principal Executive Offices China Foreign Private Issuer Yes Disclosure Prohibited Under Home Country Law No Total Number of Directors 5 Part I: Gender Identity Female Male Non-Binary Did Not Disclose Gender Directors 1 4 0 0 Part II: Demographic Background Underrepresented Individual in Home Country Jurisdiction 1 LGBTQ+ 0 Did Not Disclose Demographic Background 0 105 Family Relationships There are no family relationships among the directors and executive officers of the Company.
Director, Senior Management and Employees—Compensation—2023 Share Incentive Plan.” F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. Not applicable.
Director, Senior Management and Employees—Compensation—2023 Share Incentive Plan.” F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation. Not applicable. 111
As of the date of this annual report, we have not granted any awards under the 2023 Plan. The following paragraphs summarize the principal terms of the 2023 Plan. Types of awards .
As of the date of this annual report, we have not granted any awards under the 2023 Plan. 106 The following paragraphs summarize the principal terms of the 2023 Plan. Types of awards .
We primarily recruit our employees through on-campus job fairs, recruitment agencies and online channels, including our corporate website and third-party employment websites. We provide regular training and reviews to our employees to enhance their performance. Substantially all of our employees as of March 31, 2023 are stationed in China.
We primarily recruit our employees through on-campus job fairs, recruitment agencies and online channels, including our corporate website and third-party employment websites. We provide regular training and reviews to our employees to enhance their performance. Substantially all of our employees as of March 31, 2024 are stationed in China.
The compensation committee is responsible for, among other things: ● reviewing the total compensation package for our executive officers and making recommendations to the board with respect to it; ● reviewing the compensation of our non-employee directors and making recommendations to the board with respect to it; and ● periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans. 89 Nominating and Corporate Governance Committee .
The compensation committee is responsible for, among other things: ● reviewing the total compensation package for our executive officers and making recommendations to the board with respect to it; ● reviewing the compensation of our non-employee directors and making recommendations to the board with respect to it; and ● periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans.
Xu earned his MBA degree from China Europe International Business School in 2017. 85 Dr. Zhong Lin Dr. Zhong Lin is an independent director of Xiao-I Corporation. Dr. Lin possesses more than 25 years’ experience in the areas of international commercial law and is the founder and Managing Partner of Leadvisor Law, a leading China-based business law firm. Dr.
Xu earned his MBA degree from China Europe International Business School in 2017. 104 Dr. Zhong Lin D r. Zhong Lin is an independent director of Xiao-I Corporation. Dr. Lin possesses more than 25 years’ experience in the areas of international commercial law and is the founder and Managing Partner of Leadvisor Law, a leading China-based business law firm. Dr.
The board or the committee shall determine, among other things, the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant. 87 Award agreement .
The board or the committee shall determine, among other things, the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant. Award agreemen t.
Directors and Executive Officers Age Position/Title Hui Yuan(2)(3)(4) 49 Chief Executive Officer, Director, Chairman of the Board of Directors Wei Weng 37 Chief Financial Officer Xiaomei Wu(5) 53 Director Jun Xu (1)(2)(3)(5) 48 Independent Director Zhong Lin (1)(2)(3)(5) 53 Independent Director H.
Directors and Executive Officers Age Position/Title Hui Yuan (2)(3)(4) 50 Chief Executive Officer, Director, Chairman of the Board of Directors Wei Weng 38 Chief Financial Officer Xiaomei Wu (5) 54 Director Jun Xu (1)(2)(3)(5) 49 Independent Director Zhong Lin (1)(2)(3)(5) 54 Independent Director H.
Yuan served as the executive director of Incesoft from 2001 to 2012. Recognized as a pioneer and expert in the field of artificial intelligence, Mr. Yuan’s has been invited to share his thought leadership on numerous world stages, including the World Economic Forum/Davos Forum, Boao Forum for Asia, and many others. Mr.
Recognized as a pioneer and expert in the field of artificial intelligence, Mr. Yuan’s has been invited to share his thought leadership on numerous world stages, including the World Economic Forum/Davos Forum, Boao Forum for Asia, and many others. Mr.
Our directors may exercise all the powers of our company to borrow money, mortgage or charge its undertaking, property and uncalled capital and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party.
Our directors may exercise all the powers of our company to borrow money, mortgage or charge its undertaking, property and uncalled capital and to issue debentures or other securities whenever money is borrowed or as security for any debt, liability or obligation of our company or of any third party. 108 Director Independence Our board has reviewed the independence of our directors, applying Nasdaq independence standards.
Director and Executive Officer Biographies Mr. Hui Yuan Mr. Hui Yuan serves as the CEO and Chairman of the board of directors of Xiao-I Corporation since March 2018. Mr. Yuan has been the CEO and Chairman of the board of directors of Shanghai Xiao-i since 2009. Prior to that, Mr.
Hui Yuan Mr. Hui Yuan serves as the CEO and Chairman of the board of directors of Xiao-I Corporation since March 2018. Mr. Yuan has been the CEO and Chairman of the board of directors of Shanghai Xiao-i since 2009. Prior to that, Mr. Yuan served as the executive director of Incesoft from 2001 to 2012.
For the fiscal year ended December 31, 2022, we paid an aggregate of US$95,014 in cash to our executive officers, and we paid US$40,190 to our non-executive director. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers.
For the fiscal year ended December 31, 2023, we paid an aggregate of US$732,062 in cash to our executive officers, and we paid US$126,395 to our non-executive director. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our directors and executive officers.
As required under applicable Nasdaq Global Market rules, our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management. 88 Committees of the Board of Directors We have three committees under the board of directors with a charter for each of the three committees.
As required under applicable Nasdaq Global Market rules, our independent directors will meet on a regular basis as often as necessary to fulfill their responsibilities, including at least annually in executive session without the presence of non-independent directors and management.
Terms of Directors Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders.
Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders.
Director Independence Our board has reviewed the independence of our directors, applying Nasdaq independence standards. Based on this review, the board determined that each H. David Sherman, Jun Xu and Zhong Lin is “independent” within the meaning of the Nasdaq Global Market rules.
Based on this review, the board determined that each H. David Sherman, Jun Xu and Zhong Lin is “independent” within the meaning of the Nasdaq Global Market rules.
D. Employees. As of March 31, 2023, we had 352 full-time employees. The following table sets forth the number of our full-time employees by function as of March 31, 2023: Function/Department Management 58 Sales and Marketing 51 Research and Development 214 Production 29 Total 352 90 Our success depends on our ability to attract, retain and motivate qualified employees.
D. Employees. As of March 31, 2024, we had 281 full-time employees. The following table sets forth the number of our full-time employees by function as of March 31, 2024: Function/Department Management 57 Sales and Marketing 46 Research and Development 158 Production 20 Total 281 Our success depends on our ability to attract, retain and motivate qualified employees.
Limitation on Liability and Other Indemnification Matters Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
However, no such action may adversely affect in any material way any award previously granted without prior written consent of the participant. 107 Limitation on Liability and Other Indemnification Matters Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime.
B. Compensation. Compensation of Directors and Executive Officers For the fiscal year ended December 31, 2021, we paid an aggregate of US$113,376 in cash to our executive officers, and we paid US$42,987 to our non-executive director.
B. Compensation. Compensation of Directors and Executive Officers For the fiscal year ended December 31, 2022, we paid an aggregate of US$95,014 in cash to our executive officers, and we paid US$40,190 to our non-executive director.
We have the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.
We have the right to seek damages if a duty owed by our directors is breached.
David Sherman (1)(3)(5) 74 Independent Director (1) Audit committee member (2) Compensation committee member (3) Nominating and Corporate Governance committee member (4) Executive Director (5) Non-Executive Director The current business address for our executive officers and board of directors is c/o Xiao-I Corporation, 1F, Building 383, No. 1555 of West Jinshajiang Road, Shanghai, China, 201803.
David Sherman (1)(3)(5) 75 Independent Director (1) Audit committee member (2) Compensation committee member (3) Nominating and Corporate Governance committee member (4) Executive Director (5) Non-Executive Director The current business address for our executive officers and board of directors is c/o Xiao-I Corporation, 5th Floor, Building 2, No. 2570 Hechuan Road, Minhang District, Shanghai, China, 201103. 103 Director and Executive Officer Biographies Mr.
Each committee’s members and functions are described below. Audit Committee . Our audit committee consists of H. David Sherman, Jun Xu and Zhong Lin, and is chaired by H. David Sherman.
Committees of the Board of Directors We have three committees under the board of directors with a charter for each of the three committees. Each committee’s members and functions are described below. Audit Committee . Our audit committee consists of H. David Sherman, Jun Xu and Zhong Lin, and is chaired by H. David Sherman.
Termination and amendmen t. Unless terminated earlier, the 2023 Plan has a term of ten years. Our board of directors may terminate, amend or modify the plan, subject to the limitations of applicable laws. However, no such action may adversely affect in any material way any award previously granted without prior written consent of the participant.
Termination and amendment . Unless terminated earlier, the 2023 Plan has a term of ten years. Our board of directors may terminate, amend or modify the plan, subject to the limitations of applicable laws.
WFOE and the PRC operating entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund. 2023 Share Incentive Plan On November 30, 2022, the Company adopted our 2023 share incentive plan (the “2023 Plan”), to promote the success and enhance the value of the Company by linking the personal interests of the Directors, Employees, and Consultants to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders.
WFOE and the PRC operating entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Added
Grant of Equity Awards to Officers On January 3, 2024 (the “Grant Date”), we granted Hui Yuan, our Chief Executive Officer (“CEO”), the right and option (the “Option”) to purchase 1,446,936.00 American Depository Shares (the “Shares”) of the Company, at a price per share of US$2.07 (the “Exercise Price”) with one-third vesting annually over three years, beginning on the first anniversary of the Grant Date, pursuant to the Company’s 2023 Share Incentive Plan.
Added
In addition, we granted the CEO and Wei Weng, our Chief financial Officer (“CFO”) each, an award of 50,000 and 30,000 Restricted Share Units (the “RSUs”), respectively (the “Award”). Each Restricted Share Unit represents the right to receive one American Depository Share of the Company. The RSUs fully vested upon grant.
Added
The Award payout shall be made to the CEO and CFO in a lump sum as soon as practicable, but in all cases within two and one-half (2-1/2) months following the vesting date, which is the Grant Date. 2023 Share Incentive Plan On November 30, 2022, the Company adopted our 2023 share incentive plan (the “2023 Plan”), to promote the success and enhance the value of the Company by linking the personal interests of the Directors, Employees, and Consultants to those of the Company’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s shareholders.
Added
In limited exceptional circumstances, a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached. 110 Terms of Directors Our directors may be elected by a resolution of our board of directors, or by an ordinary resolution of our shareholders.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

33 edited+18 added−11 removed60 unchanged
The service fees shall consist of 100% of the profit before tax of Shanghai Xiao-i, after the deduction of all costs, expenses, taxes and other fee required under PRC laws and regulations.
The service fees shall consist of 100% of the profit before tax of Shanghai Xiao-i, after the deduction of all costs, expenses, taxes and other fee required under PRC laws and regulations.
Shanghai Xiao-i agrees not to accept the same or any similar services provided by any third party and shall not establish cooperation relationships similar to that formed by the Exclusive Business Cooperation Agreement with any third party, except with the prior written consent of Zhizhen Technology.
Shanghai Xiao-i agrees not to accept the same or any similar services provided by any third party and shall not establish cooperation relationships similar to that formed by the Exclusive Business Cooperation Agreement with any third party, except with the prior written consent of Zhizhen Technology.
ASC 810 requires a VIE to be consolidated if the company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.
ASC 810 requires a VIE to be consolidated if the company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
GAAP, the results of the PRC operating entities are consolidated in Xiao-I’s financial statements. However, investors will not and may never hold equity interests in the PRC operating entities. The VIE Agreements may not be effective in providing control over Shanghai Xiao-i.
GAAP, the results of the PRC operating entities are consolidated in Xiao-I’s financial statements. However, investors will not and may never hold equity interests in the PRC operating entities. The VIE Agreements may not be effective in providing control over Shanghai Xiao-i.
Zhizhen Technology has entered into the following contractual arrangements with Shanghai Xiao-i and 61 of its shareholders, whom together hold 100% equity interest in Shanghai Xiao-i, that enable the Company to (i) have power to direct the activities that most significantly affect the performance of Shanghai Xiao-i and its subsidiaries, and (ii) receive the benefits of Shanghai Xiao-i and its subsidiaries that could be significant to Shanghai Xiao-i and its subsidiaries.
Zhizhen Technology has entered into the following contractual arrangements with Shanghai Xiao-i and its shareholders, whom together hold 100% equity interest in Shanghai Xiao-i, that enable the Company to (i) have power to direct the activities that most significantly affect the performance of Shanghai Xiao-i and its subsidiaries, and (ii) receive the benefits of Shanghai Xiao-i and its subsidiaries that could be significant to Shanghai Xiao-i and its subsidiaries.
The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in the PRC operating entities’ operations and the value of Xiao-I’s ADSs, including that it could cause the value of such securities to significantly decline or become worthless. 93 The VIE Agreements The PRC government regulates the telecommunications and internet industry, including software industry, through strict business licensing requirements and other government regulations.
The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in the PRC operating entities’ operations and the value of Xiao-I’s ADSs, including that it could cause the value of such securities to significantly decline or become worthless. 114 The VIE Agreements The PRC government regulates the telecommunications and internet industry, including software industry, through strict business licensing requirements and other government regulations.
This agreement will continue with full force and effect until the earlier of the date on which Zhizhen Technology has acquired all of the Equity Interests in Shanghai Xiao-i, or this Agreement is terminated by the mutual written consent. 94 Exclusive Business Cooperation Agreement On March 29, 2019, Zhizhen Technology entered into an Exclusive Business Cooperation Agreement with Shanghai Xiao-i to enable Zhizhen Technology to engage in the development and operation of the Internet technology development in accordance with applicable laws.
This agreement will continue with full force and effect until the earlier of the date on which Zhizhen Technology has acquired all of the Equity Interests in Shanghai Xiao-i, or this Agreement is terminated by the mutual written consent. 115 Exclusive Business Cooperation Agreement On March 29, 2019, Zhizhen Technology entered into an Exclusive Business Cooperation Agreement with Shanghai Xiao-i to enable Zhizhen Technology to engage in the development and operation of the Internet technology development in accordance with applicable laws.
The registered address of Grand Glory (Hong Kong) Corporation Limited is Unit 2204, 22/F Lippo Ctr Tower 2, 89 Queensway, Hong Kong. (9) iTeam Holding Limited is incorporated in British Virgin Islands and is owned by our Chairman and CEO, Mr. Yuan who controls 100% of the voting power of iTeam Holding Limited.
The registered address of Grand Glory (Hong Kong) Corporation Limited is Unit 2204, 22/F Lippo Ctr Tower 2, 89 Queensway, Hong Kong. (7) iTeam Holding Limited is incorporated in British Virgin Islands and is owned by our Chairman and CEO, Mr. Yuan who controls 100% of the voting power of iTeam Holding Limited.
(10) Shanghai Maocheng Enterprise Management Center (Limited Partnership) is formed in Shanghai, China and is owned by Jiaxing Well Known Investment Partnership (limited Partnership) (a Chinese company), with 99% ownership and Zhiwei Zheng with 1%, which in return is owned by Zhiwei Zheng and Lijun Zhong 50/50.
(8) Shanghai Maocheng Enterprise Management Center (Limited Partnership) is formed in Shanghai, China and is owned by Jiaxing Well Known Investment Partnership (limited Partnership) (a Chinese company), with 99% ownership and Zhiwei Zheng with 1%, which in return is owned by Zhiwei Zheng and Lijun Zhong 50/50.
The registered address of River Hill China Fund L.P. is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. 92 (8) Grand Glory (Hong Kong) Corporation Limited is incorporated in Hong Kong and is wholly owned and controlled by Zhejiang Geely Holding Group Co., Ltd.
The registered address of River Hill China Fund L.P. is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. (6) Grand Glory (Hong Kong) Corporation Limited is incorporated in Hong Kong and is wholly owned and controlled by Zhejiang Geely Holding Group Co., Ltd.
See “Risk Factors — Risks Relating to Doing Business in China — There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits .” Other Related Party Transactions The following provides descriptions of related party transactions based on (1) names of related parties and their relationships with the Company through its wholly-owned subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiaries (collectively, the “Group”), (2) amounts due from related parties, (3) amounts due to related parties and (4) nature of loans/transactions and interest rates of the loans. 102 Related parties The following is a list of related parties which the Group has transactions with: No.
See “Risk Factors — Risks Relating to Doing Business in China — There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefi ts.” Other Related Party Transactions The following provides descriptions of related party transactions based on (1) names of related parties and their relationships with the Company through its wholly owned subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiaries (collectively, the “Group”), (2) amounts due from related parties, (3) amounts due to related parties and (4) nature of loans/transactions and interest rates of the loans.
As of December 31, 2021 and 2022, $1,254,528 and US$908,614 of cash and cash equivalents were denominated in RMB, respectively. Xiao-I and its directly and indirectly wholly owned subsidiaries, AI Plus, Xiao-i Technology and Zhizhen Technology do not have any substantial assets or liabilities or result of operations.
As of December 31, 2022 and 2023, $908,614 and US$688,277 of cash and cash equivalents were denominated in RMB, respectively. Xiao-I and its directly and indirectly wholly owned subsidiaries, AI Plus, Xiao-i Technology and Zhizhen Technology do not have any substantial assets or liabilities or result of operations.
Significant transactions with related parties For the years ended December 31, Nature 2020 2021 2022 Software and service income Zhejiang Baiqianyin $ 2,449,560 $ 286,875 $ - Technology service fee payable Shanghai Shenghan $ 130,356 $ 465,058 $ - Zhizhen Guorui (Shanghai) Information Technology Development Co., Ltd. - - 100,315 Interest-free loans from related parties Zhejiang Baiqianyin $ 1,448 $ 5,782,216 $ 1,783,326 Hui Yuan - 9,696,450 532,026 Haiyin Capital Investment (International) Limited - 126,744 - Jiaxing Chiyu Investment Partnership (limited Partnership) - 775,097 - Tianjin Haiyin - 310,038 - Weng Wei - 74,409 - Interest-free loans repayment to related parties Zhejiang Baiqianyin $ - $ 5,470,627 $ 1,788,230 Jiaxing Chiyu Investment Partnership (limited Partnership) - - 297,221 Hui Yuan - 899,111 169,416 Jiaxing Sound Core Intelligent Technology Co., LTD - - 59,444 Shanghai Shenghan - 139,517 - Weng Wei - 74,409 - Tianjin Haiyin - 310,038 - Return of inventories to a related party Shanghai Shenghan $ - $ - $ 239,330 Debt relief Shanghai Machinemind Intelligent Technology Co., Ltd. $ - $ - $ 72,819 104 Arrangements with Our Executive Officers and Directors Agreements with Our Non-Executive Directors We have entered into an independent director agreement with one of our non-executive directors.
Significant transactions with related parties For the years ended December 31, Nature 2021 2022 2023 Software and service income Zhejiang Baiqianyin $ 286,875 $ - $ - Technology service fee payable - Shanghai Shenghan $ 465,058 $ - $ - Zhizhen Guorui - 100,315 661,010 Technology service fee paid Shanghai Shenghan $ - $ - $ 112,980 Zhizhen Guorui 684,412 Loans from related parties Hui Yuan $ - $ - $ 400,000 Interest-free loans from related parties Zhejiang Baiqianyin $ 5,782,216 $ 1,783,326 $ 290,076 Hui Yuan 9,696,450 532,026 - Haiyin Capital Investment (International) Limited 126,744 - - Jiaxing Chiyu Investment Partnership (limited Partnership) 775,097 - - Tianjin Haiyin 310,038 - - Weng Wei 74,409 - - Interest-free loans repayment to related parties Zhejiang Baiqianyin $ 5,470,627 $ 1,788,230 $ 141 Jiaxing Chiyu Investment Partnership (limited Partnership) - 297,221 - Hui Yuan 899,111 169,416 1,355,760 Jiaxing Sound Core Intelligent Technology Co., LTD - 59,444 31,776 Shanghai Shenghan 139,517 - - Weng Wei 74,409 - - Tianjin Haiyin 310,038 - - Return of inventories to a related party Shanghai Shenghan $ - $ 239,330 $ - Interest-free loans to a related party Zhizhen Guorui $ - $ - $ 13,896,539 Debt relief Shanghai Machinemind Intelligent Technology Co., Ltd. $ - $ 72,819 $ - 126 Arrangements with Our Executive Officers and Directors Agreements with Our Non-Executive Directors We have entered into an independent director agreement with one of our non-executive directors.
(7) River Hill China Fund L.P. is formed in Cayman Islands and is wholly owned and controlled by Hangzhou Ali Venture Capital Co., Ltd. (a Chinese company), which in return is wholly owned and controlled by Hangzhou Zhenxi Investment Co., Ltd.
Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands. (5) River Hill China Fund L.P. is formed in Cayman Islands and is wholly owned and controlled by Hangzhou Ali Venture Capital Co., Ltd. (a Chinese company), which in return is wholly owned and controlled by Hangzhou Zhenxi Investment Co., Ltd.
Moreover, the transfer of funds among the PRC operating entities are subject to the Provisions on Private Lending Cases, which was implemented on January 1, 2021 to regulate the financing activities between natural persons, legal persons and unincorporated organizations.
As a result of these PRC laws and regulations, the PRC operating entities are restricted in their ability to transfer a portion of their net assets to the Company. 123 Moreover, the transfer of funds among the PRC operating entities are subject to the Provisions on Private Lending Cases, which was implemented on January 1, 2021 to regulate the financing activities between natural persons, legal persons and unincorporated organizations.
The Company has not provided any financial support to the PRC operating entities for the fiscal years ended at December 31, 2020, 2021 and 2022, and the variable interest entities accounted for an aggregate of 100%, 95%, and 96% of the Company’s total assets and total liabilities, respectively.
The Company has not provided any financial support to the PRC operating entities for the fiscal years ended at December 31, 2021, 2022, but transferred cash through other subsidiaries and WFOE to VIE and its consolidated subsidiaries in 2023, and the variable interest entities accounted for an aggregate of 95%, 96% and 83% of the Company’s total assets, respectively.
Subject to the amounts of cash transfer and the nature of the use of funds, requisite internal approval shall be obtained prior to each cash transfer. Specifically, all transactions require the approval of the financial manager.
Subject to the amounts of cash transfer and the nature of the use of funds, requisite internal approval shall be obtained prior to each cash transfer. Specifically, all transactions require the approval of the financial manager. As for the large quantity transactions, the Chief Financial Officer and Chief Executive Officer are required to conduct regular review and approve.
For the year ended December 31, the Group made fully provisions of receivables from Shanghai Aoshu. 103 Amounts due to related parties Amount due to related parties consisted of the following for the periods indicated: As of December 31, 2021 2022 Due to related parties-current Accounts payable Shanghai Shenghan $ 470,765 $ 201,465 Shanghai Machinemind Intelligent Technology Co., Ltd. 76,892 - Jiaxing Sound Core Intelligent Technology Co., LTD 98,076 32,622 Zhizhen Guorui (Shanghai) Information Technology Development Co., Ltd. - 97,868 Interest-free loans (c) Jiaxing Chiyu Investment Partnership (limited Partnership) $ 784,610 $ 434,959 Haiyin Capital Investment (International) Limited 128,299 129,517 Subtotal-due to related parties-current 1,558,642 896,431 Due to related parties-non current Interest-free loans (c) Hui Yuan $ 8,905,313 $ 8,581,743 Subtotal-due to related parties-non current 8,905,313 8,581,743 Total $ 10,463,955 $ 9,478,174 (c) The balance represents the advance funds from related parties for daily operational purposes.
Amounts due to related parties Amount due to related parties consisted of the following for the periods indicated: As of December 31, 2022 2023 Due to related parties-current Accounts payable Shanghai Shenghan $ 201,465 $ 83,036 Shanghai Machinemind Intelligent Technology Co., Ltd. - - Jiaxing Sound Core Intelligent Technology Co., LTD 32,622 - Zhizhen Guorui 97,868 71,735 Interest-free loans (d) Jiaxing Chiyu Investment Partnership (limited Partnership) $ 434,959 $ 422,541 Haiyin Capital Investment (International) Limited 129,517 127,635 Subtotal-due to related parties-current 896,431 704,947 Due to related parties-non current Hui Yuan(e) $ 8,581,743 $ 7,905,290 Subtotal-due to related parties-non current 8,581,743 7,905,290 Total $ 9,478,174 $ 8,610,237 125 (d) The balance represents the advance funds from related parties for daily operational purposes.
Xiao-I has evaluated the guidance in FASB ASC 810 and determined that Xiao-I is the primary beneficiary of the VIE, for accounting purposes, based upon such contractual arrangements.
The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign investment in the operating companies. Xiao-I has evaluated the guidance in FASB ASC 810 and determined that Xiao-I is the primary beneficiary of the VIE, for accounting purposes, based upon such contractual arrangements.
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares as of the date of this annual report: ● each of our directors and executive officers who beneficially own our ordinary shares; ● our directors and executive officers as a group; and ● each person known to us to own beneficially more than 5% of our ordinary shares.
The following table sets forth information with respect to the beneficial ownership, of our ordinary shares as of the date of April 1, 2024 by: ● each member of our board of directors and each of our executive officers ● our directors and executive officers as a group; and ● each person, or group of affiliated persons, known by us to own beneficially 5% or more of our outstanding ordinary shares.
Ordinary Shares Beneficially Owned Number Percent Directors and Executive Officers: Hui Yuan (3) 3,255,966 13.34 % All directors and executive officers as a group (1 individual): 3,255,966 13.34 % Other ≥ 5% Beneficial Owners AI Smart Holding Limited (4) 2,119,738 8.68 % ZunTian Holding Limited (5) 1,969,546 8.07 % PP Smart Holding Limited (6) 1,668,542 6.83 % River Hill China Fund L.P (7) 1,458,532 5.97 % Grand Glory (Hong Kong) Corporation Limited (8) 1,444,752 5.92 % iTeam Holding Limited (9) 1,286,420 5.27 % Shanghai Maocheng Enterprise Management Center (Limited Partnership) (10) 1,203,972 4.93 % Shanghai Tongjun Enterprise Management Consulting Partnership (Limited Partnership) (11) 1,146,350 4.7 % (1) Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the Ordinary Shares.
Ordinary Shares Beneficially Owned Number Percent Directors and Executive Officers: Hui Yuan (1) 3,272,633 13.62 % Wei Weng (2) 10,000 * All directors and executive officers as a group (2 individuals): 3,282,633 13.65 % Other ≥ 5% Beneficial Owners ZunTian Holding Limited (3) 1,969,546 8.20 % PP Smart Holding Limited (4) 1,668,542 6.95 % River Hill China Fund L.P (5) 1,458,532 6.07 % Grand Glory (Hong Kong) Corporation Limited (6) 1,444,752 6.02 % iTeam Holding Limited (7) 1,286,420 5.36 % Shanghai Maocheng Enterprise Management Center (Limited Partnership) (8) 1,203,972 5.01 % * Indicates beneficial ownership of less than 1% of the total outstanding ordinary shares.
Name of Related Parties Relationship 1 Zhejiang Baiqianyin Network Technology Co., Ltd (“Zhejiang Baiqianyin”) An entity which has a common director of the Board of Directors with the Group 2 Shanghai Shenghan An entity which the Group holds 16.56% equity interests 3 Shanghai Aoshu Enterprise Management Partnership (Limited Partnership) (“Shanghai Aoshu”) An entity which is the Group’s employee stock ownership platform, and has a common director of the Board of Directors with the Group 4 Shanghai Machinemind Intelligent Technology Co., Ltd.
Name of Related Parties Relationship 1 Zhejiang Baiqianyin Network Technology Co., Ltd (“Zhejiang Baiqianyin”) An entity which has a common director of the Board of Directors with the Group 2 Shanghai Shenghan An entity which the Group holds 16.56% equity interests 3 Shanghai Aoshu Enterprise Management Partnership (Limited Partnership) (“Shanghai Aoshu”) An entity which is the Group’s employee stock ownership platform, and has a common director of the Board of Directors with the Group 4 Jiaxing Sound Core Intelligent Technology Co., LTD An entity which Shanghai Shenghan holds 20% equity interests 5 Hui Yuan Chairman of the board, one of the major shareholders holding 13.61% equity interests of the Company 6 Tianjin Haiyin Equity Investment Fund Partnership (Limited Partnership) (“Tianjin Haiyin”) A significant shareholder holding 5.18% equity interests of the Company 7 Jiaxing Chiyu Investment Partnership (limited Partnership) A significant shareholder holding 5.44% equity interests of the Company 8 Haiyin Capital Investment (International) Limited A subsidiary of Tianjin Haiyin 9 Zhizhen Guorui An entity which the Group holds 26% equity interests 10 Weng wei CFO of the Company 11 Shanghai Machinemind Intelligent Technology Co., Ltd.
The registered address of Shanghai Maocheng Enterprise Management Center (Limited Partnership) is Floor 5, Building 7, No. 3601, Dongfang Road, Pudong New Area, Shanghai, China.
The registered address of Shanghai Maocheng Enterprise Management Center (Limited Partnership) is Floor 5, Building 7, No. 3601, Dongfang Road, Pudong New Area, Shanghai, China. 113 As of the date of this annual report, none of our outstanding ordinary shares were held by record holders in the United States.
As for the large quantity transactions, the Chief Financial Officer and Chief Executive Officer are required to conduct regular review and approve. 101 Xiao-I is a holding company with no operations of its own. It conducts its operations in China primarily through the PRC operating entities in China.
Xiao-I is a holding company with no operations of its own. It conducts its operations in China primarily through the PRC operating entities in China.
The following table sets forth the assets, liabilities, results of operations and changes in cash, cash equivalents of the PRC operating entities, which were included in the Company’s consolidated balance sheets and statements of comprehensive income/(loss) and statements of cash flows with intercompany transactions eliminated: 96 For the year ended December 31, 2020 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 13,856,734 - - - 13,856,734 Cost of revenues - (7,228,046 ) - - - (7,228,046 ) Gross profit - 6,628,688 - - - 6,628,688 Operating expenses - (14,498,268 ) - - - (14,498,268 ) Loss of VIE and VIE’s subsidiaries absorbed by WFOE - - (6,808,365 ) - 6,808,365 - Share of loss in subsidiaries (6,808,365 ) - - - 6,808,365 - Total operating expenses (6,808,365 ) (14,498,268 ) (6,808,365 ) - 13,616,730 (14,498,268 ) Loss from operations (6,808,365 ) (7,869,580 ) (6,808,365 ) - 13,616,730 (7,869,580 ) Other income - 577,684 - - - 577,684 Income tax benefits - 235,854 - - - 235,854 Net loss (6,808,365 ) (7,056,042 ) (6,808,365 ) - 13,616,730 (7,056,042 ) Net loss attributable to non-controlling interests - (247,677 ) - - - (247,677 ) Net loss attributable to XIAO-I CORPORATION shareholders (6,808,365 ) (6,808,365 ) - - 6,808,365 (6,808,365 ) For the year ended December 31, 2020 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash used in operating activities - (3,463,094 ) - - - (3,463,094 ) Net cash used in investing activities - (25,825 ) - - - (25,825 ) Net cash provided by financing activities - 1,792,682 - - - 1,792,682 Effect of exchange rate changes - (797,954 ) - - - (797,954 ) Net change in cash, cash equivalents and restricted cash - (2,494,191 ) - - - (2,494,191 ) Cash, cash equivalents and restricted cash, at beginning of year 1,105 3,320,111 - 4 - 3,321,220 Cash, cash equivalents and restricted cash, at end of year 1,105 825,920 - 4 - 827,029 97 As of December 31, 2021 Condensed Consolidating Schedule of Financial Position Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Assets Current assets: Cash and cash equivalents 1,105 1,310,737 - 4 - 1,311,846 Accounts receivable, net - 31,184,779 - - - 31,184,779 Amounts due from related parties - 391,919 - - - 391,919 Inventories - 768,762 - - - 768,762 Contract costs - 1,669,519 - - - 1,669,519 Deferred offering costs - - - - - - Advance to suppliers 90,350 90,350 Prepaid expenses and other current assets, net 4 388,844 - - - 388,848 Total current assets 1,109 35,804,910 - 4 - 35,806,023 Non-current assets: Property and equipment, net - 207,989 - - - 207,989 Intangible assets, net - 798,459 - - - 798,459 Long-term investment - 335,448 - - - 335,448 Right of use assets - 1,194,859 - - - 1,194,859 Deferred tax assets, net - 4,906,287 - - - 4,906,287 Prepaid expenses and other, non-current assets - 3,941,346 - - - 3,941,346 Total non-current assets - 11,384,388 - - - 11,384,388 TOTAL ASSETS 1,109 47,189,298 - 4 - 47,190,411 Liabilities Current liabilities: Short-term borrowings - 9,117,158 - - - 9,117,158 Accounts payable - 5,581,879 - - - 5,581,879 Amount due to related parties-current - 1,558,642 - - - 1,558,642 Deferred revenue - 2,953,238 - - - 2,953,238 Convertible loans - 5,717,737 - - - 5,717,737 Accrued liabilities and other current liabilities - 10,316,428 - 4 - 10,316,432 Lease liabilities, current - 800,658 - - - 800,658 Income tax payable - 17,904 - - - 17,904 Deficit of VIE and VIE’s subsidiaries absorbed by WFOE - - 190,267 - (190,267 ) - Investment deficit in subsidiaries 190,267 - - - (190,267 ) - Total current liabilities 190,267 36,063,644 190,267 4 (380,534 ) 36,063,648 Non-current liabilities: Amount due to related parties-non current - 8,905,313 - - - 8,905,313 Accrued liabilities, non-current - 5,157,971 - - - 5,157,971 Lease liabilities, non-current - 446,140 - - - 446,140 Total non-current liabilities - 14,509,424 - - - 14,509,424 TOTAL LIABILITIES 190,267 50,573,068 190,267 4 (380,534 ) 50,573,072 Shareholders’ deficit Ordinary shares 1,106 - - - - 1,106 Additional paid-in capital 75,621,294 75,621,294 - - (75,621,294 ) 75,621,294 Statutory reserve 237,486 237,486 - - (237,486 ) 237,486 Accumulated deficit (72,584,621 ) (72,584,621 ) (190,267 ) - 72,774,888 (72,584,621 ) Accumulated other comprehensive loss (3,464,423 ) (3,464,426 ) - - 3,464,426 (3,464,423 ) XIAO-I CORPORATION shareholders’ deficit (189,158 ) (190,267 ) (190,267 ) - 380,534 (189,158 ) Non-controlling interests - (3,193,503 ) - - - (3,193,503 ) Total shareholders’ deficit (189,158 ) (3,383,770 ) (190,267 ) - 380,534 (3,382,661 ) TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT 1,109 47,189,298 - 4 - 47,190,411 98 For the year ended December 31, 2021 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 32,524,013 - - - 32,524,013 Cost of revenues - (10,885,731 ) - - - (10,885,731 ) Gross profit - 21,638,282 - - - 21,638,282 Operating expenses - (16,641,273 ) - - - (16,641,273 ) Income of VIE and VIE’s subsidiaries absorbed by WFOE - - 3,677,813 - (3,677,813 ) - Share of income in subsidiaries 3,677,813 - - - (3,677,813 ) - Total operating expenses 3,677,813 (16,641,273 ) 3,677,813 - (7,355,626 ) (16,641,273 ) Income from operations 3,677,813 4,997,009 3,677,813 - (7,355,626 ) 4,997,009 Other loss - (1,079,652 ) - - - (1,079,652 ) Income tax expenses - (552,355 ) - - - (552,355 ) Net income 3,677,813 3,365,002 3,677,813 - (7,355,626 ) 3,365,002 Net loss attributable to non-controlling interests - (312,811 ) - - - (312,811 ) Net income attributable to XIAO-I CORPORATION shareholders 3,677,813 3,677,813 - - (3,677,813 ) 3,677,813 For the year ended December 31, 2021 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash used in operating activities - (11,887,122 ) - - - (11,887,122 ) Net cash provided by investing activities - 77,259 - - - 77,259 Net cash provided by financing activities - 12,192,952 - - - 12,192,952 Effect of exchange rate changes - 101,728 - - - 101,728 Net change in cash, cash equivalents and restricted cash - 484,817 - - - 484,817 Cash, cash equivalents and restricted cash, at beginning of year 1,105 825,920 - 4 - 827,029 Cash, cash equivalents and restricted cash, at end of year 1,105 1,310,737 - 4 - 1,311,846 99 As of December 31, 2022 Condensed Consolidating Schedule of Financial Position Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Assets Current assets: Cash and cash equivalents 1,104 1,025,141 - - - 1,026,245 Accounts receivable, net - 41,362,705 - - - 41,362,705 Amounts due from related parties - 346,517 - - - 346,517 Inventories - 768,216 - - - 768,216 Contract costs - 2,012,309 - - - 2,012,309 Deferred offering costs - 1,330,902 - - - 1,330,902 Advance to suppliers - 1,115,672 - - - 1,115,672 Prepaid expenses and other current assets, net 2 460,850 1 1 - 460,854 Total current assets 1,106 48,422,312 1 1 - 48,423,420 - - Non-current assets: Property and equipment, net - 219,470 - - - 219,470 Intangible assets, net - 637,114 - - - 637,114 Long-term investment - 204,899 2,647,593 - - 2,852,492 Right of use assets - 865,399 - - - 865,399 Deferred tax assets, net - 3,888,574 - - - 3,888,574 Prepaid expenses and other, non-current assets - 3,697,675 - - - 3,697,675 Total non-current assets - 9,513,131 2,647,593 - - 12,160,724 - TOTAL ASSETS 1,106 57,935,443 2,647,594 1 - 60,584,144 - Liabilities Current liabilities: Short-term borrowings - 18,784,459 - - - 18,784,459 Accounts payable - 9,180,532 - - - 9,180,532 Amount due to related parties-current - 896,431 - - - 896,431 Deferred revenue - 2,553,808 - - - 2,553,808 Convertible loans - 3,754,269 - - - 3,754,269 Accrued expenses and other current liabilities - 17,006,680 30 3 - 17,006,713 Lease liabilities, current - 435,462 - - - 435,462 Deficit of VIE and VIE’s subsidiaries absorbed by WFOE - - 5,887,042 - (5,887,042 ) - Investment deficit in subsidiaries 5,887,042 - - - (5,887,042 ) - Total current liabilities 5,887,042 52,611,641 5,887,072 3 (11,774,084 ) 52,611,674 Non-current liabilities: Amount due to related parties-non current - 8,581,743 - - - 8,581,743 Accrued liabilities, non-current - 5,391,664 2,682,248 - - 8,073,912 Lease liabilities, non-current - 300,974 - - - 300,974 Total non-current liabilities - 14,274,381 2,682,248 - - 16,956,629 TOTAL LIABILITIES 5,887,042 66,886,022 8,569,320 3 (11,774,084 ) 69,568,303 - Shareholders’ deficit Ordinary shares 1,106 - - - - 1,106 Additional paid-in capital 75,621,294 75,621,294 - - (75,621,294 ) 75,621,294 Statutory reserve 237,486 237,486 - - (237,486 ) 237,486 Accumulated deficit (78,483,156 ) (78,447,606 ) (5,922,592 ) (2 ) 84,370,200 (78,483,156 ) Accumulated other comprehensive loss (3,262,666 ) (3,263,530 ) 866 - 3,262,664 (3,262,666 ) XIAO-I CORPORATION shareholders’ deficit (5,885,936 ) (5,852,356 ) (5,921,726 ) (2 ) 11,774,084 (5,885,936 ) Non-controlling interests (3,098,223 ) - (3,098,223 ) Total shareholders’ deficit (5,885,936 ) (8,950,579 ) (5,921,726 ) (2 ) 11,774,084 (8,984,159 ) TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT 1,106 57,935,443 2,647,594 1 - 60,584,144 100 For the year ended December 31, 2022 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 48,184,958 - - - 48,184,958 Cost of revenues - (17,379,144 ) - - - (17,379,144 ) Gross profit - 30,805,814 - - - 30,805,814 Operating expenses - (33,941,593 ) - - - (33,941,593 ) Income of VIE and VIE’s subsidiaries absorbed by WFOE - - (5,898,535 ) - 5,898,535 - Share of income in subsidiaries (5,898,535 ) - - - 5,898,535 - Total operating expenses (5,898,535 ) (33,941,593 ) (5,898,535 ) - 11,797,070 (33,941,593 ) Loss from operations (5,898,535 ) (3,135,779 ) (5,898,535 ) - 11,797,070 (3,135,779 ) Other loss - (2,173,328 ) (35,550 ) (2 ) - (2,208,880 ) Income tax expenses - (660,655 ) - - - (660,655 ) Net loss (5,898,535 ) (5,969,762 ) (5,934,085 ) (2 ) 11,797,070 (6,005,314 ) Net loss attributable to non-controlling interests - (106,779 ) - - - (106,779 ) Net loss attributable to XIAO-I CORPORATION shareholders (5,898,535 ) (5,898,535 ) - - 5,898,535 (5,898,535 ) For the year ended December 31, 2022 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash used in operating activities (1 ) (10,923,345 ) - - - (10,923,346 ) Net cash used in investing activities - (107,122 ) (2,749,294 ) - - (2,856,416 ) Net cash provided by financing activities - 10,757,306 2,749,294 - - 13,506,600 Effect of exchange rate changes - (12,435 ) (4 ) - - (12,439 ) Net change in cash, cash equivalents and restricted cash (1 ) (285,596 ) - (4 ) - (285,601 ) Cash, cash equivalents and restricted cash, at beginning of year 1,105 1,310,737 - 4 - 1,311,846 Cash, cash equivalents and restricted cash, at end of year 1,104 1,025,141 - - - 1,026,245 As of the date of this annual report, cash was transferred among the Company, WFOE, other subsidiaries of the Company, the VIE and its consolidated subsidiaries, in the following manners: (i) the Company provided a total of US$10,000,550 in cash to its other subsidiaries while other subsidiaries transferred US$4,500 to the Company; (ii) Other subsidiaries of the Company provided a total of US$10,000,000 in cash to WFOE; (iii) WFOE provided a total of US$9,859,073 (RMB68,000,000) to VIE and its subsidiaries while VIE and its subsidiaries transferred US$36,247 (RMB250,000) to WFOE; (iv) VIE and its subsidiaries transferred US$8,000 to other subsidiaries of the Company.
The following table sets forth the assets, liabilities, results of operations and changes in cash, cash equivalents of the PRC operating entities, which were included in the Company’s consolidated balance sheets and statements of comprehensive income/(loss) and statements of cash flows with intercompany transactions eliminated: For the year ended December 31, 2021 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 32,524,013 - - - 32,524,013 Cost of revenues - (10,885,731 ) - - - (10,885,731 ) Gross profit - 21,638,282 - - - 21,638,282 Operating expenses - (16,641,273 ) - - - (16,641,273 ) Income of VIE and VIE’s subsidiaries absorbed by WFOE - - 3,677,813 - (3,677,813 ) - Share of income in subsidiaries 3,677,813 - - - (3,677,813 ) - Total operating expenses 3,677,813 (16,641,273 ) 3,677,813 - (7,355,626 ) (16,641,273 ) Income from operations 3,677,813 4,997,009 3,677,813 - (7,355,626 ) 4,997,009 Other loss - (1,079,652 ) - - - (1,079,652 ) Income tax expenses - (552,355 ) - - - (552,355 ) Net income 3,677,813 3,365,002 3,677,813 - (7,355,626 ) 3,365,002 Net loss attributable to non-controlling interests - (312,811 ) - - - (312,811 ) Net income attributable to XIAO-I CORPORATION shareholders 3,677,813 3,677,813 3,677,813 - (7,355,626 ) 3,677,813 For the year ended December 31, 2021 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash used in operating activities - (11,887,122 ) - - - (11,887,122 ) Net cash provided by investing activities - 77,259 - - - 77,259 Net cash provided by financing activities - 12,192,952 - - - 12,192,952 Effect of exchange rate changes - 101,728 - - - 101,728 Net change in cash, cash equivalents and restricted cash - 484,817 - - - 484,817 Cash, cash equivalents and restricted cash, at beginning of year 1,105 825,920 - 4 - 827,029 Cash, cash equivalents and restricted cash, at end of year 1,105 1,310,737 - 4 - 1,311,846 118 As of December 31, 2022 Condensed Consolidating Schedule of Financial Position Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Assets Current assets: Cash and cash equivalents 1,104 1,025,141 - - - 1,026,245 Accounts receivable, net - 41,362,705 - - - 41,362,705 Amounts due from related parties - 346,517 - - - 346,517 Inventories - 768,216 - - - 768,216 Contract costs - 2,012,309 - - - 2,012,309 Deferred offering costs - 1,330,902 - - - 1,330,902 Advance to suppliers - 1,115,672 - - - 1,115,672 Prepaid expenses and other current assets, net 2 460,850 1 1 - 460,854 Total current assets 1,106 48,422,312 1 1 - 48,423,420 - - Non-current assets: Property and equipment, net - 219,470 - - - 219,470 Intangible assets, net - 637,114 - - - 637,114 Long-term investment - 204,899 2,647,593 - - 2,852,492 Right of use assets - 865,399 - - - 865,399 Deferred tax assets, net - 3,888,574 - - - 3,888,574 Prepaid expenses and other non-current assets - 3,697,675 - - - 3,697,675 Total non-current assets - 9,513,131 2,647,593 - - 12,160,724 TOTAL ASSETS 1,106 57,935,443 2,647,594 1 - 60,584,144 Liabilities Current liabilities: Short-term borrowings - 18,784,459 - - - 18,784,459 Accounts payable - 9,180,532 - - - 9,180,532 Amount due to related parties-current - 896,431 - - - 896,431 Deferred revenue - 2,553,808 - - - 2,553,808 Convertible loans - 3,754,269 - - - 3,754,269 Accrued expenses and other current liabilities - 17,006,680 30 3 - 17,006,713 Lease liabilities, current - 435,462 - - - 435,462 Deficit of VIE and VIE’s subsidiaries absorbed by WFOE - - 5,887,042 - (5,887,042 ) - Investment deficit in subsidiaries 5,887,042 - - - (5,887,042 ) - Total current liabilities 5,887,042 52,611,641 5,887,072 3 (11,774,084 ) 52,611,674 Non-current liabilities: Amount due to related parties-non current - 8,581,743 - - - 8,581,743 Accrued liabilities, non-current - 5,391,664 2,682,248 - - 8,073,912 Lease liabilities, non-current - 300,974 - - - 300,974 Total non-current liabilities - 14,274,381 2,682,248 - - 16,956,629 TOTAL LIABILITIES 5,887,042 66,886,022 8,569,320 3 (11,774,084 ) 69,568,303 Shareholders’ deficit Ordinary shares 1,106 - - - - 1,106 Additional paid-in capital 75,621,294 75,621,294 - - (75,621,294 ) 75,621,294 Statutory reserve 237,486 237,486 - - (237,486 ) 237,486 Accumulated deficit (78,483,156 ) (78,447,606 ) (5,922,592 ) (2 ) 84,370,200 (78,483,156 ) Accumulated other comprehensive loss (3,262,666 ) (3,263,530 ) 866 - 3,262,664 (3,262,666 ) XIAO-I CORPORATION shareholders’ deficit (5,885,936 ) (5,852,356 ) (5,921,726 ) (2 ) 11,774,084 (5,885,936 ) Non-controlling interests (3,098,223 ) - (3,098,223 ) Total shareholders’ deficit (5,885,936 ) (8,950,579 ) (5,921,726 ) (2 ) 11,774,084 (8,984,159 ) TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT 1,106 57,935,443 2,647,594 1 - 60,584,144 119 For the year ended December 31, 2022 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 48,184,958 - - - 48,184,958 Cost of revenues - (17,379,144 ) - - - (17,379,144 ) Gross profit - 30,805,814 - - - 30,805,814 Operating expenses - (33,941,593 ) - - - (33,941,593 ) Income of VIE and VIE’s subsidiaries absorbed by WFOE - - (5,898,535 ) - 5,898,535 - Share of income in subsidiaries (5,898,535 ) - - - 5,898,535 - Total operating expenses (5,898,535 ) (33,941,593 ) (5,898,535 ) - 11,797,070 (33,941,593 ) Loss from operations (5,898,535 ) (3,135,779 ) (5,898,535 ) - 11,797,070 (3,135,779 ) Other loss - (2,173,328 ) (35,550 ) (2 ) - (2,208,880 ) Income tax expenses - (660,655 ) - - - (660,655 ) Net loss (5,898,535 ) (5,969,762 ) (5,934,085 ) (2 ) 11,797,070 (6,005,314 ) Net loss attributable to non-controlling interests - (106,779 ) - - - (106,779 ) Net loss attributable to XIAO-I CORPORATION shareholders (5,898,535 ) (5,898,535 ) (5,934,085 ) (2 ) 11,797,070 (5,898,535 ) For the year ended December 31, 2022 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash used in operating activities (1 ) (10,923,345 ) - - - (10,923,346 ) Net cash used in investing activities - (107,122 ) (2,749,294 ) - - (2,856,416 ) Net cash provided by financing activities - 10,757,306 2,749,294 - - 13,506,600 Effect of exchange rate changes - (12,435 ) (4 ) - - (12,439 ) Net change in cash, cash equivalents and restricted cash (1 ) (285,596 ) - (4 ) - (285,601 ) Cash, cash equivalents and restricted cash, at beginning of year 1,105 1,310,737 - 4 - 1,311,846 Cash, cash equivalents and restricted cash, at end of year 1,104 1,025,141 - - - 1,026,245 120 As of December 31, 2023 Condensed Consolidating Schedule of Financial Position Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Assets Current assets: Cash and cash equivalents 1,889 890,365 9,145 663,143 - 1,564,542 Restricted cash - 20,676 - - - 20,676 Accounts receivable, net - 28,326,985 - - - 28,326,985 Inventories - 67,826 - - - 67,826 Contract costs - 1,691,293 - - - 1,691,293 Advance to suppliers - 1,134,529 15,113 - - 1,149,642 Prepaid expenses and other current assets, net 2,493,301 1,665,653 24,632,707 17,983,479 (41,541,587 ) 5,233,553 Amount due from intercompany-current 17,656,465 748,183 - - (18,404,648 ) - Total current assets 20,151,655 34,545,510 24,656,965 18,646,622 (59,946,235 ) 38,054,517 Non-current assets: Property and equipment, net - 1,913,693 211,936 - - 2,125,629 Intangible assets, net - 212,445 - - - 212,445 Long-term investment - 964,250 1,686,209 - (1 ) 2,650,458 Investment in subsidiaries - - - 23,163,931 (23,163,931 ) - Right of use assets - 173,879 2,257,596 - - 2,431,475 Prepaid expenses and other non-current assets - 3,710,351 290,007 - 2,999,999 7,000,357 Amount due from related parties-non current - 13,859,350 15,582 - (15,582 ) 13,859,350 Total non-current assets - 20,833,968 4,461,330 23,163,931 (20,179,515 ) 28,279,714 - TOTAL ASSETS 20,151,655 55,379,478 29,118,295 41,810,553 (80,125,750 ) 66,334,231 Liabilities Current liabilities: Short-term borrowings - 26,760,940 - - - 26,760,940 Accounts payable 34,277 13,210,566 101,495 328,000 1 13,674,339 Amount due to related parties-current - 704,947 - - - 704,947 Deferred revenue - 1,654,145 - - - 1,654,145 Accrued expenses and other current liabilities 347,014 13,295,209 27,160 33,456,901 (33,188,031 ) 13,938,253 Lease liabilities, current - 93,284 836,470 - 1 929,755 Deficit of VIE and VIE’s subsidiaries absorbed by WFOE - - 36,321,088 - (36,321,088 ) - Investment deficit in subsidiaries 24,469,459 - - - (24,469,459 ) - Amount due to intercompany-current 164,593 26,864,085 - - (27,028,678 ) - Total current liabilities 25,015,343 82,583,176 37,286,213 33,784,901 (121,007,254 ) 57,662,379 Non-current liabilities: Amount due to related parties-non current - 7,505,290 - 400,000 - 7,905,290 Accrued liabilities, non-current - 5,153,803 - - 2,605,671 ) 7,759,474 Amount due to intercompany, non-current - - 2,605,671 (2,605,671 ) - Lease liabilities, non-current - 61,471 1,412,480 - (1 ) 1,473,950 Total non-current liabilities - 12,720,564 4,018,151 400,000 (1 ) 17,138,714 TOTAL LIABILITIES 25,015,343 95,303,740 41,304,364 34,184,901 (121,007,255 ) 74,801,093 Shareholders’ deficit Ordinary shares 1,201 - - - - 1,201 Preferred shares 185 - - - - 185 Additional paid-in capital 108,729,047 73,978,700 24,459,360 20,350,000 (118,788,060 ) 108,729,047 Statutory reserve 237,486 237,486 - - (237,486 ) 237,486 Accumulated deficit (110,833,045 ) (107,821,825 ) (36,648,068 ) (12,724,348 ) 157,194,241 (110,833,045 ) Accumulated other comprehensive loss (2,998,562 ) (2,715,449 ) 2,639 - 2,712,810 (2,998,562 ) XIAO-I CORPORATION shareholders’ deficit (4,863,688 ) (36,321,088 ) (12,186,069 ) 7,625,652 40,881,505 (4,863,688 ) Non-controlling interests - (3,603,174 ) - - - (3,603,174 ) Total shareholders’ deficit (4,863,688 ) (39,924,262 ) (12,186,069 ) 7,625,652 40,881,505 (8,466,862 ) TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT 20,151,655 55,379,478 29,118,295 41,810,553 (80,125,750 ) 66,334,231 121 For the year ended December 31, 2023 Condensed Consolidating Schedule of Results of Operations Parent VIE and its consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net revenues - 59,165,259 - - - 59,165,259 Cost of revenues - (19,741,689 ) - - - (19,741,689 ) Gross profit - 39,423,570 - - - 39,423,570 Operating expenses (2,307,368 ) (58,274,909 ) (221,950 ) (541,525 ) - (61,345,752 ) Income of VIE and VIE’s subsidiaries absorbed by WFOE - - (23,486,141 ) - 23,486,141 - Share of income in subsidiaries (24,315,847 ) - - (23,777,571 ) 48,093,418 - Total operating expenses (26,623,215 ) (58,274,909 ) (23,708,091 ) (24,319,096 ) 71,579,559 (61,345,752 ) Income from operations (26,623,215 ) (18,851,339 ) (23,708,091 ) (24,319,096 ) 71,579,559 (21,922,182 ) Other loss 161,408 (1,391,071 ) (69,480 ) 3,249 - (1,295,894 ) Income tax expenses - (3,787,692 ) - - - (3,787,692 ) Net income (26,461,807 ) (24,030,102 ) (23,777,571 ) (24,315,847 ) 71,579,559 (27,005,768 ) Net loss attributable to non-controlling interests - (543,961 ) - - - (543,961 ) Net income attributable to XIAO-I CORPORATION shareholders (23,486,141 ) (23,486,141 ) (23,777,571 ) (24,315,847 ) 71,579,559 (23,486,141 ) For the year ended December 31, 2023 Condensed Consolidating Schedule of Cash Flows Parent VIEs and their consolidated subsidiaries WFOE Other Subsidiaries Elimination Adjustments Consolidated Total (in U.S. dollars) Net cash (used in) provided by operating activities (21,749,842 ) 15,185,225 (24,233,134 ) 15,263,143 (254,890 ) (15,789,498 ) Net cash used in investing activities (13,000,000 ) (16,842,456 ) (217,358 ) (35,350,000 ) 45,350,000 (20,059,814 ) Net cash provided by financing activities 34,750,627 1,322,448 24,459,360 20,750,000 (44,809,360 ) 36,473,075 Effect of exchange rate changes - 200,007 277 - (285,750 ) (85,466 ) Net change in cash, cash equivalents and restricted cash 785 (134,776 ) 9,145 663,143 - 538,297 Cash, cash equivalents and restricted cash, at beginning of year 1,104 1,025,141 - - - 1,026,245 Cash, cash equivalents and restricted cash, at end of year 1,889 890,365 9,145 663,143 - 1,564,542 For the years ended December 31, 2021, 2022 and 2023, the cash flows that have occurred between the Company, the VIE and its consolidated subsidiaries, WFOE which is the primary beneficiary of the VIE, and other subsidiaries are summarized as the following: For the years ended December 31, 2021 2022 2023 Cash paid by Xiao-I Corporation to other subsidiaries $ - $ - $ 27,897,826 Cash transfer from other subsidiaries to WFOE - - 25,000,000 Cash transfer from WFOE to VIE and its consolidated subsidiaries - - 24,504,585 Cash transfer from VIE and its consolidated subsidiaries to WFOE - - 640,150 Cash transfer from VIE and its consolidated subsidiaries to other subsidiaries - - 740,000 Cash transfer from WFOE to other subsidiaries - - 576,205 Cash transfer from other subsidiaries to Xiao-I Corporation $ - $ - $ 453,800 122 From January 1, 2024 to the date of this annual report, cash was transferred among the Company, WFOE, other subsidiaries of the Company, the VIE and its consolidated subsidiaries, in the following manners: (i) the Company provided a total of US$0.15 million in cash to its other subsidiaries while other subsidiaries transferred US$0.32 million to the Company; (ii) WFOE provided a total of US$0.07 million to VIE and its subsidiaries while VIE and its subsidiaries transferred US$0.14 million to WFOE; (iii) WFOE and VIE and its subsidiaries transferred US$0.05 million and US$0.36 million to other subsidiaries, respectively.
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them.
Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares held by that person. The percentage of ordinary shares beneficially owned is computed on the basis of 24,015,592 ordinary shares outstanding as of December 31, 2023 on an as-converted basis.
In addition, in the event that the spouse obtains any equity interest in Shanghai Xiao-i held by his or her spouse for any reason, he or she agrees to be bound by and sign any legal documents substantially similar to the contractual arrangements entered into by his or her spouse, as may be amended from time to time. 95 The VIE structure is used to provide investors with exposure to foreign investment in China-based companies where Chinese law prohibits direct foreign investment in the operating companies.
In addition, in the event that the spouse obtains any equity interest in Shanghai Xiao-i held by his or her spouse for any reason, he or she agrees to be bound by and sign any legal documents substantially similar to the contractual arrangements entered into by his or her spouse, as may be amended from time to time. 116 As the lock-up period of some shareholders of Xiao-I has expired, the shareholders wish to withdraw their shares in Xiao-I, and in order to mirror the shareholding of Xiao-I at Shanghai Xiao-i, they need to correspondingly withdraw their shares in Shanghai Xiao-i.
Box 116, Road Town, Tortola, British Virgin Islands. (6) PP Smart Holding Limited is incorporated in British Virgin Islands and is wholly owned and controlled by Zhu Pinpin. The registered address of PP Smart Holding Limited is Sertus Chambers, P.O. Box 905, Quastisky Building, Road Town, Tortola, British Virgin Islands.
As a result of the Issuance, Mr. Yuan beneficially owns more than 79% of the voting power of Xiao-I. (4) PP Smart Holding Limited is incorporated in British Virgin Islands and is wholly owned and controlled by Zhu Pinpin. The registered address of PP Smart Holding Limited is Sertus Chambers, P.O.
See “Risk Factors — Risks Relating to Our Corporate Structure.” Consolidation Xiao-I conducts substantially all of its business in China through Shanghai Xiao-i, the VIE, due to PRC legal restrictions of foreign ownership in certain sectors. Substantially all of Xiao-I’s revenues, costs and net income in China are directly or indirectly generated through the VIE.
Substantially all of Xiao-I’s revenues, costs and net income in China are directly or indirectly generated through the VIE.
The names of the entities and their corresponding ownership percentages are listed on the principal shareholders table above.
As of the date of this annual report we have a total of 55 shareholders, with 6 of them owning more than 5% each, and 49 of them owning less than 5% each. The names of the entities and their corresponding ownership percentages are listed on the principal shareholders table above.
An entity which the Company holds 18% equity interests 5 Jiaxing Sound Core Intelligent Technology Co., LTD An entity which Shanghai Shenghan holds 20% equity interests 6 Hui Yuan Chairman of the board, one of the major shareholders holding 14.73% equity interests of the Company 7 Weng Wei CFO of the Company 8 Tianjin Haiyin Equity Investment Fund Partnership (Limited Partnership) (“Tianjin Haiyin”) A significant shareholder holding 5.18% equity interests of the Company 9 Jiaxing Chiyu Investment Partnership (limited Partnership) A significant shareholder holding 5.44% equity interests of the Company 10 Haiyin Capital Investment (International) Limited A subsidiary of Tianjin Haiyin 11 Zhizhen Guorui An entity which the Group holds 37% equity interests Amounts due from related parties Amounts due from related parties consisted of the following for the periods indicated: As of December 31, 2021 2022 Accounts receivable $ $ Zhejiang Baiqianyin (a) 52,883 48,860 Other receivables Zhejiang Baiqianyin (b) 316,981 297,657 Shanghai Aoshu (c) 22,055 20,377 Bad debt provisions - (20,377 ) Total $ 391,919 $ 346,517 (a).
An entity which the Group holds 18% equity interests 124 Amounts due from related parties Amounts due from related parties consisted of the following for the periods indicated: As of December 31, 2022 2023 Due from related parties-current $ $ Accounts receivable Zhejiang Baiqianyin (a) 48,860 - Other receivables Zhejiang Baiqianyin (b) 297,657 - Shanghai Aoshu (c) 20,377 19,796 Credit losses provisions (20,377 ) (19,796 ) Subtotal-due from related parties-current 346,517 - Due from related parties-non current Other receivables Zhizhen Guorui (d) $ - $ 13,859,350 Subtotal-due from related parties-non current - 13,859,350 Total $ 346,517 $ 13,859,350 (a).
The registered address of AI Smart Holding Limited is Sea Meadow House, P.O. Box 116, Road Town, Tortola, British Virgin Islands. (5) ZunTian Holding Limited is incorporated in British Virgin Islands and is wholly owned and controlled by our Chairman and CEO, Mr. Yuan. The registered address of ZunTian Holding Limited is Sea Meadow House, P.O.
Weng shall receive because of the equity awards granted to her on January 3, 2024 (see B. Compensation under Item 6. Directors, Senior Management and Employees). (3) ZunTian Holding Limited is incorporated in British Virgin Islands and is wholly owned and controlled by our Chairman and CEO, Mr. Yuan.
Removed
Percentage of beneficial ownership of each listed person is based on 24,015,592 ordinary shares on an as-converted basis outstanding as of the date of this annual report. 91 Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our ordinary shares.
Added
The number of ordinary shares beneficially owned by each entity, person, board member or executive officer is determined in accordance with the rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose.
Removed
Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities.
Added
Under such rules, beneficial ownership includes any shares over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60 days of March 1, 2024 through the exercise of any option or other right.
Removed
In computing the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.
Added
Ordinary shares that a person has the right to acquire within 60 days of April 1, 2024 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all board members and executive officers as a group.
Removed
Except as otherwise indicated in the footnotes to this table, or as required by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them. As of the date of this annual report, none of the Company’s major shareholders have different voting rights.
Added
Except as otherwise indicated below, the address for each beneficial owner listed is c/o Xiao-I Corporation, 5th Floor, Building 2, No. 2570 Hechuan Road, Minhang District, Shanghai, People’s Republic of China.
Removed
Except as otherwise indicated below, the business address of our director and executive officer is 7 th floor, Building 398, No. 1555 West Jinshajiang Rd, Shanghai, People’s Republic of China.
Added
(1) Includes shares held by ZunTian Holding Limited and iTeam Holding Limited and shares Mr. Yuan shall receive because of the equity awards granted to him on January 3, 2024 (see B. Compensation under Item 6. Directors, Senior Management and Employees). 112 (2) Includes shares Ms.
Removed
All shares represent only common shares held by shareholders as no options are issued or outstanding. (2) Assuming the underwriters do not exercise their over-allotment option. (3) Includes shares held by ZunTian Holding Limited and iTeam Holding Limited. (4) AI Smart Holding Limited is incorporated in British Version Islands and is wholly owned and controlled by Li Aini.
Added
The registered address of ZunTian Holding Limited is Sea Meadow House, P.O. Box 116, Road Town, Tortola, British Virgin Islands. On December 13, 2023, Xiao-I issued 3,700,000 preferred shares, each with a par value of US$0.00005 and carrying a voting right equivalent to 20 votes (the “3.7 million Preferred Shares” or the “Preferred Shares”) to ZunTian Holding Limited.
Removed
(11) Shanghai Tongjun Enterprise Management Consulting Partnership (Limited Partnership) is formed in Shanghai, China and is owned by Tianjin Haiyin Equity Investment Fund Partnership (Limited Partnership) (a People’s Republic of China company), with 99.8% ownership and Tianjin Haifeng Yinhua Investment Management Partnership (limited partnership) (a Chinese company) with 0.2%, of which Tianjin Haifeng Yinhua Investment Management Partnership (limited partnership) (a Chinese company), Hengtong Jiuding (Beijing) Investment, Holding Co., Ltd.
Added
Therefore, Shanghai Rongzhi Industry Co., Ltd. (the “Shanghai Rongzhi”) was set up to purchase the withdrawn shares of the shareholders in Shanghai Xiao-i, and thus Shanghai Rongzhi became the new shareholder of Shanghai Xiao-i.
Removed
(a Chinese company), Zhi Xu, Ying Jin, and others (here, others mean other individuals all together) own 8.721%, 5.988%, 3.779%, 3.488% and 78.023%, respectively. The registered address of Shanghai Tongjun Enterprise Management Consulting Partnership (Limited Partnership) is Floor 5, Building 7, No. 3601, Dongfang Road, Pudong New Area, Shanghai, China.
Added
Pursuant to the VIE agreements, Shanghai Rongzhi signed Exclusive Call Option Agreement, Share Interest Pledge Agreement, and Power of Attorney Agreement separately with Zhizhen Technology and Shanghai Xiao-i on January 24, 2024. The provisions of these agreements are substantively consistent with the text of the VIE Agreements signed on March 29, 2019.
Removed
As of the date of this annual report, none of our outstanding ordinary shares were held by record holders in the United States. As of the date of this annual report we have a total of 58 shareholders, with 8 of them owning more than 5% each, and 50 of them owning less than 5% each.
Added
See “Risk Factors — Risks Relating to Our Corporate Structure.” Subscription Agreement On December 13, 2023, Xiao-I issued 3,700,000 preferred shares, each with a par value of US$0.00005 (the “Preferred Shares”) to ZunTian Holding Limited (“ZunTian”), an existing shareholder of Xiao-I (the “Issuance”). ZunTian is a BVI-incorporated company wholly owned and controlled by Mr. Hui Yuan (“Mr. Yuan”). Mr.
Removed
As a result of these PRC laws and regulations, the PRC operating entities are restricted in their ability to transfer a portion of their net assets to the Company.
Added
Yuan is the CEO and Chairman of the Company.
Removed
The funds are interest-free, unsecured and repayable on demand. Loans from Hui Yuan are not required to be settled within one year.
Added
Each Preferred Share confers on the holder thereof the right to twenty (20) votes and holders of the Preferred Shares shall at all times vote together with holders of ordinary shares of the Company as one class on all resolutions submitted to a vote by the members of the Company save where a separate class meeting is required by law.
Added
The Issuance is subject to the Subscription Agreement, between Xiao-I and ZunTian dated December 13, 2023, which was subsequently amended on April 4, 2024, to clarify that the Preferred Shares shall not confer any other rights, including, without limitation, dividend or liquidation rights or any other financial or economic rights. 117 Consolidation Xiao-I conducts substantially all of its business in China through Shanghai Xiao-i, the VIE, due to PRC legal restrictions of foreign ownership in certain sectors.
Added
Related parties The following is a list of related parties which the Group has transactions with: No.
Added
For the year ended December 31, 2022, the Group made full provision of receivables from Shanghai Aoshu; (d). On March 31, 2023, the Group entered into agreement to provide a loan to Zhizhen Guorui, an equity investment of the Group, with a maximum amount of $14,084,705 (RMB100.0 million) and interest-free.
Added
As of December 31, 2023, the actual loan provided by the Group to Zhizhen Guorui amounted to $13,859,350 (RMB98.4 million). The Group considers the repayment of loan to Zhizhen Guorui will be extended to more than one year.
Added
The funds are interest-free, unsecured and repayable on demand. (e) Hui Yuan provided several interest-free loans to the Group for its daily operation needs before 2022. In 2023, the Group entered into agreement with Hui Yuan to establish an annual interest rate for the outstanding loans.
Added
The interest shall be calculated at an annual rate of 6.8% based on the actual number of days used from January 1, 2023. The maturity of the loans from Hui Yuan will be extended based on mutual consent. As of December 31, 2022 and 2023, the corresponding balance due to Hui Yuan was $8,581,743 and $7,505,290, respectively.
Added
In December 2023, the Group entered into another loan agreement with Hui Yuan to borrow $400,000 for daily operation with an annual interest rate of 3.45%.

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