As confidentially submitted to the Securities and Exchange Commission on October 26, 2022
as Amendment No. 2 to the draft Registration Statement

Registration No. 333-            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

____________________________________

FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

____________________________________

XIAO-I CORPORATION

(Exact name of Registrant as specified in its charter)

____________________________________

Not Applicable

(Translation of Registrant’s name into English)

Cayman Islands

 

7372

 

Not Applicable

(State or other jurisdiction of
incorporation or organization)

 

(Primary Standard Industrial
Classification Code Number)

 

(I.R.S. Employer
Identification Number)

7th floor, Building 398, No. 1555 West
Jinshajiang Rd
Shanghai, China 201803
Tel: +86 021
-39512112

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

____________________________________

[•]

(Name, address, including zip code, and telephone number, including area code, of agent for service)

____________________________________

Copies to:

Charlotte Westfall, Esq.
David A. Zagore, Esq.
Fred A. Summer, Esq.

Squire Patton Boggs (US) LLP
475 Sansome Street, 16th Floor
San Francisco, California 94111
Phone: (415) 954
-0200

 

Francis Li, Esq.
Squire Patton Boggs
29
th Floor, Edinburgh Tower
The Landmark,
15 Queen’s Road Central
Central, Hong Kong
Phone: + (852) 2103 0368

 

Arila Zhou, Esq.
Anna Jinhua Wang, Esq.
Robinson & Cole
LLP
666 Third Avenue, 20th Floor
New York, New York 10017
Phone: (212) 451-2900

____________________________________

Approximate date of commencement of proposed sale to the public:
as soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting offers to buy these securities in any jurisdiction where the offer or sale is not permitted.

This is a confidential submission to the U.S. Securities and Exchange Commission as Amendment No. 2 to the draft Registration Statement on October 26, 2022 and is not being filed under the Securities Act of 1933, as amended.

SUBJECT TO COMPLETION

 

PRELIMINARY PROSPECTUS, DATED []

[•] American Depositary Shares

XIAO-I CORPORATION

Representing [•] Ordinary Shares

This is an initial public offering, or the “offering,” of [] American depositary shares, or ADSs (each, an “ADS”, collectively, “ADSs”), each represents [one] of our ordinary shares par value US$[0.00005] per share (each, an “ADS”, collectively, “ADSs”) of Xiao-I Corporation, a holding company incorporated in the Cayman Islands (“Xiao-I” or the “Company”) whose principal place of business is in Shanghai, China, on a firm commitment basis.

Prior to this offering, there has been no public market for our ADSs or Ordinary Shares. We expect that the initial public offering price will be in the range of $[•] to $[•] per ADS. We intend to list the ADSs on the Nasdaq Global Market under the symbol “[•].” However, there is no assurance that the offering will be closed and our ADSs will be trading on the Nasdaq Global market.

Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

____________________________________

We are an “emerging growth company” under applicable U.S. federal securities laws and are eligible for reduced public company reporting requirements. See “Risk Factors” beginning on page 35 for factors you should consider before investing in our ADSs.

____________________________________

Xiao-I is a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, Xiao-I conducts a substantial majority of our operations through Shanghai Xiao-i Robot Technology Co., Ltd. (“Shanghai Xiao-i”), a variable interest entity (the “VIE”), in the People’s Republic of China, or “PRC” or “China.” Investors in our ADSs should be aware that they may never hold equity interests in the VIE, but rather purchasing equity interests solely in Xiao-I, our Cayman Islands holding company, which does not own any of our business in China conducted by the VIE. Our ADSs offered in this offering represent shares of our Cayman Islands holding company instead of shares of the VIE in China.

Our indirect wholly owned subsidiary, Zhizhen Artificial Intelligent Technology (Shanghai) Co. Ltd. (“Zhizhen Technology” or “WFOE”) entered into a series of contractual arrangements that establish the VIE structure (the “VIE Agreements”). 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. We have evaluated the guidance in FASB ASC 810 and determined that we are the primary beneficiary of the VIE, for accounting purposes, based upon such contractual arrangements. 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. A VIE is an entity in which a company or its WFOE, through contractual arrangements, is fully and exclusively responsible for the management of the entity, absorbs all risk of losses of the entity, receives the benefits of the entity that could be significant to the entity, excluding non-controlling interests, and has the exclusive right to exercise all voting rights of the entity, and therefore the company or its WFOE is the primary beneficiary of the entity for accounting purposes. 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. Through the VIE Agreements, the Company is deemed the primary beneficiary of the VIE for accounting purposes. The VIE has no assets that are collateral for or restricted solely to settle its obligations. The creditors of the VIE do not have recourse to the Company’s general credit. Accordingly, under U.S. GAAP, the results of the VIE and its subsidiaries are consolidated in our financial statements. However, investors will not and may never hold equity interests in the VIE and the VIE’s subsidiaries. The VIE Agreements may not be effective in providing control over Shanghai Xiao-i. Uncertainties exist as to our ability to enforce the VIE Agreements, and the VIE Agreements have not been tested in a court of law. The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our ADSs, including that it could cause the value of such securities to significantly decline or become worthless. See “Prospectus Summary — Our History and Corporate Structure” beginning on page 6 of this prospectus for a summary of the contractual arrangements and “Risk Factors — Risks Relating to Our Corporate Structure” beginning on page 48 of this prospectus for certain risks relating to the contractual arrangements.

As of the date of this prospectus, no cash transfer or transfer of other assets by way of dividends or distributions have occurred among the Company, its subsidiaries, or the VIE and the VIE’s subsidiaries. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid, or any funds will be transferred from one entity to another, in the foreseeable future. As such, we have not installed any cash management policies that dictate how funds are transferred among the Company, its subsidiaries, or investors, or the VIE and the VIE’s subsidiaries. For further details, please refer to “Prospectus Summary — Consolidation” on page 19, as well as the condensed consolidating schedule and the consolidated financial statements on page 19 of this registration statement.

Xiao-I is a holding company with no operations of its own. We conduct our operations in China primarily through the VIE and the VIE’s subsidiaries in China. As a result, although other means are available for us to obtain financing at the holding company level, Xiao-I’s ability to pay dividends and other distributions to its shareholders and to service any debt it may incur may depend upon dividends and other distributions paid by Xiao-I’s PRC subsidiaries, which relies on dividends and other distributions paid by the VIE and the VIE’s subsidiaries pursuant to the VIE Agreements. If any of these entities incurs debt on its own in the future, the instruments governing such debt may restrict its ability to pay dividends and other distributions to Xiao-I.

 

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In addition, dividends and distributions from Xiao-I’s PRC subsidiaries and the VIE are subject to regulations and restrictions on dividends and payment to parties outside of China. Applicable PRC law permits payment of dividends to Xiao-I by WFOE only out of net income, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset by general reserve fund and profits (if general reserve fund is not enough). Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is presently no foreign exchange control or restrictions on capital flows into and out of Hong Kong. Hence, Xiao-I’s Hong Kong subsidiary is able to transfer cash without any limitation to the Cayman Islands under normal circumstances. As a result of these PRC laws and regulations, the Group’s VIE and VIE’s subsidiaries and WFOE are restricted in their ability to transfer a portion of their net assets to the Company.

Moreover, the transfer of funds among the VIE and its subsidiaries (the “PRC operating entities”) are subject to the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases (2020 Second Amendment Revision, 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 advised by our PRC counsel, Jingtian & Gongcheng, the Provisions on Private Lending Cases does not prohibit using cash generated from one PRC operating entity to fund another affiliated PRC operating entity’s operations. Xiao-I or the PRC operating entities have not been notified of any other restriction which could limit the PRC operating entities’ ability to transfer cash among each other. In the future, cash proceeds from overseas financing activities, including this offering, may be transferred by Xiao-I to AI Plus Holding Limited (“AI Plus”), and then transferred to Xiao-i Technology Limited (Xiao-i Technology”), and then transferred to WFOE via capital contribution or shareholder loans, as the case may be. Cash proceeds may flow to Shanghai Xiao-i from WFOE pursuant to certain contractual arrangements between WFOE and Shanghai Xiao-i as permitted by the applicable PRC regulations.

Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid out of share premium if this would result in the company being unable to pay its debts due in the ordinary course of business. If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will rely on payments made from Shanghai Xiao-i to WFOE, pursuant to the VIE Agreements, and the distribution of such payments to Xiao-i Technology from WFOE, and then to AI Plus from Xiao-i Technology, and then to Xiao-I Corporation from AI Plus as dividends, unless we receive proceeds from future offerings. We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Ordinary Shares, the depositary will pay you the cash dividends and other distributions it receives on our Ordinary Shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement. See “Prospectus Summary — Transfers of Cash to and from the VIE” on page 24 and “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 on page 62 of this prospectus.

Additionally, we are subject to certain legal and operational risks associated with the VIE’s operations in China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and therefore, these risks may result in a material change in the VIE’s operations, significant depreciation of the value of our ADSs, or a complete hindrance of our ability to offer or continue to offer our securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using a variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews and expanding the efforts in anti-monopoly enforcement. It is highly uncertain what the potential impact such modified or new laws and regulations will have on the daily business operations of our subsidiaries and the VIE, our ability to accept foreign investments, and our listing on a U.S. stock exchange. The Standing Committee of the National People’s Congress (the “SCNPC”) or PRC regulatory authorities may in the future promulgate laws, regulations, or implement rules that require us, our subsidiaries, or the VIE to obtain regulatory approval from Chinese authorities before listing in the U.S. In other words, although the Company is currently not required to obtain permission from any of the PRC federal or local government to obtain such permission and has not received any denial to list on the U.S. exchange, our operations could be adversely affected, directly or indirectly; our ability to offer, or continue to offer, securities to investors would be potentially hindered and the value of our securities might significantly decline or be worthless, by existing or future laws and regulations relating to its business or industry or by intervene or interruption by PRC governmental authorities, if the Company, or its subsidiaries or the VIE or the VIE’s subsidiaries (i) do not receive or maintain such permissions or approvals, (ii) inadvertently conclude that such permissions or approvals are not required, (iii) applicable laws, regulations, or interpretations change and the Company, or its subsidiaries or the VIE or the VIE’s subsidiaries are required to obtain such permissions or approvals in the future, or (iv) any intervention or interruption by PRC governmental with little advance notice.

We generated approximately 2.3% and 11.7% of our revenues from Hong Kong in fiscal year 2021 and 2020, respectively. Hong Kong is a special administrative region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s constitutional document, which provides Hong Kong with a high degree of autonomy and executive, legislative and independent judicial powers, including that of final adjudication under the principle of “one country, two systems”. We cannot assure you that there will not be any changes in the economic, political and legal environment in Hong Kong. We may be subject to uncertainty about any future actions of the PRC government and is possible that most of the legal and operational risks associated with operating in the PRC may also apply to our operations in Hong Kong in the future. The PRC government may intervene or influence our current and future operations in Hong Kong at any time and exert more influence over the manner in which we must conduct our business activities. Such government actions, if and when they occur, could result in a material change in our operations in Hong Kong.

In Hong Kong, the collection of personal data, their use and disclosure, retention and granting of access to and correction of personal data is governed by the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong). See “Regulations in Hong Kong — Personal data law in Hong Kong” for further details. The competition law in Hong Kong is primarily governed by the Competition Ordinance (Chapter 619 of the Laws of Hong Kong), which prohibits three principal types of anti-competitive conducts, namely (a) anti-competitive agreements or practices; (b) abuse of market power; and (c) merger control of arrangements that could substantially reduce the level of competition in telecommunication industry. The Merger Rule in the Competition Ordinance prohibits undertakings from directly or indirectly carrying out a merger that has, or is likely to have, the effect of substantially reduce the level of competition in Hong Kong. This rule is only applicable to telecommunication carrier licensees. There is no general merger control regime in Hong Kong. See “Regulations in Hong Kong — Competition law in Hong Kong” for further details.

As of the date of this prospectus, our business operations in Hong Kong, which are relatively insignificant as compared to our business as a whole, are only required to comply with the Hong Kong laws and regulations. The PRC government has recently initiated a series of regulatory actions and statements to regulate business operations in mainland China with little advance notice. We do not expect such statements by the PRC government would have any specific impact on our business operations in Hong Kong. If there is any change in political arrangements between mainland China and Hong Kong, it would affect the business environment in Hong Kong generally.

 

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Our operations in China are governed by PRC laws and regulations. Our PRC counsel, Jingtian & Gongcheng, has advised us that, as of the date of this prospectus, based on their understanding of the current PRC laws, regulations and rules, we, our subsidiaries, the VIE and subsidiaries of the VIE have received all requisite permissions and approvals from the PRC government authorities for our business operations currently conducted in China.

Neither have we nor our subsidiaries, the VIE and subsidiaries of the VIE received any denial of permissions for our business operations currently conducted in China. These permissions and approvals include (without limitation) License for Value-added Telecommunications Services, Business License, Record Registration Form for Foreign Trade Business Operators, Customs Declaration Entity Registration Certificate. Our PRC counsel, Jingtian & Gongcheng, has advised us that, as of the date of this prospectus, based on their understanding of the current PRC laws, regulations and rules, we, our subsidiaries, the VIE and subsidiaries of the VIE are currently not required to obtain permission from any of the PRC authorities to issue ADSs or Ordinary Shares to foreign investors.

However, we are subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that we inadvertently conclude that the permissions or approvals discussed here are not required, that applicable laws, regulations or interpretations change such that we are required to obtain approvals in the future, or that the PRC government could disallow our holding company structure, which would likely result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could cause the value of our ADSs to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the CSRC, if we fail to comply with such rules and regulations, which would likely adversely affect the ability of our securities to be listed on a U.S. exchange, which would likely cause the value of our securities to significantly decline or become worthless.

Permission from Cyberspace Administration of China. Shanghai Xiao-i has applied for a cybersecurity review organized by the China Cybersecurity Review Technology and Certification Center (the “Center”), which is authorized by the Cybersecurity Review Office of the Cyberspace Administration of China (the “CAC”) to accept public consultation and cybersecurity review submissions, pursuant to the Cybersecurity Review Measures, which became effective on February 15, 2022. On August 25, 2022, Shanghai Xiao-i received a written notice from the Cybersecurity Review Office, pursuant to which cybersecurity review is not required for the offering.

PRC Limitation on Overseas Listing and Share Issuances. The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange.

On December 24, 2021, the CSRC released the Administrative Provisions of the State Council Regarding the Overseas Issuance and Listing of Securities by Domestic Enterprises (Draft for Comments) (the “Draft Administrative Provisions”) and the Measures for the Overseas Issuance of Securities and Listing Record-Filings by Domestic Enterprises (Draft for Comments) (the “Draft Filing Measures,” collectively with the Draft Administrative Provisions, the “Draft Rules Regarding Overseas Listing”), both of which have a comment period that expired on January 23, 2022. As of the date of this prospectus, the Draft Rules Regarding Overseas Listing have not been formally adopted or released. The Draft Rules Regarding Overseas Listing lay out the filing regulation arrangement for both direct and indirect overseas listing, and clarify the determination criteria for indirect overseas listing in overseas markets. Among other things, if a domestic enterprise intends to indirectly offer and list securities in an overseas market, the record-filing obligation is with a major operating entity incorporated in the PRC and such filing obligation shall be completed within three working days after the overseas listing application is submitted. The required filing materials for an initial public offering and listing shall include but not limited to: regulatory opinions, record-filing, approval and other documents issued by competent regulatory authorities of relevant industries (if applicable); and security assessment opinion issued by relevant regulatory authorities (if applicable).

If the CSRC or other regulatory agencies later promulgate new rules or explanations requiring that we obtain their approvals for this offering and any follow-on offering, we may be unable to obtain such approvals and we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek such approvals which could significantly limit or completely hinder our ability to offer or continue to offer securities to our investors and the securities currently being offered may substantially decline in value and be worthless.

Both we and our PRC counsel, Jingtian & Gongcheng believe the CSRC’s approval is not required for the offering and trading of our ADSs on Nasdaq in the context of this offering, given that: (i) our PRC subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition of equity interest or assets of a PRC domestic company owned by PRC companies or individuals as defined under the M&A Rules that are our beneficial owners; (ii) the CSRC currently has not issued any definitive rule or interpretation concerning whether offerings like ours under this prospectus are subject to the M&A Rules; and (iii) no provision in the M&A Rules clearly classifies contractual arrangements as a type of transaction subject to the M&A Rules. As of the date of this prospectus, no relevant laws or regulations in the PRC explicitly require us to seek approval from the CSRC or any other PRC governmental authorities for this offering, nor has our company, any of our subsidiaries or the VIE received any inquiry, notice, warning or sanctions regarding our planned offering from the CSRC or any other PRC governmental authorities. However, since these statements and regulatory actions by the PRC government are newly published and official guidance and related implementation rules have not been issued, there remain some uncertainties as to how the rules will be interpreted or implemented in the context of an overseas offering and the potential impact such modified or new laws and regulations will have on the daily business operation of the PRC operating entities. We and our PRC counsel, Jingtian & Gongcheng cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as we do. As of the date hereof, we have not received any inquiries, notices, warnings, sanctions, denials, or regulatory objections from the CSRC, CAC, nor any other PRC regulatory authority. The PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that requires our company, the VIE or its subsidiaries to obtain regulatory approval from Chinese authorities before listing in the U.S. If it is determined that CSRC approval is required for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies for failure to seek CSRC approval for this offering.

For more detailed information, see “Risk Factors — Risks Relating to Doing Business in China — Draft rules for China-based companies seeking for securities offerings in foreign stock markets was released by the CSRC. While such rules have not yet come into effect, the Chinese government may exert more oversight and control over overseas public offerings conducted by China-based issuers, which could significantly limit or completely hinder our ability to offer or continue to offer our ADSs to investors and could cause the value of our ADSs to significantly decline or become worthless.” on page 59 of this prospectus.

 

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Pursuant to the Holding Foreign Companies Accountable Act (the “HFCAA”), if the Public Company Accounting Oversight Board (the “PCAOB”), is unable to inspect an issuer’s auditors for three consecutive years, the issuer’s securities are prohibited to trade on a U.S. stock exchange. The PCAOB issued a Determination Report on December 16, 2021 (the “Determination Report”) which found that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in: (1) mainland China of the People’s Republic of China because of a position taken by one or more authorities in mainland China; and (2) Hong Kong, a Special Administrative Region and dependency of the PRC, because of a position taken by one or more authorities in Hong Kong. Furthermore, the Determination Report identified the specific registered public accounting firms which are subject to these determinations. On June 22, 2021, United States Senate passed the Accelerating Holding Foreign Companies Accountable Act (the “AHFCAA”), which, if enacted, would decrease the number of “non-inspection years” from three years to two years, and thus, would reduce the time before our securities may be prohibited from trading or delisted if the PCAOB determines that it cannot inspect or investigate completely our auditor.

Our current auditor, Marcum Asia CPAs LLP (“Marcum Asia”), the independent registered public accounting firm that issues the audit report included elsewhere in this prospectus, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the U.S. pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Marcum Asia, whose audit report is included in this prospectus, is headquartered in New York, New York, and, as of the date of this prospectus, was not included in the list of PCAOB Identified Firms in the Determination Report.

Our 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 us, may depend on the relevant positions of U.S. and Chinese regulators. Marcum Asia’s audit working papers related to us are located in China. With respect to audits of companies with operations in China, such as the Company, there are uncertainties about the ability of our auditor to fully cooperate with a request by the PCAOB for audit working papers in China without the approval of Chinese authorities. If the PCAOB is unable to inspect or investigate completely the Company’s auditor because of a position taken by an authority in a foreign jurisdiction, then such lack of inspection could cause trading in the Company’s securities to be prohibited under the HFCAA, and ultimately result in a determination by a securities exchange to delist the Company’s securities. Accordingly, the HFCAA calls 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. These developments could add uncertainties to our offering.

On August 26, 2022, the PCAOB announced that it had signed a Statement of Protocol (the “Protocol”) with the China Securities Regulatory Commission (the “CSRC”) and the Ministry of Finance (“MOF”) of the People’s Republic of China, governing inspections and investigations of audit firms based in mainland China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and the unfettered ability to transfer information to the SEC. According to the PCAOB, its December 2021 determinations remain in effect. There is possibility that when the PCAOB reassesses its determinations by the end of 2022, it could determine that is still unable to inspect or investigate completely registered public accounting firms in mainland China and Hong Kong.

See “Risk Factors — Risks Relating to Doing Business in China — The newly enacted Holding Foreign Companies Accountable Act and the Accelerating Holding Foreign Companies Accountable Act 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. These developments could add uncertainties to our offering and listing on the Nasdaq Global Market, and Nasdaq may determine to delist our securities if the PCAOB determines that it cannot inspect or fully investigate our auditor.” on page 56 of this prospectus.

Investing in our ADSs involves a high degree of risk. See “Risk Factors” beginning on page 35 of this prospectus.

 

Per ADS

 

Total

Initial public offering price

 

US$       [______]

 

US$       [______]

Underwriting discounts and commissions (7%) for sales to investors introduced by the underwriter(1)

 

US$       [______]

 

US$       [______]

Proceeds, before expenses, to us(2)

 

US$       [______]

 

US$              

____________

(1)      See “Underwriting” beginning on page 179 for additional disclosure regarding underwriting compensation payable by us.

(2)      The total estimated expenses related to this offering are set forth in the section entitled “Underwriting — Discounts, Commissions and Expenses.”

The underwriters are selling [•] ADSs (or [•] ADSs if the underwriters exercise their option to purchase additional ADSs in full) in this Offering on a firm commitment basis.

We have granted the underwriters an option to purchase up to an additional          ] ADSs within [45] days from the date this prospectus at the initial public offering price, less the underwriting discounts and commissions.

The underwriters expect to deliver the ADSs against payment in U.S. dollars to the purchasers on or about [], 2022.

Prospectus dated [•], 2022

 

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TABLE OF CONTENTS

 

Page

PROSPECTUS SUMMARY

 

4

THE OFFERING

 

32

RISK FACTORS

 

35

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

79

USE OF PROCEEDS

 

80

DIVIDEND POLICY

 

81

CAPITALIZATION

 

82

EXCHANGE RATE INFORMATION

 

83

DILUTION

 

84

CORPORATE HISTORY AND STRUCTURE

 

86

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

89

INDUSTRY OVERVIEW

 

100

BUSINESS

 

109

PRC REGULATION

 

123

MANAGEMENT

 

136

BOARD OF DIRECTORS

 

138

EXECUTIVE COMPENSATION

 

142

PRINCIPAL SHAREHOLDERS

 

144

RELATED PARTY TRANSACTIONS

 

146

DESCRIPTION OF SHARE CAPITAL

 

148

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

 

158

ORDINARY SHARES AND ADSs ELIGIBLE FOR FUTURE SALE

 

169

TAXATION

 

171

ENFORCEABILITY OF CIVIL LIABILITIES

 

177

UNDERWRITING

 

179

EXPENSES RELATING TO THIS OFFERING

 

188

LEGAL MATTERS

 

189

EXPERTS

 

189

WHERE YOU CAN FIND ADDITIONAL INFORMATION

 

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

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You should rely only on the information contained in this prospectus or in any related free-writing prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus or in any related free-writing prospectus. We are offering to sell, and seeking offers to buy, the ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is current only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the ADSs. We have not taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this prospectus or any filed free writing prospectus outside the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside the United States.

This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable. While we believe these industry publications and third-party research, surveys and studies are reliable, you are cautioned not to give undue weight to this information.

Until [•], 2022 (the [•]th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

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ABOUT THIS PROSPECTUS

We and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by us or on our behalf or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the ADSs offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted or where the person making the offer or sale is not qualified to do so or to any person to whom it is not permitted to make such offer or sale. For the avoidance of doubt, no offer or invitation to subscribe for ADSs is made to the public in the Cayman Islands. The information contained in this prospectus is current only as of the date on the front cover of the prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Conventions that apply to this Prospectus

Unless otherwise indicated or the context requires otherwise, the reference in this prospectus to:

        “Xiao-I” is to Xiao-I Corporation, an exempted company with limited liability incorporated under the laws of Cayman Islands;

        “AI Plus” is to AI Plus Holding Limited, organized under the law of British Virgin Islands, as our intermediate holding company;

        “Xiao-i Technology” is to Xiao-i Technology Limited, organized under the law of Hong Kong, which is wholly owned by AI Plus;

        “WFOE” is to Zhizhen Artificial Technology (Shanghai) Company Limited (“Zhizhen Technology”), a limited liability company established and existing under the laws of the PRC, which is wholly owned by Xiao-i Technology;

        “Shanghai Xiao-i” or the “VIE” is to Shanghai Xiao-i Robot Technology Company Limited, a company limited by shares established and existing under the laws of the PRC;

        “the PRC operating entities” refers to the VIE, Shanghai Xiao-i, and its subsidiaries;

        “we,” “us,” or the “Company” in this prospectus are to Xiao-I, AI Plus, Xiao-i Technology and WFOE, unless otherwise indicated or the context requires otherwise, and, in the context of describing our business, operations and consolidated financial information, “we,” “us,” or the “Company” are to Shanghai Xiao-i;

        “Memorandum and Articles of Association” means the amended and restated memorandum of association (“Memorandum”) and the amended and restated articles of association (“Articles of Association”) of Xiao-I;

        “China” or the “PRC” are to the People’s Republic of China, including the special administrative regions of Hong Kong and Macau, and excluding Taiwan for the purposes of this prospectus only; the term “Chinese” has a correlative meaning for the purpose of this prospectus;

        “mainland China”, “mainland of PRC” or “mainland PRC” are to the mainland China of the PRC, excluding Taiwan, the special administrative regions of Hong Kong and Macau for the purposes of this prospectus only; the term “mainland Chinese” has a correlative meaning for the purpose of this prospectus;

        “PRC government”, “PRC regulatory authorities”, “PRC authorities”, “PRC governmental authorities”, “Chinese government”, “Chinese authorities” or “Chinese governmental authorities” is to the government of mainland China for the purposes of this prospectus only; and the similar wordings have a correlative meaning for the purpose of this prospectus;

        “PRC laws and regulations”, “PRC laws”, “laws of PRC”, “Chinese laws and regulations” or “Chinese laws” are to the laws and regulations of mainland China; and the similar wordings have a correlative meaning for the purpose of this prospectus;

        “Ordinary Shares” are to the ordinary shares of the Company, par value US$0.00005 per share;

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        “$,” “U.S.$,” “U.S. dollars,” “dollars” and “USD” are to U.S. dollars;

        “RMB” and “¥” are to Renminbi;

        “Companies Act” is to the Companies Act (As Revised), Cap. 22 of the Cayman Islands.

        “ADSs” refer to our American depositary shares, each of which represents [          ] Ordinary Shares.

Our business is conducted by Shanghai Xiao-i in the PRC using RMB, the currency of China. Our consolidated financial statements are presented in United States dollars. In this prospectus, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations (expressed in dollars) and the value of our assets, including accounts receivable (expressed in dollars).

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PRESENTATION OF FINANCIAL INFORMATION

Our consolidated financial statements included in this prospectus have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our reporting currency is United States dollar. Unless otherwise indicated, all monetary amounts in this prospectus are in U.S. dollars.

This prospectus contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations from Renminbi to U.S. dollars were made at RMB6.3726 to $1.00 on December 30, 2021, representing the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Board. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On June 1, 2022, the noon buying rate in New York for cable transfers payable in Renminbi was RMB6.6858 to $1.00. We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before deciding whether to buy our ADSs. You should read this entire prospectus carefully, including “Risk Factors,” “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, before making an investment decision. This prospectus contains information from an industry report commissioned by us and prepared by Frost & Sullivan, an independent research firm, to provide information regarding our industry and our market position in China.

Investors should note that Xiao-I Corporation, our ultimate Cayman Islands holding company, does not own any substantive operations in the PRC and our businesses in the PRC described in this prospectus are operated through Shanghai Xiao-i, the VIE and the VIE’s subsidiaries in China.

Our Mission

Our mission is to leverage our advanced core artificial intelligence technology to make the world a better place.

Overview

Xiao-I is a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, Xiao-I conducts a substantial majority of our operations through Shanghai Xiao-i, the VIE, in the PRC. Investors in our ADSs or Ordinary Shares should be aware that they may never hold equity interests in the VIE, but rather purchasing equity interests solely in Xiao-I Corporation, our Cayman Islands holding company, which does not own any of our business in China conducted by the VIE. Our ADSs offered in this offering represent shares of our Cayman Islands holding company instead of shares of the VIE in China.

Shanghai Yingsi Software Technology Co., Ltd. (“Incesoft”) was founded in 2001. Incesoft established the Xiaoi robot brand (Chinese: 小i机器人) and developed AI technology used to support its consumer-to-consumer business model. In 2009, Incesoft transformed its business model from consumer-to-consumer to business-to-business. At the same time, founders of Incesoft founded Shanghai Xiao-i, the VIE, which acquired the Xiaoi robot brand and Incesoft’s core AI technology. 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.

Milestone Accomplishments over 20 Years History

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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. 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.

We are a leading cognitive intelligence enterprise in China, integrating parts of perceptive intelligence like natural language processing and computer vision. 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.

We have comprehensive business lines covering fundamental tech platform, conversation bot, cloud services, industry solutions and robotics solutions.

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Our cognitive intelligence artificial intelligence (“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.

Our History and Corporate Structure

Xiao-I was incorporated in the Cayman Islands on August 13, 2018, with limited liability under the Companies Act. Upon incorporation, the authorized share capital of our company was US$50,000 divided into 1,000,000,000 shares, par value of US$0.00005 each, comprising of 1,000,000,000 Ordinary Shares of a par value of US$0.00005 each. Our company is a holding company.

On August 30, 2018, we established our wholly-owned subsidiary AI Plus Holding Limited (“AI Plus”), under the law of British Virgin Islands, as our intermediate holding company, which then established its wholly-owned subsidiary, Xiao-i Technology Limited (“Xiao-i Technology”) under the law of Hong Kong, which in turn established a wholly-owned PRC subsidiary, Zhizhen Artificial Technology (Shanghai) Company Limited (“Zhizhen Technology”) or the WFOE, on March 29, 2019. 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.

As of the date of this prospectus, Al Plus, Xiao-i Technology and Zhizhen Technology do not have any substantive business operations. As a result of our indirect ownership in Zhizhen Technology and the variable interest entity contractual arrangements, we are regarded as the primary beneficiary of the VIE for accounting purposes. We treat the VIE and the VIE’s subsidiaries as our consolidated affiliated entities under U.S. GAAP, and have consolidated the financial results of these entities in our consolidated financial statements in accordance with U.S. GAAP. The Company, its wholly-owned subsidiaries, the VIE and the VIE’s subsidiaries are collectively referred to as the “Group.” For more details and risks related to the variable interest entity structure, please see “Risk Factors — Risks Relating to Our Corporate Structure” on page 48 of this prospectus.

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The following diagram illustrates the corporate legal structure of the Group as of the date of this prospectus.

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The VIE Agreements

The PRC government regulates the telecommunications and internet industry, including software industry, through strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership of PRC companies that engage in software business. Xiao-I, AI Plus and Zhizhen Technology, are considered as foreign invested enterprises. To comply with these regulations, the Company conducts the majority of its activities in PRC through the VIE, Shanghai Xiao-i, and its subsidiaries. Uncertainties exist as to our ability to enforce the VIE Agreements, and the VIE Agreements have not been tested in a court of law.

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. The Company, through its indirect wholly owned subsidiary, Zhizhen Technology, is fully and exclusively responsible for the management of Shanghai Xiao-i, absorbs all risk of losses of Shanghai Xiao-i (excluding non-controlling interests) and has the exclusive right to exercise all voting rights of Shanghai Xiao-i’s shareholders. In exchange, Shanghai Xiao-i pays service fees to Zhizhen Technology. 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. Therefore, the Company, through its wholly owned subsidiaries AI Plus and Zhizhen Technology, has been determined to be the primary beneficiary of Shanghai Xiao-i and the VIE’s subsidiaries for accounting purposes and has consolidated Shanghai Xiao-i’s and its subsidiaries’ assets, liabilities, results of operations, and cash flows in the accompanying consolidated financial statements.

Exclusive Call Option Agreement

Pursuant to the Exclusive Call Option Agreement signed on March 29, 2019 by and among Zhizhen Technology, Shanghai Xiao-i and its shareholders, the shareholders irrevocably granted Zhizhen Technology or any third party designated by Zhizhen Technology an option to purchase all or part of their equity interests in Shanghai Xiao-i at any time at a price determined at Zhizhen Technology’s discretion. According to the Exclusive Call Option Agreement, the purchase price to be paid by the Company to each shareholder of Shanghai Xiao-i will be the minimum price permitted by applicable PRC Law at the time when such share transfer occurs. Without Zhizhen Technology’s prior written consent, the shareholders and Shanghai Xiao-i agreed not to, among other things: set encumbrance on, transfer all or part of, or dispose of the equity interests; amend the articles of association of Shanghai Xiao-i; change the registered capital of Shanghai Xiao-i or holding structure; change Shanghai Xiao-i’s business activities; sell, assign, mortgage or dispose of any legal or beneficial rights to or in any of Shanghai Xiao-i’s assets, business, or revenue; incur, assume or guarantee any debts; enter into any material contract; extend any loan or credit to any party, or provide any guarantee or assume any obligation of any party; merge or consolidate with any third party or acquire or invest in any third party; or distribute dividends. The shareholders and Shanghai Xiao-i agreed to manage business and handle financial and commercial affairs prudently and in accordance with relevant laws and codes of practice. 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.

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. Under this agreement, Shanghai Xiao-i appointed Zhizhen Technology to provide exclusive comprehensive business support, technical services, consulting services and other services to Shanghai Xiao-i, and Shanghai Xiao-i agreed to accept such services. The term of the Services provided by Zhizhen Technology shall be 10 years from the effective date of March 29, 2019, and will be automatically extended after the expiration until when terminated in writing by Zhizhen Technology. Additionally, Zhizhen Technology has the full and exclusive right to manage and direct all cash flow and assets of Shanghai Xiao-i and to direct and administrate the financial affairs and daily operation of Shanghai Xiao-i. In exchange, Shanghai Xiao-i pays service fees to Zhizhen Technology. The service fees shall consist of 100% of the profit before tax of Shanghai Xiao-i, after the deduction of all costs,

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expenses, taxes and other fee required under PRC laws and regulations. If Shanghai Xiao-i is unable to pay the service fees due to the actual managing situation, with the written consent of Zhizhen Technology, the unpaid part of the service fees in the previous fiscal year can be deferred to the end of the next year and settled together. 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. During the validity term of this agreement, Zhizhen Technology will bear all the economic benefits and risks arising from the business of Shanghai Xiao-i and its subsidiaries. Zhizhen Technology will provide financial support to Shanghai Xiao-i or its subsidiaries in the event of a loss or serious operational difficulties.

Power of Attorney Agreement

On March 29, 2019, each shareholder of Shanghai Xiao-i, signed the Power of Attorney Agreement to irrevocably entrust Zhizhen Technology or any person(s) designated by Zhizhen Technology to act as its attorney-in-fact to exercise any and all of its rights as a shareholder of Shanghai Xiao-i, including, but not limited to, the right to convene, attend and present the shareholders’ meetings, vote, sign and perform as a shareholder; transfer, pledge or dispose of all the equity interest of Shanghai Xiao-i held by the shareholder; collect the dividend, and participate in litigation procedures. This agreement is effective and irrevocable until all of each shareholder’s equity interest in Shanghai Xiao-i has been transferred to Shanghai Xiao-i or the person(s) designated by Zhizhen Technology.

Share Interest Pledge Agreement

Under the Share Interest Pledge Agreement signed on March 29, 2019 by and among Zhizhen Technology and each shareholder of Shanghai Xiao-i, the shareholders of Shanghai Xiao-i have agreed to pledge 100% equity interest in Shanghai Xiao-i to Zhizhen Technology to guarantee the performance obligations of Shanghai Xiao-i under the Exclusive Business Cooperation Agreement, and the performance obligations of each shareholder under the Exclusive Call Option Agreement. If Shanghai Xiao-i or its shareholders breach their contractual obligations under these agreements, Zhizhen Technology, as pledgee, will have the right to exercise the pledge.

The shareholders also agreed that, without prior written consent of Zhizhen Technology, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equity interests. The pledge of equity interests in Shanghai Xiao-i has been registered with the relevant office of the State Administration for Market Regulation in accordance with the Civil Code of the People’s Republic of China.

Spousal Commitment Letter

The spouses of each individual shareholder of Shanghai Xiao-i have each signed a Commitment Letter. Under the Commitment Letter, the signing spouse unconditionally and irrevocably has agreed to the execution by his or her spouse of the above-mentioned Exclusive Business Cooperation Agreement, Exclusive Call Option Agreement, Power of Attorney Agreement and Share Interest Pledge Agreement, and that his or her spouse may perform, amend or terminate such agreements without his or her consent. 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.

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. We have evaluated the guidance in FASB ASC 810 and determined that we are the primary beneficiary of the VIE, for accounting purposes, based upon such contractual arrangements. 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. A VIE is an entity in which a company, through contractual arrangements, is fully and exclusively responsible for the management of the entity, absorbs all risk of losses of the entity, receives the benefits of the entity that could be significant to the entity, excluding non-controlling interests, and has the exclusive right to exercise all voting rights of the entity, and therefore the company is the primary beneficiary of the entity for accounting purposes. 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. Through the VIE agreements, the Company is deemed the primary beneficiary of the VIE

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for accounting purposes. The VIE has no assets that are collateral for or restricted solely to settle its obligations. The creditors of VIE do not have recourse to the Company’s general credit. Accordingly, under U.S. GAAP, the results of the VIE and its subsidiaries are consolidated in our financial statements.

However, investors will not and may never hold equity interests in the PRC operating companies. The VIE Agreements may not be effective in providing control over Shanghai Xiao-i. Uncertainties exist as to our ability to enforce the VIE Agreements, and the VIE Agreements have not been tested in a court of law. If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. The Chinese regulatory authorities could disallow this VIE structure, which would likely result in a material change in our operations and the value of our ADSs, including that it could cause the value of such securities to significantly decline or become worthless. See “Risk Factors — Risks Relating to Our Corporate Structure” beginning on page 48 of this prospectus for certain risks relating to the contractual arrangements.

As of the date of this prospectus, no cash transfer or transfer of other assets by way of dividends or distributions have occurred among the Company, its subsidiaries, or the VIE and the VIE’s subsidiaries. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid, or any funds will be transferred from one entity to another, in the foreseeable future. As such, we have not installed any cash management policies that dictate how funds are transferred among the Company, its subsidiaries, or investors, or the VIE and the VIE’s subsidiaries. For further details, please refer to “Prospectus Summary — Consolidation”, as well as the condensed consolidating schedule and the consolidated financial statements included elsewhere in this registration statement.

Xiao-I is a holding company with no operations of its own. We conduct our operations in China primarily through the VIE and the VIE’s subsidiaries in China. As a result, although other means are available for us to obtain financing at the holding company level, Xiao-I’s ability to pay dividends and other distributions to its shareholders and to service any debt it may incur may depend upon dividends and other distributions paid by Xiao-I’s PRC subsidiaries, which relies on dividends and other distributions paid by the VIE and the VIE’s subsidiaries pursuant to the VIE Agreements. If any of these entities incurs debt on its own in the future, the instruments governing such debt may restrict its ability to pay dividends and other distributions to Xiao-I.

In addition, dividends and distributions from Xiao-I’s PRC subsidiaries and the VIE are subject to regulations and restrictions on dividends and payment to parties outside of China. Applicable PRC law permits payment of dividends to Xiao-I by WFOE only out of net income, if any, determined in accordance with PRC accounting standards and regulations. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset by general reserve fund and profits (if general reserve fund is not enough). Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. In contrast, there is presently no foreign exchange control or restrictions on capital flows into and out of Hong Kong. Hence, Xiao-I’s Hong Kong subsidiary is able to transfer cash without any limitation to the Cayman Islands under normal circumstances. As a result of these PRC laws and regulations, the Group’s VIE and VIE’s subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company.

Moreover, the transfer of funds among the VIE and its subsidiaries (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 advised by our PRC counsel, Jingtian & Gongcheng, the Provisions on Private Lending Cases does not prohibit using cash generated from one PRC operating entity to fund another affiliated PRC operating entity’s operations. Xiao-I or the PRC operating entities have not been notified of any other restriction which could limit the PRC operating entities’ ability to transfer cash among each other. In the future, cash proceeds from overseas financing activities, including this offering, may be transferred by Xiao-I to AI Plus Holding Limited (“AI Plus”), and then transferred to Xiao-i Technology Limited (Xiao-i Technology”), and then transferred to WFOE via capital contribution or shareholder loans, as the case may be. Cash proceeds may flow to Shanghai Xiao-i from WFOE pursuant to certain contractual arrangements between WFOE and Shanghai Xiao-i as permitted by the applicable PRC regulations.

Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid out of share premium if this would result in the company being unable to pay its debts due in the ordinary course of business. We do not expect to pay dividends

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in the foreseeable future. If, however, we declare dividends on our Ordinary Shares, the depositary will pay you the cash dividends and other distributions it receives on our Ordinary Shares after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement. If we determine to pay dividends on any of our Ordinary Shares in the future, as a holding company, we will rely on payments made from Shanghai Xiao-i to WFOE, pursuant to the VIE Agreements between them, and the distribution of such payments to Xiao-i Technology from WFOE, and then to AI Plus from Xiao-i Technology, and then to Xiao-I Corporation from AI Plus as dividends, unless we receive proceeds from future offerings. See “Prospectus Summary — Transfers of Cash to and from the VIE” on page 24 and “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 on page 62 of this prospectus.

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.

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. 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.

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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. 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. Based on these technologies, we have built a variety of intelligent voice solutions under the Aviation Industry Computer-Based Training Committee framework, including intelligent Interactive Voice Response navigation, intelligent outbound call, intelligent agent assistance, intelligent voice quality inspection, and intelligent coaching.

        Computer Vision

        We offer various computer vision capabilities, including face recognition and analysis, multi-target tracking, human posture and action recognition, and scene analysis capabilities such as semantic and instance segmentation. In terms of Optical Character Recognition (“OCR”), we have general OCR and customized OCR for all types of cards, invoice, receipts, tickets, and more. In terms of construction drawing analysis, we apply various capabilities including pattern recognition and computer vision to comprehensively analyze and process Computer Aided Design (“CAD”) drawings, bringing to life standard review capability for construction drawings. Relating to engineering, we provide rapid

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engineering customization through its internally-developed deep learning framework, which is a machine learning algorithm that uses multiple layers to progressively extract higher-level features from the raw input. We also offer model distillation and pruning solutions to meet clients’ model compression requirements. 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 (a machine learning training method based on rewarding desired behaviors and/or punishing undesired ones), active learning (a learning algorithm that interactively queries a user or some other information source to label new data points with the desired outputs), transfer learning (reusing elements of a pre-trained model in a new machine learning model), and generative adversarial networks (“GAN”) (a machine learning model in which two neural networks compete with each other to become more accurate in their predictions). These methods are applied across multiple fields such as natural language processing, speech recognition, vision recognition and analysis, and in business scenarios such as precision marketing, personalized recommendation, and risk assessment in combination with massive data and distribution processing algorithms to form an efficient human-computer collaborative learning system.

        Affective Computing

        Deep learning technology is used to recognize, understand, process, and simulate human emotions, so as to realize multi-dimensional and multimodal affective computing capabilities such as text, voice and vision. 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. Business processes are automatically and quickly identified, reviewed, and executed in combination with innovative technologies such as process automation and low code (which provides a development environment used to create application software through a graphical user interface). The results enable enterprises to delegate simple tasks with high repeatability, as well as complex tasks, to AI and data enhancement, thereby improving the quality and efficiency of business operations. Applications include data monitoring, data analysis, user profiling, business process automation, financing business automation, financial business automation, supply chain business automation, IT operation, and maintenance and integration automation.

Our Product Platforms

We have commercialized our six core technologies to create the following product platforms: (1) Conversational AI, (2) Knowledge Fusion, (3) Intelligence Voice, (4) Hyperautomation, (5) Data Intelligence, (6) Intelligent Construction Support, (7) Vision Analysis, (8) Intelligent Hardware Support, and (9) Metaverse.

        Conversational AI Platform

        Our conversational AI platform makes full use of deep learning, data enhancement, and active learning technologies, employing flexible and diverse dialog management and context processing mechanisms, and driven by a powerful learning system, the results of which achieve in-depth scenario dialog processing, intent recognition, and complex logic reasoning in combination with structured knowledge and semantic analysis 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.

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        Knowledge Fusion Platform

        The knowledge fusion platform integrates various types of knowledge such as Question & Answer (“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. 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 integrates technologies such as OCR, NLP, and visualized data mining and analysis, enables users to realize business and process automation, combines capabilities of knowledge base and imitation learning, and enables realization of business and process intelligence with intelligent planning capabilities.

        Data Intelligence Platform

        The data intelligence platform comprehensively integrates data assets, manages the entire life cycle of data, and realizes the entire cycles of data integration, processing, transformation, analysis, and mining through What You See Is What You Get (a system in which editing software allows content to be edited in a form that resembles its appearance when printed or displayed as a finished product) with the support of component-based data visualization technology. It also helps clients extract valuable information contained in data, and provides assistance in business and process automation, business prediction, decision support, among others, and improves the efficiency of data-driven business intelligence and business intelligence services.

        Intelligent Construction Support Platform

        Our intelligent construction support platform offers many capabilities such as parsing, reconstruction, visualization, and multi-dimensional analysis of construction drawings. Combined with a variety of construction application scenarios, the platform can realize intelligent construction drawings review, design assistance, online collaborative design, among other applications. 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.

        Intelligent Hardware Support Platform

        The intelligent hardware support platform provides the framework of signal collection, processing, analysis, prediction, and more. This framework can be combined with various sensors to quickly process signal, select and adapt appropriate machine learning algorithms for business modeling according to the intelligent requirements of various types of hardware, make full use of various machine learning capabilities to make the equipment be more intelligent.

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        Metaverse Platform

        We developed the first virtual digital human in 2016 and released it for the first time at the Guiyang Digital Expo in 2017. We continue to innovate and develop more advanced and smarter digital human products. Digital human with multimodal emotional interaction capabilities can be widely used in various business scenarios including film and television production, media, games, financial services, culture, tourism, education, healthcare, and retail.

Domain Application Layer

For more than 20 years, we have applied our aggregation platform to form a number of mature application fields designed to address the business needs of various fields, including (1) AI + Contact Center, (2) AI + Finance, (3) AI + Urban Public Service, (4) AI + Construction, (5) AI + Metaverse, (6) AI + Manufacturing and (7) AI + Smart Healthcare.

Our technologies are based, in significant part, upon our proprietary intellectual property portfolio. As of March 2022, we have applied for 531 patents, 259 of which have been granted and we have obtained 214 registered trademarks and 118 computer software copyrights. In June 2020, we passed the national intellectual property management system certification and obtained the certificate. This certificate represents that the company’s intellectual property management system conforms to the GB/T 29490-2013 standard, which is the first national standard for enterprise intellectual property management jointly drafted and formulated by China National Intellectual Property Administration and the China National Institute of Standardization, and jointly approved by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC and Standardization Administration of the PRC. We continue to develop and improve our intellectual property portfolio through our in-depth Research and Development (“R&D”) department. As of May 31, 2022, we have 232 R&D personnel, accounting for about 52.4% of our personnel, including 161 with Bachelor’s degrees, 19 with Master’s degrees and 4 with Doctorates. Our primary services are software services. Software services refer to the sales of software products corresponding to the Company’s obtained patents or software copyrights to customers for meeting the needs of different customers in different industries for artificial intelligence:

(1)    Contact Center:    We leverage contact center AI solutions to improve customer experience and operational efficiency. 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. 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.

(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. We provide solutions such as smart city service hotline, smart public service and smart legal services.

We generate revenue primarily from the (i) sale of software products, (ii) maintenance and support (“M&S”) service, and (iii) sale of cloud platform products. For the years ended December 31, 2020 and 2021, our total revenue was US$13.86 million and US$32.52 million, respectively.

1.      Our software products sold to customers comprising customized software products for specific needs. The revenue from sales of software products increased by 109.9% from US$11.50 million for the year ended December 31, 2020 to US$24.14 million for the year ended December 31, 2021, primarily due to two major contracts signed in 2021, providing smart graphic review software products amounted to US$11.88 million and technical services amounted to US$1.51 million, respectively.

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2.      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 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.

3.      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$5.53 million for the year ended December 31, 2021.

We sell our products and services to end customers through our sales ecosystem. Sales to customers in Mainland China accounted for approximately 97.7% and 88.3% of our total revenue in fiscal year 2021 and 2020, respectively.

Sales to customers in Hong Kong, Macao, Taiwan and other countries accounted for approximately 2.3% and 11.7% of our total revenue in fiscal year 2021 and 2020, respectively.

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 Research and Development (“R&D”)

        We pioneered the industry’s first cognitive intelligence and narrow artificial intelligence technology and have built on our culture of innovation.

        Since our establishment in 2001, we have 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. As a leading AI technology and industrialization service platform in China, through years of operation, we have established cooperation with many leading companies amongst various industry verticals according to Frost & Sullivan. Our industry leadership is built on our pioneering research to commercialize AI technology.

        Our first-mover advantage in natural language processing has made us a pioneer in formulating AI industry standards and creating more than 500 patents granted or pending. To protect our technology, in June 2012, Shanghai Xiao-i sued Apple Computer Trading (Shanghai) Co., Ltd., a subsidiary of Apple, Inc., for patent infringement and received the Supreme People’s Court Supreme Court Administrative Judgment, a final judgement, confirming the validity of our patent in June 2020, but did not make a ruling on whether Apple infringed our patent. Specifically, according to the Patent Administration (Patent) Retrial Administrative Judgment issued by the Supreme People’s Court of China ((2017) ZGFXZ No. 34), in the retrial case of Shanghai Xiao-i and Apple Computer Trading (Shanghai) Co., Ltd. and the China National Intellectual Property Administration, the Supreme People’s Court determined that the invention patent named “A Chatbot System (Patent No.: 200410053749.9)” held by Shanghai Xiao-i is a valid patent. On August 3, 2020, after obtaining the final judgment confirming the validity of its patent, Shanghai Xiao-i filed another infringement lawsuit against Apple Computer Trading (Shanghai) Co., Ltd., Apple, Inc., and Apple Computer Trading (Shanghai) Co., Ltd. (together, “Apple”), demanding Apple to stop the infringement and compensate for the losses. As of the date of this prospectus, the case is still pending. See “Legal Proceedings on page 122 for details.”

        We are a pioneer in AI + with over 20 years of development and innovation with 4 R&D centers, 280+ engineers, 50+ external experts, and 10+ university partners.

Advantages of Our Products and Services

        We develop and commercialize Metaverse-related offerings, including Virtual Humans, Artificial Reality (“AR”) and Virtual Reality (“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.

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        Our deep-rooted.

        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. We have master similar commercial arrangements in place with many of our customers, retaining customers over the long term.

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 client list includes nearly all the industry giants in the banking and telecom industries in China.

Our Visionary and Seasoned Management

        Our CEO Mr. Yuan Hui 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.

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 have set up a technology research institute to conduct in-depth communication on technological innovation with experts and scholars from top universities, such as Duke University, Hong Kong University of science and technology and Columbia University. 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.    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. Our first mover advantage in the metaverse will help us continue to succeed in this field.

        Expand our customer base and make full use of existing customers through market segmentation and personalization.    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.    As a company mainly engaged in software sales and services, we will increase integrated software and hardware products in the future.

        Further expand our global footprint strategically.    The goal of the company is to become a global artificial intelligence enterprise. After the completion of this offering, we are committed to internationalizing our products and services and providing high-quality products and services to customers around the world.

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Consolidation

We conduct substantially all of our 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 Corporation’s revenues, costs and net income in China are directly or indirectly generated through the VIE. Xiao-I Corporation, through its indirect wholly owned subsidiary, Zhizhen Technology, has signed various agreements with the VIE and shareholders of the VIE to allow the transfer of economic benefits from the VIE to Zhizhen Technology and to direct the activities of the VIE. Total assets and liabilities presented on Xiao-I Corporation’s consolidated balance sheets and revenue, expense, net income presented on consolidated statement of operations and comprehensive income as well as the cash flow from operating, investing and financing activities presented on the consolidated statement of cash flows are the financial position, operation and cash flow of the VIE and VIE’s subsidiaries, excluding non-controlling interests. The Company has not provided any financial support to the VIE and the VIE’s subsidiaries for the fiscal years ended at December 31, 2019, 2020 and December 31, 2021, the variable interest entities accounted for an aggregate of 100% of our total assets and total liabilities. As of December 31, 2020 and 2021, $697,798 and $1,254,528 of cash, cash equivalents and restricted cash were denominated in RMB, respectively.

Xiao-I Corporation 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. The following table sets forth the assets, liabilities, results of operations and changes in cash, cash equivalents of the VIE and its subsidiaries, which were included in the Company’s consolidated balance sheets and statements of comprehensive income and statements of cash flows with intercompany transactions eliminated:

 

As of December 31, 2020

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

 

365,756

 

 

4

 

 

366,865

Restricted cash

 

 

460,164

 

 

 

 

460,164

Accounts receivable, net

 

 

8,052,564

 

 

 

 

8,052,564

Amounts due from related parties

 

 

23,072

 

 

 

 

23,072

Inventories, net

 

 

273,364

 

 

 

 

273,364

Contract costs

 

 

1,067,289

 

 

 

 

1,067,289

Prepaid expenses and other current assets, net

 

4

 

1,848,404

 

 

 

 

1,848,408

Total current assets

 

1,109

 

12,090,613

 

 

4

 

 

12,091,726

                         

Non-current assets:

                       

Property and equipment, net

 

 

236,499

 

 

 

 

236,499

Intangible assets, net

 

 

886,479

 

 

 

 

886,479

Long-term investment

 

 

482,463

 

 

 

 

482,463

Right of use assets

 

 

2,250,351

 

 

 

 

2,250,351

Deferred tax assets, net

 

 

5,320,284

 

 

 

 

5,320,284

Prepaid expenses and other, non-current assets

 

 

3,909,726

 

 

 

 

3,909,726

Total non-current assets

 

 

13,085,802

 

 

 

 

13,085,802

TOTAL ASSETS

 

1,109

 

25,176,415

 

 

4

 

 

25,177,528

                         

Liabilities

                       

Current liabilities:

                       

Short-term borrowings

 

 

13,923,372

 

 

 

 

13,923,372

Accounts payable

 

 

2,187,810

 

 

 

 

2,187,810

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Table of Contents

 

As of December 31, 2020

Condensed Consolidating Schedule
of Financial Position

 

Parent

 

VIE and its
consolidated
subsidiaries

 

WFOE

 

Other
Subsidiaries

 

Elimination
Adjustments

 

Consolidated
Total

   

(in U.S. dollars)

Amount due to related
parties-current

 

 

 

540,778

 

 

 

 

 

 

 

540,778

 

Deferred revenue

 

 

 

1,926,373

 

 

 

 

 

 

 

1,926,373

 

Accrued liabilities and other current liabilities

 

 

 

5,872,347

 

 

 

 

4

 

 

 

5,872,351

 

Lease liabilities, current

 

 

 

1,310,634

 

 

 

 

 

 

 

1,310,634

 

Deficit of VIE and VIE’s subsidiaries absorbed by WFOE

 

 

 

 

 

3,808,481

 

 

 

(3,808,481

)

 

 

Investment deficit in subsidiaries

 

3,808,481

 

 

 

 

 

 

 

(3,808,481

)

 

 

Total current liabilities

 

3,808,481

 

 

25,761,314

 

 

3,808,481

 

 

4

 

(7,616,962

)

 

25,761,318

 

     

 

   

 

   

 

       

 

   

 

Non-current liabilities:

   

 

   

 

   

 

       

 

   

 

Accrued liabilities,
non-current

 

 

 

5,038,643

 

 

 

 

 

 

 

5,038,643

 

Lease liabilities, non-current

 

 

 

1,007,939

 

 

 

 

 

 

 

1,007,939

 

Total non-current liabilities

 

 

 

6,046,582

 

 

 

 

 

 

 

6,046,582

 

TOTAL LIABILITIES

 

3,808,481

 

 

31,807,896

 

 

3,808,481

 

 

4

 

(7,616,962

)

 

31,807,900

 

     

 

   

 

   

 

       

 

   

 

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

 

(76,262,434

)

 

(76,262,434

)

 

(3,808,481

)

 

 

80,070,915

 

 

(76,262,434

)

Accumulated other comprehensive loss

 

(3,404,824

)

 

(3,404,827

)

 

 

 

 

3,404,827

 

 

(3,404,824

)

XIAO-I CORPORATION shareholders’ deficit

 

(3,807,372

)

 

(3,808,481

)

 

(3,808,481

)

 

 

7,616,962

 

 

(3,807,372

)

Non-controlling interests

 

 

 

(2,823,000

)

 

 

 

 

 

 

(2,823,000

)

Total shareholders’ deficit

 

(3,807,372

)

 

(6,631,481

)

 

(3,808,481

)

 

 

7,616,962

 

 

(6,630,372

)

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

1,109

 

 

25,176,415

 

 

 

 

4

 

 

 

25,177,528

 

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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