Xiao-I Corporation Form 20-F Summary
Business context and reporting period
Xiao-I Corporation is a Cayman Islands holding company whose operations are conducted primarily through Shanghai Xiao-i Robot Technology Co., Ltd., a PRC variable interest entity consolidated under U.S. GAAP through contractual arrangements. The company provides cognitive AI, conversational AI, cloud platform, intelligent voice, hyperautomation, computer vision, smart-city, construction and other enterprise solutions. The filing covers the fiscal year ended December 31, 2023; it is an annual report rather than a standalone 2023 fourth-quarter filing.
The company launched its Hua Zang Universal Large Language Model in June 2023 and the Hua Zang Ecosystem in October 2023. Its ADSs trade on Nasdaq under “AIXI,” with each ADS representing one-third of an ordinary share.
Financial performance and key metrics
| US$ millions, except percentages and per-share data | 2022 | 2023 | Change |
|---|---|---|---|
| Revenue | 48.18 | 59.17 | +22.8% |
| Gross profit | 30.81 | 39.42 | +28.6% |
| Gross margin | 63.9% | 66.6% | +2.7 percentage points |
| Operating loss | 3.14 | 21.92 | Material deterioration |
| Net loss | 6.01 | 27.01 | Material deterioration |
| Net loss attributable to Xiao-I shareholders | 5.90 | 26.46 | Material deterioration |
| Basic loss per ordinary share | $0.27 | $1.12 | Worsened |
| Operating cash flow | (10.92) | (15.79) | More negative |
- Revenue growth was driven primarily by cloud platform products, which increased 82.6% to US$47.01 million and represented 79.5% of revenue.
- MaaS revenue increased 48.5% to US$19.19 million, or 32.4% of total revenue. Non-MaaS revenue increased 13.4% to US$39.97 million.
- Technology development revenue declined 52.3% to US$7.84 million, and software product revenue declined 55.8% to US$1.57 million.
- Research and development expense increased 118.3% to US$52.39 million, primarily for large-model development, computing services, data services and related platform investments. R&D represented 88.5% of revenue and exceeded gross profit.
- Income tax expense increased to US$3.79 million, principally because deferred tax assets were substantially reserved due to the company’s recurring losses and limited expectation of future taxable income.
- At December 31, 2023, cash and cash equivalents were US$1.56 million, plus US$20,676 of restricted cash. Accounts receivable declined to US$28.33 million from US$41.36 million.
- Total assets were US$66.33 million, while total liabilities were US$74.80 million and total shareholders’ deficit was US$8.47 million. Accumulated deficit was US$110.83 million.
Cash flow, debt and liquidity
| US$ millions | 2022 | 2023 |
|---|---|---|
| Cash used in operating activities | (10.92) | (15.79) |
| Cash used in investing activities | (2.86) | (20.06) |
| Cash provided by financing activities | 13.51 | 36.47 |
| Ending cash, cash equivalents and restricted cash | 1.03 | 1.56 |
| Short-term bank borrowings | 18.78 | 26.76 |
- 2023 investing cash outflows included US$13.90 million lent to a related party, US$7.94 million lent to third parties and US$2.16 million for property and equipment, partially offset by US$4.45 million of loan collections.
- 2023 financing inflows included US$34.40 million of net IPO proceeds, US$26.83 million of bank borrowings and US$4.59 million of third-party borrowings. These inflows were partly offset by debt repayments.
- Contractual obligations included US$26.76 million of short-term bank borrowings due within one year, US$6.08 million of related-party and third-party obligations due within one year, US$11.03 million of such obligations due in one to three years, and US$2.57 million of operating lease payments.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. Management plans include extending liabilities, obtaining bank financing, raising additional capital, controlling costs and improving operating efficiency, but the filing states that these plans do not alleviate the substantial doubt.
Material changes versus the prior comparable period
- Revenue increased 22.8%, but the net loss expanded from US$6.01 million to US$27.01 million because R&D expense increased by US$28.39 million.
- Gross margin improved as cloud platform revenue became a much larger portion of the business, although cloud hosting fees increased 374.5% to US$6.23 million.
- Operating cash flow deteriorated by US$4.87 million despite improved collections of accounts receivable.
- The company completed its IPO in March 2023 and issued 5.7 million ADSs. The filing reports net IPO proceeds of approximately US$33.11 million in the financial statements and approximately US$35.44 million in the use-of-proceeds discussion; investors should reconcile this presentation difference.
- On December 13, 2023, the company issued 3.7 million preferred shares to an entity controlled by CEO and Chairman Hui Yuan. Each preferred share carries 20 votes but no dividend, liquidation or other economic rights, giving Mr. Yuan more than 79% of voting power and making the company a Nasdaq “controlled company.”
- The company adopted ASC 326 effective January 1, 2023, recording a US$5.89 million cumulative reduction to equity. It also reversed US$5.11 million of prior accounts-receivable credit-loss allowances during 2023.
Guidance, outlook, commentary and risks
- Management expects continued commercialization of Hua Zang LLM, expansion of MaaS, development of B2C products and international expansion through U.S. and UAE subsidiaries.
- Management expects annual R&D investment of approximately US$50 million to US$60 million in each of the following two fiscal years.
- Planned or developing B2C products include an AI try-on product, AI agent product, AI baby crib and AI product for people with disabilities, with targeted 2024 launches. The filing does not provide revenue or profitability guidance.
- Customer concentration remains significant: the largest customer represented 29.3% of 2023 revenue and the five largest customers represented 69.7%. The largest supplier represented 37.6% of purchases, while the top three represented 73.2%.
- The company identified one material weakness in internal control over financial reporting as of December 31, 2023, relating principally to insufficient qualified accounting personnel and U.S. GAAP reporting capabilities. A prior weakness involving contract documentation and revenue recognition was reported as remediated.
- The VIE structure has not been tested in court and could be challenged or disallowed by PRC authorities. Investors do not own equity in the PRC operating entities.
- Seven shareholders had not completed certain SAFE Circular 37 registrations for unrelated external investment activities. The company states that its WFOE opened a new Bank of Ningbo capital account and transferred most IPO proceeds to China, but future transfers could be restricted by regulatory or bank-policy changes.
- The company does not expect to pay dividends in the foreseeable future. PRC foreign-exchange controls, statutory reserves, retained losses and other restrictions limit the ability to transfer funds from the PRC operating entities to the Cayman Islands.
- The company is involved in pending patent litigation with Apple relating to Siri. Xiao-I seeks, among other remedies, relief associated with an asserted RMB10 billion claim; Apple separately seeks a declaration of non-infringement and approximately RMB2 million of costs. The cases were consolidated for trial in January 2024 and remain under review. The company has prepaid approximately US$3.6 million in case acceptance fees.
- The company faces competition from major AI providers, including OpenAI, Microsoft, Google, Baidu, Alibaba, Tencent, Anthropic and others. Key risks include large-model development costs, cybersecurity, data privacy, intellectual-property claims, customer adoption, regulatory changes and RMB volatility.
- The filing states that the auditor is PCAOB-registered and not subject to the PCAOB’s prior China/Hong Kong inspection determination as of the filing date, but future inspection access and HFCAA-related delisting risks remain.
Important facts for investors to verify
- Reconcile the reported IPO net proceeds of approximately US$33.11 million in the financial statements versus US$35.44 million in the use-of-proceeds section.
- Assess the going-concern disclosure, current debt maturities, subsequent 2024 borrowings and the feasibility of planned refinancing or additional capital raising.
- Review the composition, collectability and related-party nature of the US$13.86 million loan receivable from Zhizhen Guorui and other 2023 lending activity.
- Evaluate whether the scale and timing of R&D spending, particularly the stated US$50 million to US$60 million annual outlook, can be supported by operating cash flow.
- Monitor remediation of the material weakness and the quality of future revenue recognition, credit-loss estimates and financial reporting controls.
- Review the terms and governance implications of the super-voting preferred shares and the resulting control by the CEO.
- Track the Apple patent proceedings, related prepaid litigation fees and any potential financial or operating consequences.
- Assess the enforceability and regulatory status of the VIE agreements, SAFE registrations, PRC fund-transfer restrictions and any future CSRC or cybersecurity requirements.