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Exhibit 99.1

XIAO-I CORPORATION

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XIAO-I CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. dollars, except for share and per share data, or otherwise noted)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XIAO-I CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In U.S. dollars, except for share and per share data, or otherwise noted)

Note:

(1) Share-based compensation expenses were allocated as follows:

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

XIAO-I CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIT
(In U.S. dollars, except for share and per share data, or otherwise noted)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

XIAO-I CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In U.S. dollars, except for share and per share data, or otherwise noted)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XIAO-I CORPORATION. (“Xiao-I”, or the “Company”) was incorporated under the laws of the Cayman Islands on August 13, 2018. The Company through its wholly-owned subsidiaries, variable interest entity (“VIE”) and VIE’s subsidiaries (collectively, the “Group”) primarily engages in artificial intelligence technology in the People’s Republic of China (“PRC” or “China”). The Company completed its IPO on the Nasdaq Global Market in March 2023.

As of June 30, 2025, the Company’s major subsidiaries and consolidated VIE are as follows:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following financial statement amounts and balances of the VIE and its subsidiaries were included in the accompanying unaudited condensed consolidated financial statements after elimination of intercompany transactions within the consolidated VIE:

Unaudited Condensed Consolidated Balance Sheets Information

Unaudited Condensed Consolidated Statements of Operations and Comprehensive loss

Unaudited Condensed Consolidated Cash Flows Information

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2024 and June 30, 2025, there were no pledge or collateralization of the VIE’s assets that can only be used to settle obligations of the VIE. The amount of the net liabilities of the VIE was $43,021,877 and $66,619,492 as of December 31, 2024 and June 30, 2025, respectively. The creditors of the VIE’s third party liabilities did not have recourse to the general credit of the Company in the normal course of business. Currently there is a contractual arrangement that would require the Company or its subsidiaries to provide financial support to the VIE. Under the Exclusive Business Cooperation Agreement signed on March 29, 2019 between WFOE and the VIE, WFOE will provide financial support to the VIE or the VIE’s subsidiaries in the event of a loss or serious operational difficulties during the validity term of this agreement.

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the Group’s audited consolidated financial statements and related notes included in the Annual Report for the year ended December 31, 2024.

The accompanying unaudited condensed consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business are dependent on, among other things, the Group’s ability to operate profitably, to generate cash flows from operations, and its ability to attract investors and to borrow funds on reasonable economic terms.

As of December 31, 2024 and June 30, 2025, the Group had an accumulated deficit of $125,338,509 and $155,463,958, respectively, and negative working capital of $10,111,451 and $30,529,489, respectively. In addition, for the six months ended June 30, 2024 and 2025, the Group recorded an amount of net cash used in operating activities of $10,054,183 and $2,328,970, respectively. These conditions raised substantial doubts about the Group’s ability to continue as a going concern.

Historically, the Group has relied principally on both operational sources of cash and non-operational sources of borrowings from banks, related parties and third parties, and proceeds from equity financing to fund its operations and business development. To meet the cash requirements for the next 12 months from the issuance date of the unaudited condensed consolidated financial statements, the Group obtained financial support from controlling shareholder and are in plans to obtain further financing including borrowings from financial institutions. In addition, the Group focuses on the improvement of operation efficiency, implementation of strict cost control and budget and enhancement of internal controls to create a synergy of resources. The Group’s ability to continue as a going concern is dependent on management’s ability to successfully execute its business plan, which includes generating revenue while controlling operating cost and expenses to generate positive operating cash flows and obtaining funds from outside sources of financing to generate positive financing cash flows. There can be no assurance that the Group will be successful in achieving strategic plans, that the Group’s future capital raises will be sufficient to support its ongoing operations, or that any additional financing will be available in a timely manner or on acceptable terms, if at all. If the Group is unable to raise sufficient financing or events or circumstances occur such that the Group does not successful execute strategic plans, the Group will be required to reduce certain discretionary spending, alter or scale back research and development programs, or be unable to fund capital expenditures, which would have a material adverse effect on our financial position, results of operations, cash flows, and ability to achieve intended business objectives.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis the Group will be able to continue as a going concern for a period of one year after the issuance of the unaudited condensed consolidated financial statements.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE in which the Company, through its WFOE, has a controlling financial interest, and the VIE’s subsidiaries.

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors. A VIE is an entity in which the 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 (excluding non-controlling interests), 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. However, the contractual arrangements with the VIE and its shareholders may not be as effective as equity ownership in providing operational control.

All intercompany transactions and balances among the Company, its subsidiaries, the VIE, and the VIE’s subsidiaries have been eliminated upon consolidation.

The preparation of the unaudited condensed consolidated financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenues and expenses during the reported periods in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates include, but not limited to, the allowance for credit losses, depreciable lives and recoverability of property and equipment, the valuation of deferred income tax assets, transaction price allocation between software income and maintenance service income, as well as fair value determination of share-based compensation arrangements. Changes in facts and circumstances may result in revised estimates. Actual results could differ from those estimates, and as such, differences may be material to the unaudited condensed consolidated financial statements.

Accounts receivable, net are stated at the original amount less an allowance for credit losses. Accounts receivable are recognized in the period when the Group has provided services to its customers and when its right to consideration is unconditional. The Group adopted ASC Topic 326, Financial Instruments-Credit Losses (Topic 326) and assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist, primarily based on similar business lines, and on an individual basis when the Group identifies specific customers with known disputes or collectability issues. In determining the amount of the allowance for credit losses, the Group considers historical collectability based on past due status, the age of the accounts receivable balances, credit quality of the Group’s customers based on ongoing credit evaluations, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Group’s ability to collect from customers.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Group evaluates embedded conversion features within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If an embedded derivative is bifurcated from share-settled convertible debt, the Group records the debt component at cost less a debt discount equal to the bifurcated derivative’s fair value. If the conversion feature is not required to be accounted for separately as an embedded derivative, the convertible debt instrument is accounted for wholly as debt. The Group amortizes the debt discount over the life of the debt instrument as an additional non-cash interest expense utilizing the effective interest method. Debt issuance and offering costs are recorded as debt discount, which is amortized as interest expense over the term of the convertible debt instrument using the effective interest method.

The Group’s revenues are mainly generated from (1) sale of software products; (2) sale of hardware products; (3) technology development services; (4) maintenance and support service, and (5) sale of cloud platform products, etc.

The Group recognizes revenue pursuant to ASC 606, Revenue from Contracts with Customers (“ASC 606”). In accordance with ASC 606, revenues from contracts with customers are recognized when control of the promised goods or services is transferred to the Group’s customers, in an amount that reflects the consideration the Group expects to be entitled to in exchange for those goods or services, reduced by Value Added Tax (“VAT”). To achieve the core principle of this standard, we applied the following five steps:

The Group enters into two major kinds of revenue arrangements with customers. The first kind of contract can include various combinations of software products, hardware products and maintenance and support service which are generally distinct and accounted for as separate performance obligations. The other kind of contract is sale of cloud platform products, which include software products and cloud platform service as two separate performance obligations. As a result, the Group’s contracts may contain multiple performance obligations. The Group determines whether arrangements are distinct based on whether the customer can benefit from the product or service on its own or together with other resources that are readily available and whether our commitment to transfer the product or service to the customer is separately identifiable from other obligations in the contract.

The following table disaggregates the Group’s revenue for the six months ended June 30, 2024 and 2025:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract balances

When the Group begins to deliver the products or services pursuant to the performance obligations in the contract, the Group presents the contract in the unaudited condensed consolidated balance sheet as a contract asset or a contract liability, depending on the relationship between the Group’s performance and the customer’s payment. The contract assets consist of accounts receivable and contract costs. Accounts receivable represent revenue recognized for the amounts invoiced and/or prior to invoicing when the Group has satisfied its performance obligation and has unconditional right to the payment. Contract costs are deferred for the contract preparation and will be recognized as cost of revenues when goods or services are transferred to customers. During the six months ended June 30, 2024 and 2025, the Group recognized $11,686,504 and $4,825,596 of contract costs as cost of revenues.

The contract liabilities consist of deferred revenue, which represent the billings or cash received for services in advance of revenue recognition and is recognized as revenue when all of the Group’s revenue recognition criteria are met. The Group’s deferred revenue amounted to $2,385,228 and $2,239,790 as of December 31, 2024 and June 30, 2025, respectively. During the six months ended June 30, 2024 and 2025, the Group recognized $576,711 and $979,322 revenue that was included in deferred revenue balance at January 1, 2024 and 2025, respectively.

The unaudited condensed consolidated financial statements are presented in United States dollars (“USD’’ or “$’’). The functional currency of certain of PRC subsidiaries is the Renminbi (“RMB’’).

Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditure are translated at the average exchange rate of the reporting period. Capital accounts of the unaudited condensed consolidated financial statements are translated into USD from RMB at their historical exchange rates when the capital transactions occurred. Transaction gains and losses are recorded in foreign currency exchange gain/(loss) in the unaudited condensed consolidated statements of operations and comprehensive loss. The rates are obtained from H.10 statistical release of the U.S. Federal Reserve Board.

The Group grants share options and restricted share units of the Company to eligible employees, officers, directors, and non-employee consultants.

Awards granted to employees, officers, and directors are initially accounted for as equity-classified awards. The related share-based compensation expenses are measured at the grant date fair value of the award and are recognized using the graded vesting method, net of estimated forfeiture rates, over the requisite service period, which is generally the vesting period. Forfeitures are estimated at the time of grant based on historical forfeiture rates and will be revised in the subsequent periods if actual forfeitures differ from those estimates. The Group also granted restricted share units to non-employees, which are also initially accounted for as equity-classified awards. Awards granted to non-employees are initially measured at fair value on the grant date and periodically remeasured thereafter until the earlier of the performance commitment date or the date the service is completed and recognized over the period the service is provided. Awards are remeasured at each reporting date using the fair value as at each period end until the measurement date, generally when the services are completed and share-based awards are vested. Changes in fair value between the interim reporting dates are recorded in consistent with the method used in recognizing the original compensation costs.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For an award with a performance and/or service condition that affects vesting, the performance and/or service condition is not considered in determining the award’s fair value on the grant date. Performance and service conditions should be considered when the Group is estimating the quantity of awards that will vest. Compensation cost will reflect the number of awards that are expected to vest and will be adjusted to reflect those awards that do ultimately vest. The Group recognizes compensation cost for awards with performance conditions if and when the Group concludes that it is probable that the performance condition will be achieved, net of an estimate of pre-vesting forfeitures over the requisite service period. The Group reassesses the probability of vesting at each reporting period for awards with performance conditions and adjusts compensation cost based on its probability assessment, unless in certain situations, the Group may not be able to determine that it is probable that performance conditions will be satisfied until the event occurs.

The Group’s share-based awards mainly include share-based awards, details of which are disclosed in Note 11. Fair value determination of these share-based awards is summarized as below:

(1) Restricted share units

In determining the fair value of restricted share units granted, the fair value of the underlying shares of Xiao-I on the grant dates is applied. The grant date fair value of restricted share units is based on stock price of Xiao-I in the Nasdaq Global Market.

(2) Share options

In determining the fair value of share options granted, a binomial option-pricing model is applied. The determination of the fair value is affected by the stock price of Xiao-I in the Nasdaq Global Market, as well as assumptions regarding a number of complex and subjective variables, including risk-free interest rates, exercise multiples, expected forfeiture rates, the expected share price volatility rates, and expected dividends.

Accounts receivable, net consisted of the following:

The Group recorded credit losses of $1,544,158 and $1,094,584 for the six months ended June 30, 2024 and 2025, respectively.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Prepaid expenses and other assets, net, consisted of the following:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and equipment, net, consisted of the following:

Depreciation expense was $243,062 and $245,088 for the six months ended June 30, 2024 and 2025, respectively.

Long-term investments consist of investments in privately held companies. The following table sets forth the changes in the Group’s long-term investments:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Group recognized its share of loss of $37,326 and $17,221 in investment losses for the six months ended June 30, 2024 and 2025, respectively.

As of December 31, 2024 and June 30, 2025, the bank borrowings were for working capital and capital expenditure purposes. Short-term borrowings consisted of the following:

The interest expenses of short-term borrowings were $608,638 and $626,619 for the six months ended June 30, 2024 and 2025, respectively. The weighted average interest rates of short-term loans outstanding were 4.21% and 6.48% per annum for the six months ended June 30, 2024 and 2025, respectively.

Convertible Loan I

On June 17, 2024, the Company entered into a Convertible Loan Agreement with an institutional investor (the “Investor I”) to issue and sell an aggregate principal amount of $3,260,869.57 senior convertible notes (the “Convertible Loan I”) with an 8% Original Issue Discount. The Company anticipates using the proceeds for general working capital purposes.

The Company also entered into a placement agency agreement (the “PAA”) with FT Global Capital Inc. (“FT Global” or “Placement Agent”), to engage FT Global as its exclusive Placement Agent on a “best efforts” basis for the offering. The Company agreed to pay the Placement Agent an aggregate cash fee equal to 7.5% of the gross proceeds raised in the offering, and to reimburse the Placement Agent for expenses up to $90,000.

Material Terms of the Convertible Loan I:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company assessed the Convertible Loan I under ASC 815, identifying there are two embedded features, including conversion feature and redemption feature, and concluded that:

Considering the above, the redemption feature is required to be bifurcated as a separate unit of liability account and measured at fair value. After the bifurcation, the Convertible Loans I was accounted for using amortized cost method. The Company engaged a third-party appraiser to make the valuation of fair value of derivative liability of redemption feature, which was amounting to $280,198 initially. The Company recognized the issuance costs of Convertible Loan I of $503,055 and the discount as a direct deduction from the face amount of the Convertible Loan I in accordance with ASC835-30-45-1A. The debt issuance cost was amortized as interest expense using the effective interest method, over the term of the Convertible Loan I, with interest expenses of $29,110 and nil for the year six months ended June 30, 2024 and 2025, respectively.

During the six months ended June 30, 2024, Investor I completed two conversions of Convertible Loan I, pursuant to which the Group issued an aggregate of 100,000 ordinary shares at a conversion price of $2.11 per share. Subsequently, prior to October 7, 2024, Investor I converted the remaining principal of Convertible Loan I and all accrued but unpaid interest into ADSs, representing an aggregate of 3,562,581 ordinary shares, at conversion prices ranging from $0.69-$1.67 per share. All of the Pre-Delivery Shares in connection with Convertible Loan I was used for the conversion of Convertible Loan I or cancelled.

Convertible Loan II

On October 30, 2024, the Company entered into a Convertible Loan Agreement with another institutional investor (the “Investor II”) to issue and sell an aggregate principal amount of $2,175,000 convertible notes (the “Convertible Loan II”) with an 8% Original Issue Discount equal to $160,000. The Company anticipates using the proceeds for general working capital purposes.

Material Terms of the Convertible Loan II:

The Company assessed the Convertible Loan II under ASC 815, identifying there are only conversion feature and concluded that the conversion feature is not required to be bifurcated as a separate unit of liability account as it satisfied the requirement of “fixed-for-fixed” criterion and is considered indexed to the Company’s own stock. Therefore, the Company accounts for the instrument as a liability in its entirety.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company recognized the issuance costs and the discount of Convertible Loan II of $175,000 as a direct deduction from the face amount of the Convertible Loan II in accordance with ASC835-30-45-1A. The debt issuance cost was amortized as interest expense using the effective interest method, over the term of the Convertible Loan II.

During 2024, the Investor II made a series of conversions, pursuant to which the Group issued 1,360,345 ordinary shares with conversion prices ranging from $1.26-$1.63 per share. The ending balance of Convertible Loan II was $216,756 as of December 31, 2024. Subsequently on January 14, 2025, the Investor II had converted the remaining balance of Convertible Loan II or unsettled interest expense into ADSs, pursuant to which the Group issued 156,315 ordinary shares with conversion prices of $1.50 per share.

Convertible Loan III

On January 6, 2025, the Company entered into a Convertible Loan Agreement with the Investor I and the Investor II to issue and sell an aggregate principal amount of $4,637,840 convertible notes (the “Convertible Loan III”) with an 8% Original Issue Discount equal to $342,840. The Company anticipates using the proceeds for general working capital purposes.

Material Terms of the Convertible Loan III:

The Company assessed the Convertible Loan III under ASC 815, identifying there are only conversion feature and concluded that the conversion feature is not required to be bifurcated as a separate unit of liability account as it satisfied the requirement of “fixed-for-fixed” criterion and is considered indexed to the Company’s own stock. Therefore, the Company accounts for the instrument as a liability in its entirety.

The Company recognized the issuance costs and the discount of Convertible Loan III of $342,840 as a direct deduction from the face amount of the Convertible Loan III in accordance with ASC835-30-45-1A. The debt issuance cost was amortized as interest expense using the effective interest method, over the term of the Convertible Loan III, with interest expenses of $104,934 for the six months ended June 30, 2025.

During the six months ended June 30, 2025, Investor I and Investor II completed a series of conversions of Convertible Loan III, pursuant to which the Group issued an aggregate of 3,984,672 ordinary shares at a conversion price ranging from $0.65-$1.43 per share. The ending balance of Convertible Loan III was $353,904 as of June 30, 2025. Subsequently, prior to July 30, 2025, Investor II converted the remaining principal of Convertible Loan III and all accrued but unpaid interest into ADSs, representing an aggregate of 723,438 ordinary shares, at conversion prices ranging from $0.53-$0.57 per share.

Convertible Loan IV

On June 18, 2025, the Company entered into a Convertible Loan Agreement with the Investor I and Investor II to issue and sell an aggregate principal amount of $6,128,000 convertible notes (the “Convertible Loan IV”) with an Original Issue Discount equal to $518,000. The Company anticipates using the proceeds for general working capital purposes.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Material Terms of the Convertible Loan IV:

The Company assessed the Convertible Loan IV under ASC 815, identifying there are only conversion feature and concluded that the conversion feature is not required to be bifurcated as a separate unit of liability account as it satisfied the requirement of “fixed-for-fixed” criterion and is considered indexed to the Company’s own stock. Therefore, the Company accounts for the instrument as a liability in its entirety.

The Company recognized the issuance costs and the discount of Convertible Loan IV of $518,000 as a direct deduction from the face amount of the Convertible Loan IV in accordance with ASC835-30-45-1A. The debt issuance cost was amortized as interest expense using the effective interest method, over the term of the Convertible Loan IV, with interest expenses of $11,914 for the six months ended June 30, 2025.

On June 30, 2025, Investor I elected to convert a portion of Convertible Loan IV into 764,961 ordinary shares at a conversion price of US$0.65 per share. The corresponding ordinary shares were issued on July 2, 2025. The ending balance of Convertible Loan IV was $5,111,080 as of June 30, 2025. Subsequently, up to the date of issuance of this interim report, Investor I and Investor II completed a series of conversions of Convertible Loan IV, pursuant to which the Group issued an aggregate of 12,703,479 ordinary shares at a conversion price ranging from $0.12-$0.39 per share.

Accrued expenses and other liabilities consisted of the following:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Change in ADS Ratio

On August 5, 2024, the Group decided to change the ratio of its ADSs to its ordinary shares (the “ADS Ratio”), par value $0.00005 per share, from the current ADS Ratio of one ADS to one-third of an ordinary share to a new ADS Ratio of one ADS to 3 ordinary shares. For the Company’s ADS holders, the change in the ADS Ratio will have the same effect as a one-for-nine reverse ADS split. The change in the ADS Ratio had been effective on August 23, 2024.

For the six months ended June 30, 2024 and 2025, total share-based compensation expenses recognized were $488,231 and $4,992,881, respectively. The table below presents a summary of the Group’s share-based compensation expenses:

2023 Share Incentive Plan

On November 30, 2022, the Company adopted the 2023 Share Incentive Plan (“2023 Plan”), which permits the granting of share options and restricted share units (“RSUs”) to employees, directors and consultants of the Group. During 2024, the Company has authorized a grant quantity of 310,000 ordinary shares for RSUs and 1,153,333 ordinary shares for options under the 2023 Plan. Under the Group’s 2023 Plan, the RSUs were vested upon grant and the options will vest in one-third increments annually over three years starting from the first anniversary of the Grant Date. The purpose of the 2023 Plan is to attract and retain exceptionally qualified individuals and to motivate them to exert their best efforts on behalf of the Group by providing incentives through granting awards.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2025 Share Incentive Plan

On April 1, 2025, the Group adopted the 2025 share incentive plan (the “2025 Plan”), to promote the success and enhance the value of the Group by linking the personal interests of the Directors, Employees, and Consultants to those of the Group’s shareholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Group’s shareholders. Under the 2025 Plan, the maximum aggregate number of Ordinary Shares which may be issued pursuant to all awards under such plan shall initially be 4,214,684, provided, that if the aggregate number of Ordinary Shares reserved and available for future grants of awards under the 2025 Plan falls below 3.0% of the total Ordinary Shares in issue and outstanding on the last day of the immediately preceding calendar year (the “Limit”), such number shall automatically be increased so that the aggregate number of Ordinary Shares reserved and available for future grants of awards under the 2025 Plan shall be equal to the Limit on January 1 thereafter, assuming, for purposes of determining the number of Ordinary Shares outstanding on such date, that all preferred shares, options, warrants, convertible notes and other equity securities that are convertible into or exercisable or exchangeable for Shares (whether or not by their terms then currently convertible, exercisable or exchangeable) that were outstanding on such date, are deemed to have been so converted, exercised or exchanged.

Share options for employees

On January 3, 2024, the Company granted Hui Yuan, its CEO, the right and option to purchase 482,312 ordinary shares of the Company, at an exercise price of $6.21 per ordinary share. On August 15, 2024, the Company granted 103 employees, the right and option to purchase 484,764 ordinary shares, at an exercise price of $0.75 per ordinary share.

With the assistance of an independent valuation firm using the management’s estimates and assumptions, the Company recorded stock-based compensation expense for options based on the estimated fair value on the date of the grant using the binomial option pricing model. The key assumptions used to determine the fair value of the options at the respective grant dates in 2024 were as follows:

The risk-free interest rate for periods within the contractual life of the options is based on the U.S. treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the historical volatility of the Company’s share price. The expected dividend yield is estimated based on our expected dividend policy over the expected term of the options. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future. The estimated fair value of the Company’s ordinary shares is based on the Company’s share price. The risk-free interest rate for periods within the contractual life of the options is based on the U.S. treasury yield curve in effect at the time of grant for a term consistent with the contractual term of the awards. Expected volatility is estimated based on the historical volatility of the Company’s share price. The expected exercise multiple is based on management’s estimation, which the Company believes is representative of the future.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarized the Company’s share option activities under the Option Plans:

The total intrinsic value of options exercised during the six months ended June 30, 2025 was nil as the share options were out of the money. Total share-based compensation expenses recognized for these share options were $308,831 and $335,870 for the six months ended June 30, 2024 and 2025, respectively. As of June 30, 2025, there was $1,079,198 unrecognized share-based compensation expense relating to share options. This amount is expected to be recognized over a weighted-average vesting period of 1.58 years.

Restricted Shares Units for employees

On January 3, 2024, the CEO and the Chief financial Officer (“CFO”), Wei Weng, were each awarded RSUs, representing 16,667 and 10,000 ordinary shares, respectively, and the fair value on the grant date of each restricted share was $6.15.

On August 9, 2024, the Company granted RSUs, representing 133,333 ordinary shares, to a consultant of the Group, and the fair value on the grant date of each restricted share was $1.12.

On August 15, 2024, the Company granted RSUs to nine employees covering a total of 71,667 ordinary shares, and the fair value on the grant date of each restricted share was $0.75.

On May 22, June 2, 2025 and June 13, 2025, the Company granted RSUs to two employees covering a total of 454,677 ordinary shares, with grant-date fair values ranging from $0.79 to $1.18 per share.

Each RSU represents the right to receive one ADS of the Company and fully vested upon grant. The Award payout shall be made to employees in a lump sum as soon as practicable but no later than two and a half months following each vesting date which coincides with the Grant Date.

The following table summarized the Company’s restricted share unit activities:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

RSUs granted to employees are measured based on the closing price of RSUs on the grant date and recognized as compensation cost on a straight-line basis over the requisite service period. Total share-based compensation expenses recognized for these RSUs were $164,000 and $429,950   for the six months ended June 30, 2024 and 2025, respectively. There was nil unrecognized compensation expenses related to nonvested restricted share units as the RSUs were vested upon grant.

Restricted Shares Units for non-employees

On June 24, 2024, the Company granted RSUs, representing in total 20,000 ordinary shares, to an external consultant for services, and the fair value on the grant date of each restricted share was $2.31.

In the second half of 2024, the Company granted RSUs, representing in total 672,321 ordinary shares, to three external consultants for services, with the weighted average estimated fair value on the grant date of each ordinary shares underlying of $2.48. Each RSU represents the right to receive one ADS of the Group and fully vested upon grant.

In the first half of 2025, the Company granted RSUs, representing in total 3,813,639 ordinary shares, to several external consultants for services, with the weighted average estimated fair value on the grant date of each ordinary shares underlying of $1.11. Each RSU represents the right to receive one ADS of the Group and fully vested upon grant.

The following table summarized the Group’s restricted share unit activities:

RSUs granted to non-employees are measured based on the closing price of ADS on the grant date and recognized as compensation cost on a straight-line basis over the requisite service period. Total share-based compensation expenses recognized for these RSUs were $15,400 and $4,227,061 for the six months ended June 30, 2024 and 2025, respectively.

As of December 31, 2024 and June 30, 2025, there were nil unrecognized compensation expenses related to nonvested restricted share units as the RSUs were vested upon grant.

Related parties

The following is a list of related parties which the Group has transactions with during the period:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Amounts due from related parties

Amounts due from related parties consisted of the following for the periods indicated:

Amounts due to related parties

Amount due to related parties consisted of the following for the periods indicated:

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Significant transactions with related parties

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of accounts receivable. The Group conducts credit evaluations of its customers and generally does not require collateral or other security from them. The Group evaluates its collection experience and long outstanding balances to determine the need for an allowance for credit losses. The Group conducts periodic reviews of the financial condition and payment practices of its customers to minimize collection risk on accounts receivable.

The following table sets forth a summary of single customers who represent 10% or more of the Group’s total revenue.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth a summary of single customers who represent 10% or more of the Group’s total accounts receivable:

The following table sets forth a summary of single suppliers who represent 10% or more of the Group’s total purchases:

Lease Commitments

The Group leases offices for operation under operating leases. Future minimum lease payments under non-cancellable operating leases with initial terms in excess of one year was as follows:

Contingencies

In the ordinary course of business, the Group may be subject to legal proceedings regarding contractual and employment relationships and a variety of other matters. The Group records contingent liabilities resulting from such claims, when a loss is assessed to be probable and the amount of the loss is reasonably estimable.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Patent Infringement Litigation in the PRC

On August 3, 2020, Shanghai Xiao-i filed a lawsuit with the High People’s Court of Shanghai in China, against Apple Computer Trading (Shanghai) Co., Ltd., Apple, Inc., and Apple Computer Trading (Shanghai) Co., Ltd. (together, “Apple”), demanding that Apple cease its infringement of Shanghai Xiao-i’s intelligent assistant patent (ZL200410053749.9 invention patent) by its Siri (intelligent assistant) (the “Patent Infringement Case”). The lawsuit seeks various remedies, including but not limited to, requiring Apple to stop manufacturing, using, offering to sell, selling or importing products that infringe Shanghai Xiao-i’s patent, and a temporary claim amount of 10 billion yuan (RMB). On August 27, 2020, the High People’s Court of Shanghai formally accepted the Patent Infringement Case filed by Shanghai Xiao-i against Apple. On September 4, 2021, Shanghai Xiao-i filed a behavior preservation application (injunction) with the Shanghai High People’s Court, demanding Apple to immediately stop the patent infringement involving Siri, including but not limited to stopping the production, selling, offering to sell, importing or using of iPhone products that infringe Shanghai Xiao-i’s patent. On February 3, 2023, Apple filed a lawsuit against Shanghai Xiao-i with the Shanghai High People’s Court, requesting confirmation that the iPhone SE, iPhone 12, and iPhone 13 series products equipped with Siri (the “products in question”) do not infringe on the patent rights of ZL200410053749.9 invention patent, and ordered Shanghai Xiao-i to compensate the plaintiff for reasonable expenses, including lawyer fees, notarization fees, etc., totaling RMB 2 million temporarily. On January 29, 2024, the Shanghai High Court decided to merge the above two cases for trial, and they are currently under review. On March 27, 2023, the Beijing Intellectual Property Court notified that Apple Computer Trading (Shanghai) Co., Ltd. had filed a patent administrative lawsuit against the defendant China National Intellectual Property Administration and the third person, Shanghai Xiao-i, regarding the 58271 and 58272 Review Decision of Request for Invalidation, and the lawsuit was dismissed on June 28, 2024. As of the date of this interim report, the Patent Infringement Case is still pending.

Securities Class Action Litigation

On June 26, 2024, a securities class action was filed in the Supreme Court of the State of New York, County of New York, against Xiao-I Corporation and certain of its officers and directors. Plaintiffs alleged violations of the Securities Act of 1933, asserting that the company’s IPO registration statement and prospectus contained materially misleading statements or omissions related to its AI capabilities and customer contracts. The action seeks unspecified damages and other relief. On September 13, 2024, plaintiffs filed an amended complaint expanding the allegations to include new information from Xiao-I’s subsequent SEC filings, arguing that post-IPO disclosures also failed to correct earlier misstatements. Xiao-I Corporation moved to dismiss the state court case on October 31, 2024, that motion was granted on April 24, 2025. At this time, the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for this matter.

Separately, on October 15, 2024, a second securities class action lawsuit was filed in the U.S. District Court for the Southern District of New York alleging violations of both the Securities Act and the Securities Exchange Act of 1934. The complaint focuses on similar alleged misrepresentations in the IPO filings and alleges the company failed to disclose material risks about its technology and commercialization prospects. Xiao-I disclosed that it intends to vigorously contest both lawsuits. Xiao-I Corporation submitted pre-motion to dismiss letters on May 7, 2025, and motions to dismiss are due on June 9, 2025. The plaintiff filed the second amended class action complaint to the court on June 30,2025. Xiao-I Corporation filed the motion to dismiss to the Plaintiff’s second amended complaint on September 2, 2025.The Company believes the claims are without merit and intends to vigorously defend the action. At this time, the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for this matter.

PRC Financial and Commercial Litigation

In November 2024, Baiyun District People’s Court of Guiyang accepted a contract dispute filed by Guiyang Comprehensive Bonded Zone Intelligent Link Technology Co., Ltd. against Shanghai Xiaoi, seeking payment of outstanding rental fees and overdue payment interest totaling RMB5,403,917.65 ($754,358). The case is currently pending second-instance proceedings, and no final judgment has been rendered.

In May 2025, the Huangpu District People’s Court of Shanghai accepted a financial contract dispute filed by China Construction Bank Corporation Shanghai Branch against Shanghai Xiao-i, seeking repayment of loan principal and penalty interest totaling RMB25,036,162.25 ($3,494,913). The court has issued a final judgment ordering the defendant to pay the claimed amount.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In July 2025, the Qingpu District People’s Court of Shanghai accepted a private lending dispute filed by Quan Feng against Shanghai Xiao-i, seeking repayment of principal, interest, and legal fees totaling RMB15,116,000 ($2,110,112). The case was resolved through mediation under an installment repayment plan.

In June 2025, the Huangpu District People’s Court of Shanghai accepted a private lending dispute filed by Shanghai Tianyong Asset Management Co., Ltd. against Shanghai Xiao-i, seeking payment of principal and attorney fees totaling RMB13,060,000 ($1,823,106), plus interest. In August 2025, following a jurisdictional objection by the defendant, the case was transferred to the Jiading District People’s Court of Shanghai. The case has not yet been heard.

In July 2025, the Jiading District People’s Court of Shanghai accepted a financial contract dispute filed by Jiangsu Bank Co., Ltd. Shanghai Jiading Branch against Shanghai Xiao-i, seeking repayment of outstanding loan principal, penalty interest, compound interest, attorney fees, and litigation costs totaling RMB20,139,027.78 ($2,811,300). The case has been heard, but no judgment has been rendered.

In October 2025, the People’s Court of Pudong New Area, Shanghai accepted a financial contract dispute filed by Bank of Ningbo Limited Shanghai Branch against Shanghai Xiao-i, seeking repayment of outstanding loan principal, penalty interest, and compound interest totaling RMB20,151,522.30 ($2,813,044). The case has been heard, but no judgment has been rendered.

In October 2025, the Jiading District People’s Court of Shanghai accepted a financial contract dispute filed by Shanghai Rural Commercial Bank Co., Ltd. Jiading Branch against Shanghai Xiaoi, seeking repayment of principal and overdue interest totaling RMB10,023,435.07 ($1,399,218). The plaintiff has since withdrawn the lawsuit.

In April 2025, Minhang District People’s Court of Shanghai accepted a real estate lease contract dispute filed by Shanghai Caohejing Development Zone High-Tech Park Development Co., Ltd. against Shanghai Xiaoi, seeking payment of amounts totaling RMB4,748,644.08 ($662,885) after offsetting the security deposit, excluding interest and post-termination occupation and use fees. The court has issued a final judgment ordering the defendant to pay the claimed amount.

In July 2025, the Tianjin Free Trade Zone People’s Court accepted a service contract dispute filed by Lion Public Relations Consultants (Tianjin) Co., Ltd. against Shanghai Xiaoi, seeking payment of service fees and overdue payment interest totaling RMB602,088.36 ($84,048). The case is currently pending, and no final judgment has been rendered.

In August 2025, the Jing’an District People’s Court of Shanghai accepted a financial loan contract dispute filed by Bank of Nanjing Co., Ltd., Shanghai Branch against Shanghai Xiaoi, seeking repayment of outstanding loan principal and related interest totaling approximately RMB9,907,358.11 ($1,383,014). The case was heard on November 6, 2025, and no final judgment has been rendered.

During 2025, in addition to the aforementioned litigation, Xiao-I was involved in 14 other lawsuits within China, primarily arising from contractual disputes in business operations. Among these, Xiao-I served as the plaintiff in 4 cases, with a total involved amount of approximately RMB 2,837,875($396,152.07). Xiao-I was the defendant in 10 cases, with a total amount in dispute of approximately RMB 5,176,315.09($722,585.72).

Shareholder Litigation

In June 2025, the People’s Court of Pudong New Area, Shanghai accepted a shareholder rights infringement case filed by Shanghai Jixuan Enterprise Management Consulting Partnership (Limited Partnership) against Xiao-I Corporation and Yuan Hui. The plaintiff alleged that the defendants' failure to promptly assist shareholders in converting Cayman Islands common shares into American Depositary Shares (ADS) for secondary market trading resulted in diminished stock value and financial losses. The plaintiff sought a court order requiring the defendants to: ) the release of lock-up restrictions on 183,660 American Depositary Shares and conversion of the related ADRs, and (ii) compensation of RMB2,265,315.41. The defendants filed a jurisdictional objection in August 2025, and the court has not yet issued a ruling. The case has not been heard.

In September 2025, the People’s Court of Pudong New Area, Shanghai accepted a shareholder rights infringement case filed by Shanghai Jiding Enterprise Management Consulting Partnership (Limited Partnership) against Xiao-I Corporation and Yuan Hui. The plaintiff alleged that the defendants' failure to promptly assist shareholders in converting Cayman Islands common shares into American Depositary Shares (ADS) for secondary market trading resulted in diminished stock value and financial losses. The plaintiff seeks, among other relief, (i) the release of lock-up restrictions on 980,661 American Depositary Shares and conversion of the related ADRs, and (ii) compensation of RMB12,108,027.86 ($1,690,216).  The defendants filed a jurisdictional objection in October 2025, and the court has not yet issued a ruling. The case has not been heard.

XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Labor Disputes

During 2024, Xiao-I is involved in labor disputes in China involving more than 40 former employees who were laid off as part of a workforce optimization initiative. The disputes primarily relate to claims for unpaid wages, social insurance contributions, housing fund payments, and severance compensation. The total amount of claims asserted exceeds RMB 5 million. During 2025, the Company was involved in multiple labor disputes in China involving more than 109 former employees laid off pursuant to a workforce optimization plan. These disputes primarily relate to alleged unpaid wages, social insurance contributions, housing provident fund payments, and severance compensation, with total claims exceeding RMB 18 million. As of the date of this interim report, more than 35 cases remain pending before local labor arbitration authorities, and the remaining cases have been concluded. For cases that have been concluded, the company is actively making repayments while negotiating with employees to establish payment plans with extended deadlines. The Company is actively engaging with relevant agencies to seek resolution. While management does not currently expect the outcome to have a material adverse effect on its unaudited condensed consolidated financial statements, the disputes could adversely affect employee morale, operational efficiency, or public perception.

In the opinion of management, except for the litigations mentioned above, there were no other pending or threatened claims and litigation as of June 30, 2025 and through the issuance date of these unaudited condensed consolidated financial statements.

2025 Share Incentive Plan

Subsequent to June 30, 2025 and as of the date of this interim report, the Company have granted RSUs under the 2025 Plan, representing in total 500,961 ordinary shares, to three external consultants for services, with the weighted average estimated fair value on the grant date of each ordinary shares underlying of $0.71. Each RSU represents the right to receive one ADS of the Group and fully vested upon grant.

The Group has evaluated subsequent events through December 31, 2025, the date of issuance of the unaudited condensed consolidated financial statements, and noted that there are no other subsequent events.