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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the month of September
Commission File Number
(Translation of registrant’s name into English)
5F, Building 363
No. 1555 of West Jinshajiang Road
Shanghai, China, 201803
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K
Semi-annual Report
Attached as Exhibit 99.1 to this Report are the Unaudited Condensed Consolidated Financial Statements of the Company as of June 30, 2026 and for the Six Months Ended June 30, 2026 and 2025, respectively, and the notes related thereto.
Attached as Exhibit 99.2 to this Report is the Operating and Financial Review and Prospects of the Company for the Six Months Ended June 30, 2026.
INCORPORATION BY REFERENCE
This Form 6-K and the exhibit to the Form 6-K, including any amendment and report filed for the purpose of updating such document, are incorporated by reference into the Company’s registration statements on Form S-8 (SEC File No. 333-275743), Form S-8 (333-286469), and Form F-3, as amended (SEC File No. 333-279306) (including any prospectuses forming part of such registration statements), and shall be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.
1
EXHIBIT INDEX
| Exhibit | ||
| Number | Description | |
| 99.1 | Unaudited condensed consolidated financial statements of Xiao-I Corporation as of June 30, 2026, and for the six months ended June 30, 2026 and 2025, and the notes related thereto | |
| 99.2 | Operating and financial review and prospects of Xiao-I Corporation for the six months ended June 30, 2026 | |
| 101 | Interactive Data Files (formatted as Inline XBRL) | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: October 1, 2026 | Xiao-I Corporation | ||
| By: | /s/ Mingqu Lin | ||
| Name: | Mingqu Lin | ||
| Title: | Chief Executive Officer | ||
3
Exhibit 99.1
XIAO-I CORPORATION
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-1
XIAO-I CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except for share and per share data, or otherwise noted)
| As of June 30, |
As of December 31, |
|||||||
| 2026 | 2025 | |||||||
| Assets | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Amounts due from related parties, current | ||||||||
| Contract costs | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses and other current assets, net | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right of use assets | ||||||||
| Prepaid expenses and other non-current assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | $ | $ | ||||||
| Accounts payable | ||||||||
| Amount due to related parties, current | ||||||||
| Deferred revenue | ||||||||
| Convertible loans | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Lease liabilities, current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Amount due to a related party, non-current | ||||||||
| Accrued liabilities, non-current | ||||||||
| Long-term borrowing | ||||||||
| Lease liabilities, non-current | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and Contingencies | ||||||||
| Shareholders’ deficit | ||||||||
| Ordinary shares (par value of $ | ||||||||
| Preferred shares (par value of $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| XIAO-I CORPORATION shareholders’ deficit | ( | ) | ( | ) | ||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total shareholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
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)
| For the six months ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Sale of software products | $ | $ | ||||||
| Sale of hardware products | ||||||||
| Technology development service | ||||||||
| M&S service | ||||||||
| Sale of cloud platform products | ||||||||
| Net revenues | ||||||||
| Cost of sale of software products | ( | ) | ( | ) | ||||
| Cost of sale of hardware products | ( | ) | ||||||
| Cost of technology development service | ( | ) | ( | ) | ||||
| Cost of M&S service | ( | ) | ( | ) | ||||
| Cost of sale of cloud platform products | ( | ) | ||||||
| Cost of revenues | ( | ) | ( | ) | ||||
| Gross (loss) profit | ( | ) | ||||||
| Operating expenses: | ||||||||
| Selling expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Research and development expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expenses | ||||||||
| Investment loss | ( | ) | ||||||
| Interest expenses, net | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Total other expenses | ( | ) | ( | ) | ||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Net loss attributable to XIAO-I CORPORATION shareholders | ( | ) | ( | ) | ||||
| Other comprehensive income | ||||||||
| Foreign currency translation change, net of nil income taxes | ( | ) | ( | ) | ||||
| Total other comprehensive loss | ( | ) | ( | ) | ||||
| Total comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Total comprehensive loss attributable to non-controlling interests | ( | ) | ( | ) | ||||
| Total comprehensive loss attributable to XIAO-I CORPORATION shareholders | ( | ) | ( | ) | ||||
| Loss per ordinary share attributable to XIAO-I CORPORATION shareholders | ||||||||
| Basic | ( | ) | ( | ) | ||||
| Diluted | ( | ) | ( | ) | ||||
| Weighted average number of ordinary shares outstanding | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
Note:
(1) Share-based compensation expenses were allocated as follows:
| For the six months ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Selling expenses | $ | $ | ||||||
| General and administrative expenses | ( | ) | ||||||
| R&D expenses | ||||||||
| Total | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-3
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)
| Ordinary shares | Preferred shares | Additional paid-in |
Statutory | Accumulated | Accumulated other comprehensive |
Total shareholders’ |
Non- controlling |
Total | ||||||||||||||||||||||||||||||||||||
| Share | Amount | Share* | Amount | capital | reserve | deficit | loss | deficit | interests | deficit | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Conversion of convertible loans | ||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of ordinary shares | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expenses | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2025 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Balance as of December 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of convertible loans | ||||||||||||||||||||||||||||||||||||||||||||
| Forfeiture of unvested stock options (reversal of SBC) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Pre-delivery ordinary shares for conversion of Convertible Notes | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expenses | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2026 (unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
F-4
XIAO-I CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars, except for share and per share data, or otherwise noted)
| For the six months ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for credit losses | ||||||||
| Interest expenses from convertible loans | ||||||||
| Share-based compensation expenses | ( | ) | ||||||
| Allowance for Prepaid expenses and other assets | ||||||||
| Allowance for advance to suppliers | ||||||||
| Written-down of inventories | ||||||||
| Interest expenses on loans from shareholder | ||||||||
| Provision for amount due from a related party | ||||||||
| Depreciation and amortization | ||||||||
| Impairment on Contract cost | ||||||||
| Impairment on property and equipment | ||||||||
| Impairment on intangible assets | ||||||||
| Loss/(gain) from the disposal of property and equipment | ( | ) | ||||||
| Loss from lease modification | ||||||||
| Loss from equity investment | ||||||||
| Changes in the fair value of financial liabilities | ||||||||
| Right-of-use assets amortization | ||||||||
| Changes in assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Contract costs | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Amount due from related parties | ||||||||
| Accounts payable | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ||||||||
| Amount due to related parties | ||||||||
| Lease payment liabilities | ( | ) | ( | ) | ||||
| Prepaid expenses and other non-current assets | ||||||||
| Accrued expense and other liabilities- non current | ||||||||
| Net cash provided by/(used in) operating activities | ( | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
| Proceed from disposal of property and equipment | ||||||||
| Net cash provided by investing activities | | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from short-term borrowings | ||||||||
| Repayments of short-term borrowings | ( | ) | ||||||
| Repayments of interests-free borrowings from related parties | ( | ) | ||||||
| Repayments of borrowings from related parties | ( | ) | ||||||
| Proceeds from borrowings from third-parties | ||||||||
| Repayments of borrowings from third-parties | ( | ) | ( | ) | ||||
| Proceeds from convertible loans | ||||||||
| Net cash provided by financing activities | | | ||||||
| Effect of exchange rate changes | ( | |||||||
| Net change in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash, at beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash, at end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | $ | $ | ||||||
| Income tax paid | ||||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Recognition of right-of-use assets and lease payment liabilities | $ | $ | ||||||
| Share-based payment to settle debt | $ | $ | ||||||
| Conversion of convertible loans | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-5
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
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, 2026, the Company’s major subsidiaries and consolidated VIE are as follows:
| Name | Date of Incorporation | Place of incorporation | Percentage of beneficial ownership for purposes of accounting | Principal Activities | ||||||
| Wholly and Major owned subsidiaries | ||||||||||
| AI PLUS HOLDING LIMITED (“AI Plus”) | % | |||||||||
| Xiao-i Technology Limited (“Xiao-i Technology”) | % | |||||||||
| Zhizhen Artificial Intelligent Technology (Shanghai) Co. Ltd. (“Zhizhen Technology”) (“WFOE”) | % | |||||||||
| VIE | ||||||||||
| Shanghai Xiao-i Robot Technology Co., Ltd. (“Shanghai Xiao-i”) | % | |||||||||
| Subsidiaries of VIE | ||||||||||
| Xiaoi Robot Technology (H.K) Ltd. (“Xiaoi Robot”) | % | |||||||||
| Guizhou Xiao-i Robot Technology Co., Ltd. (“Guizhou Xiao-i”) | % | |||||||||
F-6
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
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Amounts due from related parties, current | ||||||||
| Inventories | ||||||||
| Contract costs | ||||||||
| Advance to suppliers | ||||||||
| Prepaid expenses and other current assets, net | ||||||||
| Amount due from intercompany, current | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term investments | ||||||||
| Right of use assets | ||||||||
| Prepaid expenses and other non-current assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Short-term borrowings | $ | $ | ||||||
| Accounts payable | ||||||||
| Amount due to related parties, current | ||||||||
| Deferred revenue | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Lease liabilities, current | ||||||||
| Amount due to intercompany, current | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities: | ||||||||
| Amount due to a related party, non-current | ||||||||
| Accrued liabilities, non-current | ||||||||
| Long-term borrowing | ||||||||
| Lease liabilities, non-current | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
F-7
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Statements of Operations and Comprehensive loss
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Net revenue | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
Unaudited Condensed Consolidated Cash Flows Information
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Net cash provided by operating activities | $ | $ | ||||||
| Net cash provided by investing activities | $ | $ | ||||||
| Net cash (used in) financing activities | $ | ( | ) | $ | ( | ) | ||
| Effect of exchange rate changes | $ | $ | ( | ) | ||||
| Net change in cash, cash equivalents and restricted cash | $ | $ | ( | ) | ||||
As of December 31, 2025 and June 30, 2026, 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 $
Entities under Liquidation
Shanghai Xiao-i is currently subject to liquidation proceedings as of this report date. This entity and its subsidiaries collectively comprise the VIE and its subsidiaries. The financial position, results of operations and cash flows of the entities under liquidation during the reporting period are included in, and consistent with, the unaudited condensed consolidated balance sheet, statements of operations and comprehensive loss, and cash flow information of the VIE and its subsidiaries presented above.
Most of the entities under liquidation have ceased their principal business operations, and their activities are limited to the winding up of affairs and settlement of obligations. Management expects the liquidation to be completed during FY2028, after which these entities will be deregistered/dissolved.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a). | Basis of presentation |
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, 2025.
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.
F-8
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (b). | Going concern |
As of December 31, 2025 and June 30, 2026, the Group had an accumulated deficit of $
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. However, after evaluating the feasibility of those plans and related supporting data, management still has a material uncertainty about the reporting entity’s ability to continue as a going concern. This material uncertainty has been disclosed in the notes to the financial statements. To meet the cash requirements for the next 12 months from the issuance date of the unaudited condensed consolidated financial statements, the Group has received $4 million through issuing convertible promissory note in August 2026, and they 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.
| (c). | Principles of consolidation |
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.
| (d). | Use of estimates |
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.
F-9
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (e). | Accounts receivable, net |
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.
| (f). | Convertible loans |
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.
| (g). | Revenue recognition |
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:
| 1. | Identification of the contract, or contracts, with the customer; |
| 2. | Identification of the performance obligations in the contract; |
| 3. | Determination of the transaction price; |
| 4. | Allocation of the transaction price to the performance obligations in the contract; and |
| 5. | Recognition of the revenue when, or as, a performance obligation is satisfied. |
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, 2026 and 2025:
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| By revenue type | ||||||||
| Sale of software products | $ | $ | ||||||
| Sale of hardware products | ||||||||
| Technology development service | ||||||||
| M&S service | ||||||||
| Sale of cloud platform products | ||||||||
| Total | $ | $ | ||||||
F-10
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, 2025 and 2026, the Group recognized contract costs of $
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 $
| (h). | Foreign currency translation |
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.
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Period end RMB: USD exchange rate | ||||||||
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| Average RMB: USD exchange rate | ||||||||
| (i). | Share-based compensation |
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.
F-11
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.
| 3. | ACCOUNTS RECEIVABLE, NET |
Accounts receivable, net consisted of the following:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | ||||||||
| Less: Allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The Group recorded credit losses of $
F-12
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 4. | PREPAID EXPENSES AND OTHER ASSETS, NET |
Prepaid expenses and other assets, net, consisted of the following:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Prepaid expenses and other current assets： | ||||||||
| Prepaid expenses | $ | $ | ||||||
| Receivables from third parties | ||||||||
| Receivables from disposal of long-term investment | ||||||||
| Value-added tax (“VAT”) receivables | ||||||||
| Rent deposits | ||||||||
| Others | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets, net | ||||||||
| Prepaid expenses and other non-current assets: | ||||||||
| Prepaid case acceptance fee (1) | ||||||||
| Long-term receivables from third parties (2) | ||||||||
| Others(3) | ||||||||
| Prepaid expenses and other non-current assets | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Prepaid expenses and other non-current assets, net | ||||||||
| Total | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
F-13
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 5. | PROPERTY AND EQUIPMENT, NET |
Property and equipment, net, consisted of the following:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| Unaudited | ||||||||
| Electronic equipment | $ | $ | ||||||
| Office equipment | ||||||||
| Leasehold improvement | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Less: Impairment provision | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
| 6. | BORROWINGS |
As of December 31, 2025 and June 30, 2026, the bank borrowings were for working capital and capital expenditure purposes. Short-term bank borrowings consisted of the following:
| Annual Interest Rate | Maturity (Months) | Principal | As of December 31, 2025 | As of June, 30, 2026 | ||||||||||||||
| USD | USD | USD | ||||||||||||||||
| Short-term borrowings: | ||||||||||||||||||
| China Bohai Bank(1) (4) (5) | % | |||||||||||||||||
| Agricultural Bank of China (1) (4) (5) | % | |||||||||||||||||
| Agricultural Bank of China (1) (4) (5) | % | |||||||||||||||||
| Agricultural Bank of China (1) (4) (5) | % | |||||||||||||||||
| Agricultural Bank of China (1) (4) (5) | % | |||||||||||||||||
| Bank of Ningbo(4) (5) | % | |||||||||||||||||
| Bank of Ningbo(4) (5) | % | |||||||||||||||||
| Shanghai Rural Commercial Bank(4) (5) | % | |||||||||||||||||
| Shengjing Bank (1) (4) (5) | % | |||||||||||||||||
| China Zheshang Bank(4) | % | |||||||||||||||||
| Bank of Jiangsu (1) (4) (5) | % | |||||||||||||||||
| Shanghai Bank (2) (4) (5) | % | |||||||||||||||||
| Bank of Jiangsu (1) (4) (5) | % | |||||||||||||||||
| Shanghai Bank (2) (4) (5) | % | |||||||||||||||||
| Bank of Nanjing (4) (5) | % | |||||||||||||||||
| China Construction Bank (1) (3) (4) | % | |||||||||||||||||
| Beijing Bank (1) (4) (5) | % | |||||||||||||||||
| Bank of Jiangsu (1) (4) (5) | % | |||||||||||||||||
| Total | ||||||||||||||||||
F-14
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Long-term bank borrowings consisted of the following:
| Annual Interest Rate | Maturity (Months) | Principal | As of December 31, 2025 | As of June, 30, 2026 | ||||||||||||||
| USD | USD | USD | ||||||||||||||||
| Long-term borrowings: | ||||||||||||||||||
| Bank of Wenzhou | % | |||||||||||||||||
| (1) |
| (2) |
| (3) |
The Group is required to maintain a specified gearing ratio in accordance with the loan covenants under its agreement with China Construction Bank.
On November 27, 2025, the Shanghai Financial Court rendered a final second-instance judgment (Case No. (2025) Hu 74 Min Zhong 1485), dismissing the Company's appeal and affirming the September 1, 2025 first-instance judgment of the Shanghai Huangpu District People's Court (Case No. (2025) Hu 0101 Min Chu 16854). The judgment requires the Company to repay principal of RMB |
| (4) |
| (5) |
Litigation with Bank of Ningbo — Court-Mediated Settlement
The Company resolved litigation with Bank of Ningbo (Case No. (2025) Hu 0115 Min Chu 126758) through a court-mediated agreement on February 4, 2026, as approved by the Shanghai Pudong New Area People's Court (the "Settlement Agreement"). Pursuant to the Settlement Agreement, the Company confirmed the outstanding principal of RMB
Bank of Nanjing Litigation — Final Judgment
On May 22, 2026, the Shanghai Financial Court rendered a final second-instance judgment (Case Nos. (2025) Hu 0106 Min Chu 37612 and (2026) Hu 74 Min Zhong 806), affirming the January 22, 2026 first-instance judgment of the Shanghai Jing'an District People's Court. The judgment requires the Company to repay principal of RMB
F-15
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Bank of Beijing Litigation — Appeal Pending
On June 27, 2026, the Shanghai Pudong New Area People's Court rendered a first-instance judgment (Case No. (2026) Hu 0115 Min Chu 45216) against the Company in favor of Bank of Beijing, ordering repayment of principal of RMB
Bank of Jiangsu Litigation
The Company is subject to a final second-instance judgment (rendered April 28, 2026 by the Shanghai Financial Court) arising from three loan agreements with aggregate principal of RMB
Except for these cases, please see Note 13 for other litigation details.
The interest expenses of short-term borrowings were $
| 7. | CONVERTIBLE LOANS |
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 $
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
Material Terms of the Convertible Loan I:
| ● | Pre-Delivery Shares: The Company is also concurrently offering an additional ADS, at par, representing |
F-16
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| ● | Conversion at the Option of Holder: The Convertible Loan I will mature 360-days after the Issuance Date and will be convertible into the Group’s ADSs at a conversion price equal to $ |
| ● | Interest Rate: the Convertible Loan I will bear interest at a rate of |
| ● | Alternate Conversion at Option of Holder: Each holder of Convertible Loan I may also convert all, or any part, of the outstanding principal of the Convertible Loan I, together with accrued and unpaid interest, any make-whole amount and any late charges thereon (subject to an additional |
| (i) | the Conversion Price then in effect; and |
| (ii) | either, |
| x. | if no event of default then exists, |
| y. | if an event of default then exists, the lowest of: |
| (a) |
| (b) |
| (c) |
| ● | Redemption Rights: In connection with a change of control of the Group, each holder may require the Group to redeem in cash all, or any portion, of the Convertible Loan I at a |
F-17
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:
| ● | The conversion feature satisfied the requirement of “fixed-for-fixed” criterion and is considered indexed to the Company’s own stock, the conversion feature eligible for a scope exception from derivative accounting in accordance with ASC815-10-15-74 and the Company would not bifurcate the conversion feature. |
| ● | The redemption feature requires cash settlement instead of settlement in shares, which is not eligible for a scope exception in accordance with ASC815-10-15-74, and the Group would bifurcate the redemption feature. |
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 $
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
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 $
Material Terms of the Convertible Loan II:
| ● | Pre-Delivery Shares: The Company is also concurrently offering an additional ADS, at par, representing |
| ● | Conversion at the Option of Holder: The Convertible Loan II will mature 12 months after the Purchase Price Date and will be convertible into the Company’s ADSs at a conversion price equal to the lower of (i) $ |
| ● | Interest Rate: The Convertible Loan II will bear interest at a rate of |
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.
F-18
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized the issuance costs and the discount of Convertible Loan II of $
During 2024, the Investor II made a series of conversions, pursuant to which the Group issued
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 $
Material Terms of the Convertible Loan III:
| ● | Conversion at the Option of Holder: The Convertible Loan III will mature 12 months after the Purchase Price Date (as defined in the applicable Note) and will be convertible into the Company’s ADSs at a conversion price equal to the lower of (i) $ |
| ● | Interest Rate: The Convertible Loan III will bear interest at a rate of |
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 $
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
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 $
F-19
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Material Terms of the Convertible Loan IV:
| ● | Conversion at the Option of Holder: The Convertible Loan IV will mature 12 months after the Purchase Price Date (as defined in the applicable Note) and will be convertible into the Company’s ADSs at a conversion price equal to the lower of (i) $ |
| ● | Interest Rate: The Convertible Loan IV will bear interest at a rate of |
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 $
During the year ended December 31, 2025, Investor I and Investor II completed a series of conversions of Convertible Loan IV, pursuant to which the Group issued an aggregate of
During six months ended in June 30, 2026 Investor I and Investor II elected to convert all Convertible Loan IV into
Convertible Loan V
On April 29, 2026, the Company entered into a Convertible Loan Agreement with one institutional investor to issue and sell an aggregate principal amount of $
Material Terms of the Convertible Loan V:
| ● | Conversion at the Option of Holder: Investor has the right at any time following the date hereof until the Outstanding Balance has been paid in full, at its election, to convert (each instance of conversion is referred to herein as a “Conversion”) all or any portion of the Outstanding Balance into fully paid and non-assessable American Depositary Shares (“ADSs”) of Borrower (“Conversion Shares”) as per the following conversion formula: the number of Conversion Shares equals the amount of the Outstanding Balance being converted (the “Conversion Amount”) divided by the Conversion Price. |
| ● | Interest Rate: The Convertible Loan V will bear interest at a rate of |
The Company assessed the Convertible Loan V 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.
F-20
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized the issuance costs and the discount of Convertible Loan V of $
By June 30, 2026, Investor had elected to convert a portion of Convertible Loan V into ADSs, representing an aggregate of
| 8. | ACCRUED EXPENSES AND OTHER LIABILITIES |
Accrued expenses and other liabilities consisted of the following:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Accrued expenses and other current liabilities: | ||||||||
| Loan from third parties (1) | $ | $ | ||||||
| Payroll payable | ||||||||
| Other tax payable | ||||||||
| Interest payable | ||||||||
| Professional service fees payable | ||||||||
| Others | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Accrued liabilities, non-current： | ||||||||
| Long-term loan from third parties (2) | ||||||||
| Litigation related payable (3) | ||||||||
| Accrued liabilities, non-current | ||||||||
| TOTAL | $ | $ | ||||||
| (1) | |
| Among them, |
| (2) |
| (3) |
F-21
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 9. | EQUITY |
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 $
On April 23, 2026, the Company approved a change to the ratio of its ADSs to its ordinary shares (the “ADS Ratio”). The ordinary shares have a par value of $
| 10. | SHARE-BASED COMPENSATION |
For the six months ended June 30, 2026 and 2025, total share-based compensation expenses recognized were $(
| For the six months ended June 30, | ||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Selling expenses | $ | $ | ||||||
| General and administrative expenses | ( | ) | ||||||
| R&D expenses | ||||||||
| Total | $ | ( | ) | $ | ||||
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
F-22
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
Share options for employees
On January 3, 2024, the Company granted Hui Yuan, its CEO, the right and option to purchase
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.
| For the Year Ended December 31, 2024 | ||||
| Risk-free interest rate | % | |||
| Expected volatility | % | |||
| Expected dividend yield | % | |||
| Exercise multiple | ||||
| Fair value of underlying ordinary shares | $ | |||
| Fair value of option* | $ | |||
| * |
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.
F-23
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table summarized the Company’s share option activities under the Option Plans:
| Number of ordinary shares underlying | Weighted average exercise price | |||||||
| Balance, December 31, 2025 | $ | |||||||
| Granted | $ | |||||||
| Exercised | ||||||||
| Forfeited | ( | ) | $ | |||||
| Balance, June 30, 2026 | $ | |||||||
| Exercisable, June 30, 2026 | ( | ) | $ | |||||
| Expected to vest, June 30, 2026 | $ | |||||||
The total intrinsic value of options exercised during the six months ended June 30, 2026 was as the share options were out of the money. Total share-based compensation expenses recognized for these share options were $(
Restricted Shares Units for employees
On January 3, 2024, the CEO and the Chief financial Officer (“CFO”), Wei Weng, were each awarded RSUs, representing
On August 9, 2024, the Company granted RSUs, representing
On August 15, 2024, the Company granted RSUs to nine employees covering a total of
On May 22, June 2, 2025 and June 13, 2025, the Company granted RSUs to two employees covering a total of
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:
| Nonvested ordinary shares underlying | Weighted average fair value per ordinary share at the grant dates | |||||||
| Outstanding as of December 31, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ||||||||
| Forfeited | $ | |||||||
| Outstanding as of June 30, 2026 | $ |
F-24
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 and $
Restricted Shares Units for non-employees
On June 24, 2024, the Company granted RSUs, representing in total
In the second half of 2024, the Company granted RSUs, representing in total
In the first half of 2025, the Company granted RSUs, representing in total
In the first half of 2026, the Company granted RSUs, representing in total
The following table summarized the Group’s restricted share unit activities:
| Nonvested ordinary shares underlying | Weighted average fair value per ordinary share at the grant dates | |||||||
| Outstanding as of December 31, 2025 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | $ | |||||||
| Outstanding as of June 30, 2026 | $ | |||||||
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 $
As of June 30, 2026 and June 30, 2025, there were unrecognized compensation expenses related to nonvested restricted share units as the RSUs were vested upon grant.
| 11. | RELATED PARTY TRANSACTIONS |
Related parties
The following is a list of related parties which the Group has transactions with during the period:
| No. | Name of Related Parties | Relationship | ||
| 1 | Shanghai Shenghan | |||
| 2 | Shanghai Aoshu Enterprise Management Partnership (Limited Partnership) (“Shanghai Aoshu”) | |||
| 3 | Hui Yuan | |||
| 4 | Zhizhen Guorui |
F-25
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:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Due from related parties, current | ||||||||
| Other receivables | ||||||||
| Zhizhen Guorui | $ | $ | ||||||
| Shanghai Aoshu | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Amounts due to related parties
Amount due to related parties consisted of the following for the periods indicated:
| As of June 30, | As of December 31, | |||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Due to related parties, current | ||||||||
| Accounts payable | ||||||||
| Shanghai Shenghan | $ | $ | ||||||
| Interest-free loans | ||||||||
| Hui Yuan (a) | ||||||||
| Subtotal-due to related parties, current | ||||||||
| Due to a related party, non-current | ||||||||
| Hui Yuan (a) | ||||||||
| Subtotal-due to a related party, -non-current | ||||||||
| Total | $ | $ | ||||||
| (a) |
F-26
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Significant transactions with related parties
| For the six months ended June 30, | ||||||||
| Nature | 2026 | 2025 | ||||||
| (Unaudited) | ||||||||
| Technology service provided by related parties | ||||||||
| Zhizhen Guorui | $ | $ | ||||||
| Shanghai Shenghan | ||||||||
| Repayment of loans from a related party | ||||||||
| Hui Yuan | $ | $ | ||||||
| Repayment of interest-free loans from a related party | ||||||||
| Hui Yuan | ||||||||
| 12. | CONCENTRATION OF CREDIT RISK |
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.
| For the six months ended June 30, | ||||||||||||||||
| 2026 | 2025 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Percentage of the Group’s total revenue | ||||||||||||||||
| Customer A | % | |||||||||||||||
| Customer B | % | |||||||||||||||
| Customer C | % | |||||||||||||||
| Customer D | % | |||||||||||||||
| Customer E | % | |||||||||||||||
| * |
F-27
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:
| As of June 30, | As of December 31, | |||||||||||||||
| 2026 | 2025 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Percentage of the Group’s accounts receivable, net | ||||||||||||||||
| Customer B | % | |||||||||||||||
| * | represent percentage less than 10% |
The following table sets forth a summary of single suppliers who represent 10% or more of the Group’s total purchases:
| For the six months ended June 30, | ||||||||||||||||
| 2026 | 2025 | |||||||||||||||
| (Unaudited) | ||||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Percentage of the Group’s total purchase | ||||||||||||||||
| Supplier A | % | |||||||||||||||
| Supplier B | % | |||||||||||||||
| Supplier C | % | |||||||||||||||
| Supplier D | % | |||||||||||||||
| Supplier E | % | |||||||||||||||
| Supplier F | % | |||||||||||||||
| Supplier G | % | |||||||||||||||
| * | represent percentage less than 10% |
| 13. | COMMITMENTS AND CONTINGENCIES |
Lease Commitments
The Group leases offices for operation under operating leases.
| For period ending June 30, | Lease Commitment | |||
| 2027 | $ | |||
| 2028 | | |||
| Total | $ | |||
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.
F-28
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
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
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. Subsequently, Plaintiff appealed the decision. On May 28, 2026, the parties presented oral argument. On June 23, 2026, the Appellate Division unanimously affirmed the lower court’s decision granting the motion to dismiss and awarded costs to Defendants.
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. On August 7, 2026, the Court issued its decision, dismissing the majority of the fraud claims and allowing only a limited number of disclosure-based claims to proceed, which was overall a positive outcome for the Xiao-I Defendants. The Court granted Plaintiff 14 days to determine whether to re-plead the claims dismissed without prejudice. Although no individual was dismissed from the case entirely, the claims against all Xiao-I Defendants were substantially narrowed. On August 21, 2026, Plaintiff elected not to amend the complaint. On September 15, 2026, Xiao-I and the underwriter defendants filed their answer. At this time, the Company cannot reasonably estimate the maximum potential exposure or the range of possible loss for this matter.
F-29
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRC Financial and Commercial Litigation
In June 2025, the Huangpu District People’s Court of Shanghai accepted a private lending dispute case filed by Shanghai Tianyong Asset Management Co., Ltd. against Shanghai Xiao-i. The plaintiff sought a court order requiring the defendant to pay the principal amount and attorney’s fees totaling RMB
In July 2025, the Jiading District People’s Court of Shanghai accepted a case concerning a financial contract dispute between Jiangsu Bank Co., Ltd. – Shanghai Jiading Sub-branch and Shanghai Xiao-i. The plaintiff sought a court order directing the defendant to immediately pay the loan principal, default interest, compound interest, attorney’s fees, and other litigation costs, totaling RMB
In April 2026, the Pudong New Area People’s Court of Shanghai accepted a contract dispute case filed by the Pudong Sub-branch of Bank of Shanghai Co., Ltd. against Shanghai Xiao-i, Zhizhen Artificial Intelligence Technology (Shanghai) Co., Ltd., and XIAO-I TECHNOLOGY LIMITED. The plaintiff sought a court order requiring the defendants to pay the principal amount due under the factoring arrangement, interest, liquidated damages, and attorney’s fees, totaling RMB
In April 2026, the Pudong New Area People’s Court of Shanghai accepted the case concerning a financial loan contract dispute between Bank of Beijing Co., Ltd. – Shanghai Branch and Shanghai Xiao-i. The plaintiff sought a court order directing the defendant to immediately pay the loan principal, interest, and attorney’s fees, totaling RMB
In May 2026, the Jiading District People’s Court of Shanghai accepted a case concerning a financial loan contract dispute between Shanghai Rural Commercial Bank Co., Ltd. – Jiading Sub-branch and Shanghai Xiao-i. The plaintiff requested the court to order the defendant to immediately repay the loan principal and interest totaling RMB
In June 2026, the Pudong New Area People’s Court of Shanghai accepted the case concerning a financial loan contract dispute between Bohai Bank Co., Ltd. – Shanghai Branch and Shanghai Xiao-i. The plaintiff requested the court to order the defendant to immediately repay the loan principal and interest totaling RMB
In June 2026, the Pudong New Area People’s Court of Shanghai accepted a case concerning a financial loan contract dispute between Agricultural Bank of China Limited – Shanghai Free Trade Zone New Area Sub-branch and Shanghai Xiao-i. The plaintiff requested the court to order the defendant to immediately repay the loan principal and interest totaling RMB
In June 2026, the Pudong New Area People’s Court of Shanghai accepted a case concerning a financial loan contract dispute between Shengjing Bank Co., Ltd. – Shanghai Pudong Sub-branch and Shanghai Xiao-i Our company did not receive the court-issued case materials; however, our finance department has confirmed an outstanding principal amount of RMB
From January 1, 2026 to August 9, 2026, in addition to the aforementioned litigation, Xiao i Robot was involved in a total of 4 other litigation cases within China; the subject matter of these cases primarily concerned outstanding debts arising from the company’s business operations. The cumulative amount in dispute amounted to approximately RMB
F-30
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Shareholder Litigation
In June 2025, the Pudong New Area People’s Court of Shanghai accepted the case filed by Shanghai Jixuan Enterprise Management Consulting Partnership (Limited Partnership) against Xiao-I Corporation and Yuan Hui regarding a dispute over liability for harm to shareholders’ interests. The plaintiff alleged that, due to the defendants ‘failure to promptly assist the shareholders in converting their Cayman Islands common shares into ADSs and selling them on the secondary market, the value of the plaintiff’s shares had declined, resulting in a loss. The plaintiff requested the court to order the defendants to: (1) immediately complete the procedures for lifting the lock-up restrictions and transferring the US Depositary Receipts (ADRs) held by the plaintiff for a total of
In September 2025, the Pudong New Area People’s Court of Shanghai accepted a case filed by Shanghai Jiding Enterprise Management Consulting Partnership (Limited Partnership) against Xiao-I Corporation and Yuan Hui regarding a dispute over liability for damages to shareholders’ interests. The plaintiff alleged that, due to the defendants ‘failure to promptly assist the shareholders in converting their Cayman Islands common shares into ADSs and selling them on the secondary market, the value of the plaintiff’s shares had declined, resulting in a loss. The plaintiff requested the court to order the defendants to: (1) immediately complete the procedures for lifting the lock-up restrictions and transferring the US Depositary Receipts (ADRs) held by the plaintiff for a total of
Labor Disputes
Between January 1, 2026 and August 9, 2026, Xiao-I was involved in multiple labor-management dispute cases in mainland China, involving more than 36 former employees who were laid off under the enterprise’s human-resource optimization program. These disputes mainly relate to claims for unpaid wages, social insurance contributions, housing fund payments and severance compensation. The total amount of asserted claims exceeds RMB
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, 2026 and through the issuance date of these unaudited condensed consolidated financial statements.
Bankruptcy case
On August 4, 2026, the Shanghai No.3 Intermediate People’s Court accepted the application filed by Gang Guo, Jia Liu, and Ying Zhang for the bankruptcy liquidation of Shanghai Xiao-i. On August 10,2026, the Court issued a ruling appointing Shanghai Zhongyuanxin Liquidation Service Co., Ltd. as the administrator of Shanghai Xiao-i.
F-31
XIAO-I CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| 14. | SUBSEQUENT EVENTS |
Convertible Promissory Note Private Placement
On June 29, 2026, the Company’s board of directors approved the private placement financing and entered into a Securities Purchase Agreement with one institutional investor. Pursuant to the agreement, the Company issued to such institutional investor an unsecured convertible promissory note with a principal amount of $
Subsequent to June 30, 2026 and as of the date of this interim report, the Company entered into a Securities Purchase Agreement with the same institutional investor to privately issue an unsecured convertible promissory note with an original principal amount of $
The note contains variable conversion terms: the conversion price equals
ADS Ratio Change and Nasdaq Listing Deficiency
Subsequent to the end of the reporting period, the Company implemented an ADS-ratio change effective September 8, 2026, changing from one ADS representing
Bankruptcy Liquidation Proceeding
On August 4, 2026, the Shanghai No.3 Intermediate People’s Court issued Civil Ruling (2026) Hu 03 Po No. 1022, accepting the bankruptcy liquidation petition filed by creditors Guo Gang, Liu Jia and Zhang Ying against Shanghai Xiao-i, on the grounds that Shanghai Xiao-i was unable to pay its due debts and evidently lacked solvency. The court held that Shanghai Xiao-i still failed to settle its debts after compulsory enforcement by a people’s court, which constituted evident lack of solvency, and accordingly ruled to admit the bankruptcy liquidation application. On August 10, 2026, the court appointed Shanghai Zhongyuanxin Liquidation Affairs Co., Ltd. as the bankruptcy administrator of Shanghai Xiao-i. The administrator has taken over Shanghai Xiao-i’s assets, corporate seals, accounting books and documents, and is conducting property investigation together with the filing and verification of creditors’ claims. The first creditors’ meeting will be convened on October 20, 2026.
The Group has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements, and noted that there are no other subsequent events.
F-32
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated interim financial statements of Xiao-I Corporation (the “Company,” “we,” “our,” or “us”) for the six months ended June 30, 2026 and 2025, included as Exhibit 99.1 to this Report on Form 6-K, and the risk factors included in the Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2025. The interim financial statements have not been audited by an independent registered public accounting firm.
Overview
We are a leading cognitive artificial intelligence company with over two decades of experience in natural language processing and enterprise AI solutions. Our business model comprises Model-as-a-Service (“MaaS”) offerings, including solutions based on our proprietary Hua Zang large language model (“LLM”), as well as non-MaaS products and services, such as technology development services, software products, maintenance and support services, and selected AI-enabled hardware products.
During the first half of 2026, the macroeconomic environment in China remained subdued, with enterprises exercising continued caution in technology procurement and extended decision-making cycles for large-scale AI deployments. Concurrently, the large language model industry in China experienced accelerating market concentration, commonly referred to as the “Matthew effect,” whereby leading technology conglomerates with substantial financial resources leveraged aggressive pricing strategies — including free or heavily subsidized access to foundation models — to capture market share. This dynamic placed significant competitive pressure on smaller, independent AI providers, including the Company, by compressing pricing margins and constraining the ability to achieve profitability in core service offerings.
In addition, our AI-enabled hardware business was adversely affected by supply chain disruptions stemming from escalating geopolitical tensions. Restrictions on the export of advanced semiconductors and related components, together with broader trade frictions between the United States and China, materially impaired our ability to secure critical components on commercially reasonable terms and timelines. As a result, we significantly scaled back this business line during the period.
What’s more, our VIE is under liquidation currently. Key financial information of the VIE and its subsidiaries, including revenue, profit/loss, total assets liquidation during the reporting period, is disclosed in Note 1 to the condensed consolidated interim financial statements. Readers are directed to that note for an understanding of the financial significance of these entities to the Group.
Against this backdrop, we implemented a series of deliberate strategic measures to preserve capital and streamline operations. These included the discontinuation or scaling back of business lines that did not meet revised margin thresholds, a reduction in headcount across both operational and research and development functions, and tighter control over discretionary spending. While these measures contributed to a significant year-over-year reduction in total revenue for the six months ended June 30, 2026, they also resulted in a marked reduction in operating expenses and a narrower net loss compared to the same period in 2025. We believe these actions were necessary to position the Company for sustainable operations in a prolonged and challenging industry environment.
Results of Operations
Net Revenues
Set forth below is a comparative table showing net revenues by revenue type for the six months ended June 30, 2026 and 2025, including absolute amounts, year-over-year percentage changes, and totals.
| For the six months ended June 30, | Variance | |||||||||||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| Sale of cloud platform products | $ | 68,530 | 6.58 | % | $ | 7,799,708 | 67.72 | % | (7,731,178 | ) | (99.12 | ) | ||||||||||||
| Technology development service | 342,004 | 32.85 | % | 2,271,952 | 19.73 | % | (1,929,948 | ) | (84.95 | ) | ||||||||||||||
| M&S service | 487,815 | 46.85 | % | 822,760 | 7.14 | % | (334,945 | ) | (40.71 | ) | ||||||||||||||
| Sale of software products | 142,820 | 13.72 | % | 348,625 | 3.03 | % | (205,805 | ) | (59.03 | ) | ||||||||||||||
| Sale of hardware products | - | - | 273,863 | 2.38 | % | (273,863 | ) | (100.00 | ) | |||||||||||||||
| Total | $ | 1,041,169 | 100.0 | % | $ | 11,516,908 | 100.0 | % | (10,475,739 | ) | (90.96 | ) | ||||||||||||
For the six months ended June 30, 2026, the Group’s net revenues were $1.04 million, representing a decrease of approximately 90.96% compared to $11.52 million for the same period in 2025.The decreased primarily due to our-ongoing portfolio rationalization and strategic realignment. We discontinued or scaled back low-margin businesses and customized engagements that did not meet our revised margin thresholds or align with our resource-allocation priorities, with a view to improving overall profitability and operational efficiency.
Sale of cloud platform products
For the six months ended June 30, 2026, revenue from cloud platform products decreased to approximately $0.07 million, compared to approximately $7.80 million for the same period in 2025, representing a year-over-year decrease of approximately 99.12%. The revenue decline reflects the strategic realignment implemented during the year, under which we discontinued third-party cloud-platform resale activities that generated revenue at gross margins substantially below those of our core product lines. These resale activities had historically accounted for a significant portion of cloud platform revenue but were not aligned with our revised margin thresholds and resource allocation priorities. The discontinuation of these lower-margin engagements was a deliberate component of our portfolio rationalization, intended to concentrate resources on higher-value, productized offerings where we maintain greater differentiation and pricing power.
Technology development services
For the six months ended June 30, 2026, revenue from technology development services decreased to approximately $0.34 million, compared to approximately $2.27 million for the same period in 2025, representing a year-over-year decrease of approximately 84.95%. This decline reflects our strategic decision implemented during the year to decline or scale back customized development engagements that do not meet our revised margin thresholds, or that require incremental delivery resources inconsistent with the realignment. Such engagements are characterized by lower gross margins and higher resource intensity relative to our productized offerings. The discontinuation of these engagements was a deliberate element of our portfolio rationalization, intended to improve overall profitability and operational efficiency.
Maintenance and support (“M&S”) services
For the six months ended June 30, 2026, revenue from maintenance and support services decreased to approximately $0.49 million, compared to approximately $0.82 million for the same period in 2025, representing a year-over-year decrease of approximately 40.71%.This decline reflects our strategic decision implemented during the year to decline or scale back customized development engagements that do not meet our revised margin thresholds, or that require incremental delivery resources inconsistent with the realignment. Such engagements are characterized by lower gross margins and higher resource intensity relative to our productized offerings. The discontinuation of these engagements was a deliberate element of our portfolio rationalization, intended to improve overall profitability and operational efficiency.
Sale of software products
For the six months ended June 30, 2026, revenue from software products decreased to approximately $0.14 million, compared to approximately $0.35 million for the same period in 2025, representing a year-over-year decrease of approximately 59.03%. This year’s revenue decline principally reflects reduced delivery activity across discontinued engagements in connection with the strategic realignment.
Sale of hardware products
For the six months ended June 30, 2026, revenue from sale of hardware products decreased to $0.00 million, compared to approximately $0.27 million for the same period in 2025, representing a year-over-year decrease of approximately 100%, principally reflecting reduced delivery activity across discontinued engagements in connection with the strategic realignment.
2
Revenue by Business Category
In terms of product lines, we generate revenue primarily from the (i) MaaS and (ii) non-MaaS.
The following table sets forth the product lines of our net revenues by amounts and percentages of our total net revenues for the periods presented:
| For the six months ended June 30, | Variance | |||||||||||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| MaaS | $ | 68,530 | 6.58 | % | $ | 7,794,772 | 67.68 | % | (7,726,242 | ) | (99.12 | ) | ||||||||||||
| Non-MaaS | 972,639 | 93.42 | % | 3,722,136 | 32.32 | % | (2,749,497 | ) | (73.87 | ) | ||||||||||||||
| Total | $ | 1,041,169 | 100.00 | % | $ | 11,516,908 | 100.00 | % | (10,475,739 | ) | (90.96 | ) | ||||||||||||
For the six months ended June 30, 2026, total MaaS revenue decreased to approximately $0.07 million, compared to approximately $7.79 million for the same period in 2025, representing a year-over-year decrease of approximately 99.12%. This sharp contraction occurred against the backdrop of intensifying price competition in the Chinese AI customer service MaaS market.
For the six months ended June 30, 2026, non-MaaS revenue decreased to approximately $0.97 million, compared to approximately $3.72 million for the same period in 2025, representing a year-over-year decrease of approximately 73.87%. Non-MaaS revenue decreased primarily due to our ongoing portfolio rationalization and strategic realignment. We discontinued or scaled back low-margin businesses and customized engagements that did not meet our revised margin thresholds or align with our resource-allocation priorities, with a view to improving overall profitability and operational efficiency.
Revenue Since Period End at June 30, 2026
Subsequent to the six-month period ended June 30, 2026, the Company generated revenue of approximately $164,018 (converted at the spot exchange rate of 6.7066 CNY per USD as of September 29, 2026) for the two-month period from July 1, 2026 through August 31, 2026. This represents approximately 15.8% of the Company’s revenue for the six-month period ended June 30, 2026.
Cost of Revenues and Gross Profit
Our cost of revenues primarily consists of the following components: (i) staff costs (salaries and employee benefits), (ii) cost of materials, which primarily includes software and hardware purchased, (iii) cloud hosting service fees, and (iv) overhead costs relating to consumables and office expenses used for production.
The following table sets forth the components of our cost of revenues by amounts and percentages of cost of revenues for the periods presented:
| For the six months ended June 30, | Variance | |||||||||||||||||||||||
| 2025 | 2026 | $ | % | |||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||
| Cloud hosting services fees | $ | 2,033,638 | 42.14 | % | $ | 69,203 | 4.19 | % | (1,964,435 | ) | (96.60 | ) | ||||||||||||
| Cost of materials | 1,680,091 | 34.82 | % | 62,866 | 3.81 | % | (1,617,225 | ) | (96.26 | ) | ||||||||||||||
| Staff costs | 1,065,180 | 22.07 | % | 1,413,983 | 85.59 | % | 348,803 | 32.75 | ||||||||||||||||
| Others | 46,687 | 0.97 | % | 106,042 | 6.42 | % | 59,355 | 127.13 | ||||||||||||||||
| Total | $ | 4,825,596 | 100.00 | % | $ | 1,652,095 | 100.00 | % | (3,173,501 | ) | (65.76 | ) | ||||||||||||
3
Total cost of revenues decreased by US$3.2 million, or 65.76%, from US$4.8 million for the six months ended June 30, 2025 to US$1.7 million for the six months ended June 30, 2026. The decrease was largely attributable to the contraction in business volume, but was smaller in percentage terms than the 90.96% decrease in net revenues (from US$11.5 million to US$1.0 million), primarily because staff costs, which are relatively fixed in nature, increased over the period. Key drivers included:
| ● | Staff costs. Staff costs increased by US$0.3 million, or 32.75%, from US$1.1 million (22.07% of cost of revenues) for the first half of 2025 to US$1.4 million (85.59% of cost of revenues) for the first half of 2026, mainly due to higher payroll settlements in H1 2026. |
| ● | Cloud hosting services fees. Cloud hosting services fees decreased by US$2.0 million, or 96.60%, from US$2.0 million (42.14% of cost of revenues) to US$0.07 million (4.19%), reflecting the near cessation of the cloud platform business as cloud platform product revenue decreased by 99.12% from US$7.8 million to US$0.07 million, which resulted in substantially lower utilization of cloud resources and fewer active large-scale deployments. |
| ● | Cost of materials. Cost of materials decreased by US$1.6 million, or 96.26%, from US$1.7 million (34.82% of cost of revenues) to US$0.06 million (3.81%), in line with the absence of hardware product revenue in the first half of 2026 (first half of 2025: US$0.3 million) and reduced procurement for customized development projects, as technology development service revenue decreased by 84.95% from US$2.3 million to US$0.3 million. | |
| ● | Others. Other cost of revenues increased by US$0.06 million, or 127.13%, from US$0.05 million (0.97% of cost of revenues) to US$0.1 million (6.42%), mainly reflecting additional miscellaneous project-related expenses incurred during the period. |
As a result of these changes, the Company recorded a gross loss of US$0.6 million for the six months ended June 30, 2026, compared with gross profit of US$6.7 million for the six months ended June 30, 2025, and the overall gross margin decreased from 58.1% to (58.7%), representing a decrease of 116.78 percentage points. The fluctuation was primarily attributable to the loss of high-margin cloud platform product revenue, which accounted for 67.72% of net revenues in the first half of 2025 but only 6.58% in the first half of 2026, while the related staff costs remained largely fixed; in addition, the gross margin of software products and technology development services turned negative in the first half of 2026, as the cost of software products increased from US$0.2 million to US$0.6 million despite a 59.03% decrease in software product revenue, and the cost of technology development services decreased by only 36.09% (from US$1.5 million to US$1.0 million) against an 84.95% decrease in revenue.
Operating Expenses
Selling Expenses
Selling expenses decreased to approximately $0.59 million for the six months ended June 30, 2026, compared to $0.70 million for the same period in 2025, representing a decrease of 15.95%, the reduction was primarily attributable to:
| ● | A significant decrease in marketing and advertising expenses and professional service fee, as we curtailed discretionary promotional activities in response to market conditions. |
These decreases were partially offset by fluctuations in certain insurance agency and depreciation-related items.
General and Administrative Expenses
General and administrative expenses decreased to approximately $10.23 million for the six months ended June 30, 2026, compared to $11.27 million for the same period in 2025, representing an decrease of 9.22%, primarily due to an increase of staff cost and credit impairment loss. This increase was partially offset by share-based compensation.
Research and Development Expenses
Research and development expenses decreased to approximately $0.75 million for the six months ended June 30, 2026, compared to approximately $24.07 million for the same period in 2025, representing a decrease of approximately 96.90%. This decrease was primarily attributable to the downsize of professional service fee and lower staff cost.
Other Expense, Net
Other expense, net was $0.96 million for the six months ended June 30, 2026, compared to $1.04 million for the same period in 2025, the decrease was primarily attributable to (i) a significant increase in other income, net, and (ii) the absence of investment loss during the period, partially offset by an increase in net interest expenses mainly driven by default penalty interest.
Net Loss
As a result of the foregoing, we recorded a net loss of $13.05 million for the six months ended June 30, 2026, compared to a net loss of $30.39 million for the same period in 2025, the decrease in net loss was primarily driven by the significant reductions in operating expenses.
4
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash flows from operations, and proceeds from financing activities. As of June 30, 2026, we had cash and cash equivalents of approximately $3.62 million, compared to $2.44 million as of December 31, 2025. For the six months ended June 30, 2026, the Group had net cash provided by operating activities of $0.55 million, net cash provided by financing activities of $1.74 million, and a $1.10 million negative effect of exchange rate changes. The net increase of $1.18 million in cash, cash equivalents and restricted cash during the period was primarily attributable to net cash provided by operating and financing activities, partially offset by the effect of exchange rate changes.
During the six months ended June 30, 2026, we continued to experience operating losses and had an accumulated deficit of $ 239.60 million as of June 30, 2026, stemming from recurring net losses and ongoing working capital requirements. Our working capital deficit widened to $99.62 million as of June 30, 2026, from $91.36 million at December 31, 2025. This change mainly driven by movements in operating assets and liabilities, including accounts receivable, accounts payable, accrued expenses and other current liabilities, and prepaid expenses and other current assets. These fluctuations resulted from our strategic portfolio rationalization, lower revenue, and the timing of customer collections and vendor payments.
The operating results for the period were affected by several structural factors and industry factors. Persistent macroeconomic weakness in China continued to suppress enterprise technology spending. In addition, the large language model market experienced intensifying price competition as well-capitalized industry leaders adopted aggressive subsidization strategies. These dynamics, together with supply chain disruptions affecting our AI hardware business caused by geopolitical trade restrictions, contributed to reduced revenue and cash inflows from operations. In response, we implemented a series of cash flow optimization measures, including stricter credit management, renegotiation of payment terms with suppliers, workforce reductions, and significant curtailment of research and development expenditures.
We also relied on financing activities to support our operations. For the six months ended June 30, 2026, net cash provided by financing activities totaled $1.74 million, mainly from $3.0 million net proceeds upon issuance of convertible notes, partially offset by $1,262,207 in repayments of third-party borrowings. While this financing strengthened the Group’s short-term liquidity, it increased leverage and may result in dilution to existing shareholders upon conversion of the convertible note is converted.
We have sustained recurring operating losses. As of June 30, 2026, we had an accumulated deficit and a shareholders’ deficit. Certain of our short-term borrowings were overdue as of June 30, 2026, and some borrowing obligations are subject to litigation or court judgments. We are actively negotiating repayment arrangements and other potential resolutions with the relevant lenders. As of June 30, 2026, our working capital deficit stood at approximately US$99.62 million. There can be no assurance that we will reach satisfactory arrangements with the relevant lenders or satisfy these obligations on acceptable terms. These conditions indicate that our liquidity and capital resources remain under pressure and that we are dependent on external financing to support our operations. Our capital requirements for the next twelve months primarily relate to working capital needs, including personnel costs, professional service fees, scheduled debt repayments, and ongoing operating expenses. Our ability to meet these requirements depends on our operating performance, continued cost control measures, and access to additional financing. There can be no assurance that such financing will be available on acceptable terms, or at all. Any financing transactions involving issuances of equity or equity-linked securities may dilute the interests of existing shareholders. This material uncertainty has been disclosed in the notes to the financial statements.
Management believes that the strategic measures taken and planned — including portfolio rationalization, workforce reductions, curtailment of non-essential research and development activities, and efforts to secure additional capital — are intended to address these conditions and position the Company for a more sustainable cost structure. However, there remains substantial doubt regarding our ability to continue as a going concern without additional financing or further improvements in operating performance.
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Trend Information
During the first half of 2026, we observed the following trends that we believe are likely to continue to affect our business, financial condition, and results of operations:
Macroeconomic Environment.
The Chinese economy continued to experience subdued growth during the period, characterized by weak corporate capital expenditure, cautious IT budgets, and extended procurement cycles. Enterprise customers maintained a conservative approach to large-scale technology commitments, prioritizing cost containment over new deployments. We expect these macroeconomic headwinds to persist in the near term.
Industry Competition and Market Concentration.
The large language model and AI services market in China exhibited an accelerating “Matthew effect,” whereby well-capitalized technology conglomerates consolidated market share through aggressive pricing strategies, including offering free or heavily subsidized access to foundation model capabilities. This dynamic has created an increasingly challenging competitive landscape for smaller, independent AI providers, who face significant pressure on pricing margins and limited ability to achieve profitability. We anticipate that this trend of market concentration will continue, and that competitive pressure on independent AI companies will intensify.
Geopolitical and Supply Chain Factors.
Escalating geopolitical tensions between the United States and China, including export controls on advanced semiconductors and related technology, continued to disrupt the supply chains underlying our AI-enabled hardware business. These restrictions have impaired our ability to procure critical components on commercially reasonable terms and have resulted in a significant contraction of this business segment. We expect that continued geopolitical uncertainty will adversely affect this business line for the foreseeable future.
Strategic Response.
In light of the foregoing trends, we have implemented a strategic contraction of our operations, including the discontinuation of unprofitable business lines, a reduction in headcount, and a significant curtailment of research and development expenditures. These measures are intended to preserve capital and position the Company to weather a prolonged period of adverse industry conditions. While we believe these actions are necessary and appropriate, they may also constrain our ability to pursue growth opportunities or develop new products during the period of contraction.
While we expect that demand for AI solutions will recover over the longer term, near-term revenue visibility remains limited. Our future operating results will depend on our ability to maintain cost discipline, stabilize revenue from our core offerings, and secure sufficient financing to support ongoing operations.
Critical Accounting Estimates
Our critical accounting estimates for the six months ended June 30, 2026 are consistent with those disclosed in our most recent Annual Report on Form 20-F. These include, among others, 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. There were no material changes to these estimates during the period.
Restrictions on Cash Transfers and Dividends
Under applicable PRC laws and regulations, our PRC subsidiaries may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, PRC subsidiaries are required to set aside at least 10% of their after-tax profits each year to statutory reserve funds until such reserves reach 50% of their registered capital. These statutory reserves are not distributable as cash dividends.
Furthermore, a substantial portion of our operations and assets are denominated in Renminbi (“RMB”), which is not freely convertible into foreign currencies. All foreign exchange transactions are subject to approval by, or registration with, the relevant PRC government authorities, including the People’s Bank of China and other authorized banks. These currency exchange control procedures may restrict the ability of our PRC subsidiaries to transfer cash to us through dividends, loans, or advances.
In addition, under the PRC Enterprise Income Tax Law and its implementing rules, a withholding tax of 10% generally applies to dividends paid by PRC entities to non-resident enterprises, unless reduced or exempted pursuant to an applicable tax treaty.
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Cash Flows
Set forth below are the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2026 and 2025.
| For the six months ended June 30, |
||||||||
| 2026 | 2025 | |||||||
| (Unaudited) | ||||||||
| Net cash (used in)/provided by operating activities | $ | 548,837 | $ | (2,328,970 | ) | |||
| Net cash (used in)/provided by investing activities | - |
82,621 | ||||||
| Net cash (used in)/provided by financing activities | 1,737,793 | 5,690,293 | ||||||
| Effect of exchange rate changes | (1,103,789 | ) | 721,003 | |||||
| Net change in cash, cash equivalents and restricted cash | 1,182,841 | 4,164,947 | ||||||
| Cash, cash equivalents and restricted cash, at beginning of the period | 2,436,318 | 846,593 | ||||||
| Cash, cash equivalents and restricted cash, at end of period | $ | 3,619,159 | $ | 5,011,540 | ||||
Cash Flows from Operating Activities
Net cash provided by operating activities for the six months ended June 30, 2026 was $0.55 million, compared to net cash used in operating activities of $2.33 million for the same period in 2025. Net cash used in operating activities during the 2026 period was primarily driven by the Group’s net loss, adjusted for non-cash items including allowance for accounts receivable, depreciation and amortization, share-based compensation expense, impairment charges and other non-cash adjustments. These non-cash adjustments, together with changes in operating assets and liabilities, partially offset the cash outflow resulting from the net loss.
Changes in operating assets and liabilities during the period reflected, among other things:
| ● | Changes in accounts receivable resulting from reduced revenue levels and collection efforts; |
| ● | Changes in contract costs and prepaid expenses and other current assets consistent with lower project activities; and |
| ● | Changes in accounts payable, accrued expenses and other current liabilities reflecting cost-control measures and timing of payments. |
Overall, operating cash flows continue to reflect the impact of reduced revenue and ongoing operating losses, partially mitigated by expense reductions and working capital management initiatives.
Cash Flows from Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2026 was $0.00 million, compared to net cash provided by investing activities of $0.08 million for the same period in 2025.
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Cash Flows from Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2026 was $1.74 million, compared to $5.69 million for the same period in 2025. During the period, net cash provided by financing activities primarily comprised $3 million net proceeds from the issuance of convertible notes. These proceeds were used for general corporate purposes and working capital requirements. Cash outflows within financing activities were attributable to the repayment of borrowings from third parties in the amount of $1.26 million.
Cash, cash equivalents and restricted cash
As of June 30, 2026, the cash and cash equivalents stood at $3.45 million, an increase of $1.13 million (or approximately 48.8%) compared to $2.32 million as of December 31, 2025. This increase was primarily driven by the issuance of convertible notes in the first half of the year of 2026, which resulted in a net cash inflow of $1.74 million from financing activities.
Restricted cash was $0.17 million, up by $0.05 million (or approximately 42.9%) from $0.12 million at the end of 2025. The increase was mainly due to a new loan default, resulting in relevant corporate funds being frozen in litigation.
Overall, although financing activities significantly bolstered the reported liquidity, a portion of the funds became restricted due to legal disputes. The actual increase in freely available funds should be evaluated net of the restricted portion and the specific use of the financing proceeds.
Stockholders’ Equity
Changes in Stockholders’ Equity
Set forth below are unaudited condensed consolidated statements of changes in shareholders’ equity for the six months ended June 30, 2026.
| Ordinary shares | Preferred shares | Additional
paid-in |
Statutory | Accumulated | Accumulated other comprehensive |
Total shareholders’ |
Non- controlling |
Total | ||||||||||||||||||||||||||||||||||||
| Share | Amount | Shares* | Amount | capital | reserve | deficit | loss | deficit | Interests | deficit | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | 55,235,284 | $ | 2,762 | 3,700,000 | $ | 185 | $ | 130,134,778 | $ | 237,486 | $ | (226,559,555 | ) | $ | (4,370,415 | ) | $ | (100,554,759 | ) | $ | (4,309,169 | ) | $ | (104,863,928 | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | - | (13,038,604 | ) | (13,038,604 | ) | (8,442 | ) | (13,047,046 | ) | ||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | (4,171,691 | ) | (4,171,691 | ) | (11,762 | ) | (4,183,453 | ) | ||||||||||||||||||||||||||||||||||||
| Conversion of convertible loans | 159,869,247 | 7,993 | 4,573,534 | 4,581,527 | 4,581,527 | |||||||||||||||||||||||||||||||||||||||
| Pre-delivery ordinary shares for conversion of Convertible Notes | 19,500,000 | 975 | (975 | ) | - | - | ||||||||||||||||||||||||||||||||||||||
| Forfeiture of unvested stock options (reversal of SBC) | (1,206,641 | ) | (1,206,641 | ) | (1,206,641 | ) | ||||||||||||||||||||||||||||||||||||||
| Share-based compensation expenses | 2,784,000 | 140 | 931,416 | 931,556 | 931,556 | |||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2026 (unaudited) | 237,388,531 | $ | 11,870 | 3,700,000 | $ | 185 | $ | 134,432,112 | $ | 237,486 | $ | (239,598,159 | ) | $ | (8,542,106 | ) | $ | (113,458,612 | ) | $ | (4,329,373 | ) | $ | (117,787,985 | ) | |||||||||||||||||||
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During the six months ended June 30, 2026, total the Company’s shareholders’ deficit increased from $100.55 million at December 31, 2025 to $113.46 million at June 30, 2026. The principal factors contributing to changes in shareholders’ equity during the period included:
| ● | Net loss. We recorded a net loss of $13.04 million for the six months ended June 30, 2026, which increased our accumulated deficit. |
| ● | Issuance and Conversion of Convertible Notes. During the six months ended June 30, 2026, the Company completed financing transactions in April 2026 and June 2026 through the issuance of convertible notes, which provided cash proceeds at the time of issuance and were used for general corporate purposes. These issuances increased the Company’s liabilities and additional paid-in capital, net of issuance costs. During and subsequent to the period, holders of the convertible notes elected to convert portions of the outstanding principal and, where applicable, accrued interest into ordinary shares represented by ADSs in accordance with the contractual terms of the notes. Such conversions resulted in the issuance of additional ADSs, reduced the Company’s outstanding debt obligations, and increased additional paid-in capital. The issuance of ADSs upon conversion did not result in additional cash proceeds to the Company. |
| ● | Share-based compensation. Share-based compensation expense recognized during the period increased additional paid-in capital. |
| ● | Forfeiture of unvested stock options (reversal of SBC). Forfeiture of unvested stock options (reversal of SBC) during the period decreased additional paid-in capital. |
| ● | Foreign currency translation adjustments. Changes in foreign currency exchange rates resulted in translation adjustments recorded in accumulated other comprehensive loss. |
| ● | Non-controlling interests. Changes in non-controlling interests reflected the allocation of net loss attributable to non-controlling shareholders. |
Impact of Equity Issuances and Conversions
The issuance of ADSs, including those issued upon conversion of convertible securities, resulted in dilution to existing shareholders. In addition, the volume and timing of conversions may have affected the market trading price of the Company’s ADSs.
The Company expects that additional conversions of outstanding convertible securities may occur in the future, which could result in further issuances of ADSs and additional dilution to shareholders.
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