XIAO-I CORPORATION Announces Pricing of $3,260,870 Senior Convertible Notes Offering

Rhea-AI Summary

Xiao-I (NASDAQ: AIXI) has announced a securities purchase agreement with an institutional investor to issue and sell senior convertible notes valued at $3,260,870. The notes come with an 8% original issue discount and are convertible into Xiao-I's ordinary shares at $1.00 per ADS, bearing an interest rate of 6.0% per annum, which can increase to 15% during an event of default. The notes mature 360 days from issuance. Concurrently, Xiao-I is offering 1,000,002 additional ADS at par to facilitate conversion deliveries. The offering is expected to close around June 17, 2024, subject to customary conditions, with proceeds intended for working capital and corporate purposes.

Positive

• Issuance of $3,260,870 senior convertible notes provides immediate liquidity.
• Interest rate of 6.0% per annum is competitive.
• Conversion price set at $1.00 per ADS can be attractive to investors.
• Net proceeds intended for working capital and general corporate purposes.

Negative

• Interest rate can increase to 15% during an event of default, indicating higher risk.
• Convertible notes can lead to shareholder dilution upon conversion.
• Short maturity of 360 days may pressure the company to meet financial obligations quickly.

Insights

Financial Analyst

The issuance of senior convertible notes amounting to $3,260,870 by Xiao-I Corporation is a significant financial event for the company. The 8% Original Issue Discount implies that the company will receive slightly less than the stated amount, reducing the immediate liquidity but potentially offering favorable terms to attract institutional investors. The notes carry a 6% annual interest rate, which increases to 15% upon default, indicating a substantial penalty that encourages timely repayment. Investors should note the one-year maturity period, which suggests short-term financing needs.

Convertible notes can be advantageous, offering conversion into the company's ADS at a $1.00 per ADS conversion price, potentially reducing debt and converting it to equity under favorable conditions. However, this could also lead to stock dilution, affecting current shareholders if large conversions occur. The additional Pre-Delivery ADSs mechanism appears crafted to ensure smooth conversion, though it essentially locks investors into a certain period, potentially affecting liquidity.

The net proceeds being earmarked for working capital and general corporate purposes suggests a need for operational liquidity, signifying either growth initiatives or operational expenditures coverage. Investors should monitor how effectively Xiao-I utilizes these funds to gauge future financial health and growth capabilities.

Market Research Analyst

The structure of Xiao-I Corporation's offering reflects strategic financial engineering aimed at balancing immediate capital needs with long-term growth potential. From a market perspective, the convertible notes offer flexibility to investors, providing them an equity upside if the stock price increases. This aligns investor interests with company performance, potentially driving positive market sentiment if the company meets its growth targets.

However, the 6% interest rate, escalating to 15% upon default, indicates a higher risk profile, which investors need to weigh against the potential equity conversion benefits. The quick maturity period of 360 days also suggests the company anticipates either significant near-term revenue or further financing activities to meet these obligations. Market participants should closely observe the company's strategic moves and operational performance in the upcoming quarters to assess the prudence of this financial maneuver.

Moreover, the lack of restriction on the Pre-Delivery ADSs until note conversion promotes flexibility but adds a layer of complexity, potentially impacting stock supply dynamics. Transparent communication from Xiao-I regarding fund utilization and earnings performance will be pivotal in maintaining investor confidence.

SHANGHAI, June 17, 2024 /PRNewswire/ -- Xiao-I Corporation ("Xiao-I" or the "Company") (NASDAQ: AIXI) announced today that it has entered into a securities purchase agreement with an institutional investor (the "Investor") to issue and sell an aggregate principal amount of $3,260,870 senior convertible notes (the "Notes") with an 8% Original Issue Discount to the Investor, convertible into the Company's ordinary shares ("Conversion Shares") in the form of American Depositary Shares ("Conversion ADSs") (the "SPA"). Each ADS represents one third of an ordinary share.

The Company is also concurrently offering an additional 1,000,002 ADS (the "Pre-Delivery ADSs"), at par, representing 333,334 of its ordinary shares (the "Pre-Delivery Shares"), to the Investor. Each holder of Pre-Delivery Shares is not permitted to sell, assign or transfer such Pre-Delivery ADSs except in connection with a conversion of the Note of such holder to facilitate T+1 delivery of Conversion ADSs upon any conversion of a Note. At such time when no Notes remain outstanding, the remaining Pre-Delivery ADSs will be deemed surrendered and cancelled by the holder on the date the holder ceases to hold any Notes.

The Notes will mature 360-days after the Issuance Date (as defined in the Notes) and will be convertible into the Company's ADSs at a conversion price equal to $1.00 per ADS. The Notes will bear interest at a rate of 6.0% per annum, which rate will increase to 15% in the event of occurrence and during the continuance of an event of default. All payments due under the Notes will be senior to all subordinated indebtedness of the Company and/or its subsidiaries. Each holder of Notes may convert all, or any part, of the outstanding principal of the Notes, together with accrued and unpaid interest, any make-whole amount and any late charges thereon, at any time, at such holder's option, into Conversion Shares represented by Conversion ADSs either: (1) at the "Conversion Price" of $1.00 per ADS, subject to pro rata adjustment for any stock split, stock dividend, stock combination and/or similar transactions, or (2) at the "Alternative Conversion Price" as defined in the SPA.

The Notes, Conversion ADSs and Pre-Delivery ADSs are being offered through a prospectus supplement pursuant to the Company's effective shelf registration statement on Form F-3 and the base prospectus therein. Such prospectus supplement and accompanying prospectus relating to and describing the terms of this offering will be filed with the SEC. When available, copies of such prospectus supplement and accompanying prospectus may be obtained at the SEC's website www.sec.gov or by contacting FT Global Capital Inc., 1688 Meridian Avenue Suite 700, Miami Beach, FL 33139 USA.

FT Global Capital Inc. acted as the exclusive placement agent in connection with this offering.

The offering is expected to close on or about June 17, 2024, subject to the satisfaction of customary closing conditions.

The Company intends to use the net proceeds from the offering for working capital and general corporate purposes.

This press release does not constitute an offer to sell or a solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction.

About Xiao-I Corporation

Xiao-I Corporation is a leading cognitive intelligence enterprise in China that offers a diverse range of business solutions and services in artificial intelligence, covering natural language processing, voice and image recognition, machine learning, and affective computing. Since its inception in 2001, the Company has developed an extensive portfolio of cognitive intelligence technologies that are highly suitable and have been applied to a wide variety of business cases. Xiao-I powers its cognitive intelligence products and services with its cutting-edge, proprietary AI technologies to enable and promote industrial digitization, intelligent upgrading, and transformation. For more information, please visit: www.xiaoi.com. 

Forward-Looking Statements

This press release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. When the Company uses words such as "may," "will," "intend," "should," "believe," "expect," "anticipate," "project," "estimate" or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the actual results to differ materially from the Company's expectations discussed in the forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, the following: the Company's ability to achieve its goals and strategies, the Company's future business development and plans for future business development, including its financial conditions and results of operations, product and service demand and acceptance, reputation and brand, the impact of competition and pricing, changes in technology, government regulations, fluctuations in general economic and business conditions in China, and assumptions underlying or related to any of the foregoing and other risks contained in reports filed by the Company with the U.S. Securities and Exchange Commission ("SEC"). For these reasons, among others, investors are cautioned not to place undue reliance upon any forward-looking statements in this press release. Additional factors are discussed in the Company's filings with the SEC, including under the section entitled "Risk Factors" in its annual report on Form 20-F filed with the SEC on April 30, 2024, as well as its current reports on Form 6-K and other filings, all of which are available for review at www.sec.gov. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof.

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SOURCE Xiao-I Corporation

FAQ

What is the value of the senior convertible notes issued by Xiao-I ?

The senior convertible notes issued by Xiao-I are valued at $3,260,870.

What is the conversion price for the Xiao-I senior convertible notes?

The conversion price for the Xiao-I senior convertible notes is $1.00 per ADS.

When will the Xiao-I senior convertible notes mature?

The Xiao-I senior convertible notes will mature 360 days from the issuance date.

What is the interest rate on the Xiao-I senior convertible notes?

The interest rate on the Xiao-I senior convertible notes is 6.0% per annum, increasing to 15% in the event of default.

What are the proceeds of the Xiao-I senior convertible notes offering intended for?

The proceeds are intended for working capital and general corporate purposes.