View:
United States securities and exchange commission logo
August 5, 2022
Chao Xu
General Counsel
Xiao-I Corporation
7th floor, Building 398, No. 1555 West
Jinshajiang Rd
Shanghai, China 201803
Re: Xiao-I Corp
Draft Registration
Statement on Form F-1
Submitted July 8,
2022
CIK No. 0001935172
Dear Mr. Xu:
We have reviewed your draft registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments.
Draft Registration Statement on Form F-1 submitted July 8, 2022
Cover Page
1. You state here and
elsewhere that investors may never "directly" hold equity interests in
the VIE. As the use of
the word "directly" may infer indirect equity ownership, please
revise the cover page
and elsewhere to state that investors may never hold equity interests
in the VIE.
Additionally, please revise any other disclosures that may infer any type of
equity ownership over
the VIE, including, but not limited to, the following:
"Xiao-I ... does
not directly own substantially all of our business in China conducted
by the VIE" (cover
page);
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 2 5, 2022 Page 2
FirstName LastName
"The contractual arrangements with the VIE and its shareholders
may not be as
effective as direct ownership in providing operational control."
(page 24);
"These contractual arrangements may not be as effective as
direct ownership..." (page
43);
"The contractual arrangements with the VIE and its shareholders
may not be as
effective as direct ownership..." (page 44);
Note 1 to the financial statements that refers to the VIE as
the company's VIE and the
chart that states that the company has "effective ownership" over
the VIE and the
VIE's subsidiaries (page F-9); and
"A VIE is an entity in which the Company, or its WFOE, through
contractual
arrangements, exercises effective control over the activities
that most impact the
economic performance, bears the risks of, and enjoys the rewards
normally associated
with ownership of the entity, and therefore the Company or its
WFOE is the primary
beneficiary of the entity." (page F-14).
2. Please revise your cover page to disclose the conditions you have
satisfied for
consolidation of the VIE under U.S. GAAP. Ensure that other
disclosures throughout
your prospectus, such as those in your prospectus summary, that
reference control or
benefits that accrue to you because of the VIE are limited to a clear
description of these
conditions.
3. We note your cover page discussion of transfers of cash. Please revise
to also disclose
whether any distributions or other transfers of cash have been made
between your
subsidiaries and whether there are any limitations on your ability to
transfer cash between
subsidiaries. Additionally, revise to include cross-references to the
condensed
consolidating schedule and the consolidated financial statements.
Lastly, please disclose
whether you have any written cash management policies and procedures
that dictate how
funds are transferred, and is so, revise to summarize these policies
and procedures. Make
similar revisions to your prospectus summary discussion.
4. You state here that your PRC counsel are of the view that the risk
that your foreign listing
will not be permitted after the initiation of the cybersecurity review
is low. For each
instance in which you reference your PRC counsel please identify your
PRC counsel by
name. Additionally, while we note that your exhibit index indicates
that a tax opinion
from PRC counsel will be included, please ensure you file an opinion
from PRC
counsel concerning statements of PRC law, as well as a consent.
Table of Contents, page i
5. You state here that industry publications and third-party research,
surveys and studies
generally indicate that their information has been obtained from
sources believed to be
reliable, although they do not guarantee the accuracy or completeness
of such
information. Please either remove the statement that these research
sources "do not
guarantee the accuracy or completeness of such information" or
specifically state that you
are liable for such information.
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 3 5, 2022 Page 3
FirstName LastName
About This Prospectus
Conventions that apply to this Prospectus, page 1
6. Please revise your definition of China or the PRC to remove the
exclusion of Hong Kong
and Macau from this definition. Additionally, ensure that disclosure
throughout your
prospectus clarifies that the legal and operational risks associated
with operating in China
also apply to operations in Hong Kong and / or Macau.
7. Clearly disclose how you will refer to the holding company,
subsidiaries, and VIEs when
providing the disclosure throughout the document so that it is clear
to investors which
entity the disclosure is referencing and which subsidiaries or
entities are conducting the
business operations. For example, here, you define "we", "us", or the
"Company" to
include Shanghai Xiao-i, the variable interest entity (VIE). Please
refrain from using
these terms when describing activities or functions of the VIE.
Furthermore, please revise
other disclosures throughout your prospectus that use terms such as
"we" or "our" when
describing activities or functions of the VIE, including, but not
limited, to the following:
"For more details and risks related to our variable interest
entity structure" (page 10);
"our variable interest entities accounted for an aggregate of
100% of our total assets
and total liabilities" (page 14); and
"Contractual arrangements in relation to our variable interest
entity" (page 24).
Prospectus Summary, page 3
8. Please move your discussion of the VIE structure and what that entails
to earlier in the
summary. Ensure the summary:
identifies clearly the entity in which investors are purchasing
their interest, in
addition to the entity(ies) in which the company s operations
are conducted;
describes how this type of corporate structure may affect
investors and the value of
their investment, including how and why the contractual
arrangements may be less
effective than equity ownership and that the company may incur
substantial costs to
enforce the terms of the arrangements; and
discloses the uncertainties regarding the status of the rights
of the Cayman Islands
holding company with respect to its contractual arrangements with
the VIE, its
founders and owners, and the challenges the company may face
enforcing these
contractual agreements due to legal uncertainties and
jurisdictional limits.
For additional guidance, consider Comment 5 of our Sample Letter to
China-Based
Companies.
9. Please revise the diagram of your corporate structure so that there is
dashed line without
arrows, rather than a solid line with arrows, between your WFOE and
the VIE.
Additionally, please ensure the diagram identifies the person or
entity that owns the equity
in each depicted entity.
Chao Xu
Xiao-I Corporation
August 5, 2022
Page 4
10. You state here that you are the primary beneficiary of the VIE. Please
revise here and
elsewhere to clarify that you are the primary beneficiary of the VIE
for accounting
purposes. Additionally, as noted earlier, any references to control or
benefits that accrue
to you because of the VIE should be limited to a clear description of
the conditions you
have satisfied for consolidation of the VIE under U.S. GAAP.
11. Please revise your summary to disclose that trading in your securities
may be prohibited
under the Holding Foreign Companies Accountable Act if the PCAOB
determines that it
cannot inspect or investigate completely your auditor, and that as a
result an exchange
may determine to delist your securities. Disclose whether your auditor
is subject to the
determinations announced by the PCAOB on December 16, 2021.
Additionally, include a
discussion of the Accelerating Holding Foreign Companies Accountable
Act and its
potential impact.
Consolidation, page 14
12. We note your disclosure that the Company has not provided any
financial support to the
VIE and the VIE s subsidiaries for the fiscal years ended at
December 31, 2020 and
December 31, 2021. Please tell us whether you provided any loans or
capital contributions
to the VIE in the year ended December 31, 2019.
13. Regarding the consolidating schedules, please address the following:
Separately present any service fees recognized pursuant to the
VIE agreements in
both the VIE and WFOE columns.
Separately present the net income/loss attributable to
non-controlling interest in the
VIE column.
Revise the line items "Investment deficit in subsidiaries and
VIE" and Share of
loss/income in subsidiaries and VIE in the Parent column as
this implies the VIE
arrangements are similar to an equity method investment. Explain
to us what these
line items represent, how they are calculated, and why these are
reflected in the
Parent column and not in the WFOE column.
Transfers of Cash to and from the VIE, page 18
14. We note your disclosure regarding the regulations and restrictions on
dividends and
payments to parties outside of China. Revise to disclose the amount of
restricted net
assets as of December 31, 2021.
Permission Required from the PRC Authorities..., page 20
15. Please revise to affirmatively state whether you have received all
requisite permissions or
FirstName LastNameChao Xu
approvals that you, your subsidiaries, or the VIEs are required to
obtain from Chinese
Comapany NameXiao-I
authorities Corporation
to operate your business and to offer the securities being
registered to foreign
Augustinvestors and whether
5, 2022 Page 4 any permissions or approvals have been denied.
FirstName LastName
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 5 5, 2022 Page 5
FirstName LastName
Risk Factors
We have identified a material weaknesses in our internal control over financial
reporting. . .,
page 40
16. We note your disclosure regarding the identified material weaknesses
in your internal
control over the financial reporting. Please disclose any material
costs you have incurred
or expect to incur.
The Chinese government exerts substantial influence over..., page 52
17. We note your statement that you have not been informed by any PRC
governmental
authority of any requirement that we file for approval for this
offering. Please revise your
disclosure to explain how this oversight impacts your business and
your offering and to
what extent you believe that you are compliant with the regulations or
policies that have
been issued by the CAC to date. For additional guidance, consider
Comment 15 of
our Sample Letter to China-Based Companies.
Capitalization, page 69
18. Please revise to include outstanding convertible loans in your
capitalization table. Include
a brief description of the settlement terms.
Dilution, page 71
19. Tell us how you factored contract cost assets into your calculations
of net tangible book
value. To the extent you did not consider such assets to be intangible
assets, please explain
or revise your calculations as necessary.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Impact of COVID-19 on Our Operations and Financial Performance, page 76
20. You state that your results of operations have been, and could
continue to be adversely,
and may be materially, affected by the COVID-19 pandemic. Please
revise to disclose the
impacts of the COVID-19 pandemic on your business, including a
quantified discussion of
these impacts. Additionally, please disclose (1) whether your business
segments,
products, lines of service, projects, or operations are materially
impacted by the pandemic-
related lockdowns in China and (2) the impact of consumer demand
declines in China. In
addition, discuss any steps you are taking to mitigate adverse impacts
to your business.
Lastly, we note that you have sought new revenue stream and have
provided enriched
types of services and products to deal with the COVID-19 effects.
Please revise to
disclose what new revenue streams the company developed to deal with
the effects of the
COVID-19 pandemic.
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 6 5, 2022 Page 6
FirstName LastName
B. Liquidity and Capital Resources, page 80
21. Revise to disclose cash and cash equivalents disaggregated by currency
denomination as
of the most recent balance sheet date. Describe the restrictions on
foreign exchange and
your ability to transfer cash between entities, across borders, and to
U.S. investors.
Describe any restrictions and limitations on your ability to
distribute earnings from the
company, including your subsidiaries and/or the consolidated VIE, to
the parent company
and U.S. investors as well as the ability to settle amounts owed under
the VIE
agreements. Refer to Item 5.B of Form 20-F.
Business, page 98
22. We note that you intend to develop and commercialize Metaverse-related
offerings, including Non-Fungible Tokens ( NFTs ). Please revise
to describe in greater
detail your NFT-related products, including the status of your
development efforts and
whether you have generated revenue from the sale of any NFTs to date.
23. Disclosure on page F-34 indicates that a single supplier accounted for
73.8% of your total
purchases for the fiscal year ended December 31, 2021. Please revise
your business
section discussing your relationships with your suppliers, including
the identification of
the 73.8% supplier and a summary of the material terms of your
material agreements with
this supplier. Additionally, please file your material agreements with
this supplier as
exhibits. See Item 601(b)(10)(ii)(B) of Regulation S-K.
Our Customers, page 103
24. Disclosure on page 35 indicates that a single customer accounted for
42.4% of your
revenue for the fiscal year ended December 31, 2021. Please revise
your business section
to identify this customer and summarize the material terms of your
material agreements
with this customer. Additionally, please file your material agreements
with this customer
as exhibits. See Item 601(b)(10)(ii)(B) of Regulation S-K.
Legal Proceedings, page 105
25. We note your disclosure on page 13 of a patent infringement proceeding
with a subsidiary
of Apple, Inc., as well as disclosure on page F-24 that the proceeding
is not expected to
close within one year. Please revise current disclosure to clarify
whether the subsidiary of
Apple, Inc. has been found to be infringing upon a patent of the
company. Additionally,
please revise to fully identify the court or agency where the
proceeding was instituted
(including the country of the court or agency), the date the
proceeding was instituted and
the status of this proceeding (including whether either party has
appeal rights). Lastly, tell
us what consideration was given to disclosing this proceeding as a
legal proceeding on
page 105. Consider Item 8.A.7 of Form 20-F.
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 7 5, 2022 Page 7
FirstName LastName
Management, page 119
26. Please clarify whether the size of the Board will be five as suggested
on page 119, or six
as presented in the chart on page 118.
Principal Shareholders, page 126
27. Please revise to disclose the natural persons the natural person or
persons who exercise the
voting and/or dispositive powers, or have the right to receive the
economic benefit, with
respect to the securities owned by entities, including River Hill
China Fund L.P., Grand
Glory (Hong Kong) Corporation Limited, Shanghai Maocheng Enterprise
Management
Center (Limited Partnership) and Shanghai Tongjun Enterprise
Management Consulting
Partnership (Limited Partnership).
Related Party Transactions, page 127
28. We note that you provide certain related party transaction disclosure
in tabular form.
Please revise to ensure you provide all of the information called for
by Item 7.B of Form
20-F for each related party transaction, or advise.
Enforceability of Civil Liabilities, page 147
29. We note that one or more of your officers or directors are located in
China or Hong
Kong. Please revise the risk factor on page 63 to specifically address
the difficulty of
bringing actions and enforcing judgments against officer or directors
that reside in China
or Hong Kong. Additionally, revise the "Enforceability of Civil
Liabilities" section to
clarify the individuals referred to in the following sentence, "[a]s a
result it may be
difficult for a shareholder to effect service of process on these
individuals."
Underwriting
Lock-Up Agreements, page 149
30. Please clarify the parties who will enter into Lock-up Agreements, as
it appears that part
of the following sentence was omitted:
"The Company has agreed in the Underwriting Agreement that, for
a period of 180
days from the commencement of the Company s first day of
trading on the Nasdaq
(the Lock-Up Period ), (i) offer, pledge, . . ."
The second paragraph appears to contemplate directors, officers and
existing shareholders
entering into lock-up agreements. Please confirm or revise.
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 8 5, 2022 Page 8
FirstName LastName
Consolidated Financial Statements
Note 1. Organization and Principal Activities, page F-9
31. Please revise to include a description of the recognized and
unrecognized revenue-
producing assets that are held by the VIE. These assets may include
licenses, trademarks,
other intellectual property, facilities or assembled workforce. Refer
to ASC 810-10-50-
5A.d.
32. You disclose that the VIE agreements enable the Group to receive the
benefits of
Shanghai Xiao-i and its subsidiaries that could be significant to
Shanghai Xiao-i and that
the Group absorbs all risk of losses of Shanghai Xiao-i. Please revise
your description of
the VIE agreements to disclose the contractual terms that provide for
how benefits to be
received from the VIE are determined and the obligation to absorb
losses of the VIE. In
addition, disclose whether there is a contractual obligation to
provide financial support to
the VIE. Refer to ASC 810-10-50-2AA. Similarly revise your disclosures
regarding the
VIE agreements in the Prospectus Summary and expand your risk factor
disclosure related
to your corporate structure to address the obligation to absorb losses
of the VIE and any
contractual obligation to provide financial support to the VIE.
Note 2. Summary of Significant Accounting Policies
(p) Revenue recognition, page F-17
33. We note your disclosure that the recognition of revenues involves
certain management
judgments, including estimated lives of virtual items purchased by
game players and
estimated breakage of game points. Please revise to describe your
revenue recognition
policies related to gaming operations or advise.
34. Please revise to describe your revenue recognition policies for
software development
services for specific needs and customized set-up implementation.
Disclose the
performance obligations included in such arrangements, the typical
time period over
which such services are provided, and the timing of customer payments.
As part of your
response, tell us the amount of revenues recognized for each of these
services for the
periods presented. Refer to ASC 606-10-50-12.
35. Regarding cloud platform revenues, please disclose the typical
contract period, timing of
customer payments, and any cancellation and refund provisions.
36. Revise to provide disclosure regarding remaining performance
obligations. Refer to ASC
606-10-50-13.
Chao Xu
FirstName LastNameChao Xu
Xiao-I Corporation
Comapany
August NameXiao-I Corporation
5, 2022
August
Page 9 5, 2022 Page 9
FirstName LastName
(ff) Recent accounting pronouncements, page F-23
37. Your disclosure that under the JOBS Act, an EGC can delay adopting new
or revised
accounting standards until such time as those standards apply to
private companies may
imply that you are taking advantage of this extended transition
provision. However, on
page 22 you disclose that the company has irrevocably elected to opt
out of the extended
transition period. Please revise for consistency.
Note 4. Prepaid Expenses and Other Assets, page F-24
38. Please revise to describe the nature of the receivables from third
parties and explain the
reasons for the significant related bad debt provision as of December
31, 2021.
Note 9. Convertible Loans, page F-27
39. We note your disclosure that the investment agreements with third
parties provide options
of converting debt into ordinary shares upon the closing of IPO.
Please revise to clarify
the following:
Clarify that these convertible loans were issued by the VIE as
reflected in your
consolidating schedules and on page F-13.
Describe what is considered fail to list , including the
timing of this determination.
Clarify whether the group is required to repay principal and
interest if the company is
listed or the specified enterprise market value is met upon IPO.
In this regard, your
disclosure that the group is required to repay principal and
interest if the group fails
either of these conditions could imply that if either of these
conditions are met the
loans are not required to be repaid.
Explain the mechanism for converting loans issued by the VIE
into ordinary shares
upon closing of the IPO and whether these would be ordinary
shares of the parent
holding company.
Clarify the source of and which entity would pay the cash to
loan holders that decide
to receive cash rather than shares.
Clarify whether the holder or the Group decides whether loans
will convert to
ordinary shares or equivalent cash upon closing of the IPO. In
this regard, your
disclosure currently indicates that both parties determine this.
Clarify why the annual interest rate in footnote (2) differs
from the annual interest
rate disclosed in the table.
If any of these loans settled or were extended, disclose this
in your subsequent event
footnote.
Note 17. Commitments and Contingencies, page F-34
40. We note your disclosure that there were no pending or threatened
claims and litigation as
of December 31, 2021 and through the issuance date of the financial
statements. Please
revise to describe the nature and status of the lawsuit between the
Group and Apple
Chao Xu
Xiao-I Corporation
August 5, 2022
Page 10
Computer Inc. Refer to ASC 450-30-50-1. In addition, tell us who the
third parties are
that paid the litigation fees on behalf of the Group and the repayment
terms for the
litigation payable. Also, describe for us, in greater detail, what the
case acceptance fee
represents.
Note 18. Subsequent Events, page F-35
41. Revise to disclose the date through which you evaluated subsequent
events. Refer to ASC
855-10-50-1(a).
General
42. Please provide us with supplemental copies of all written communications,
as defined in
Rule 405 under the Securities Act, that you, or anyone authorized to do
so on your
behalf, have presented or expect to present to potential investors in
reliance on Section
5(d) of the Securities Act, whether or not you retained, or intend to
retain, copies of those
communications.
You may contact Joyce Sweeney, Senior Staff Accountant, at 202-551-3449
or Christine
Dietz, Senior Staff Accountant, at 202-551-3408 if you have questions regarding
comments on
the financial statements and related matters. Please contact Charli
Gibbs-Tabler, Staff
Attorney, at 202-551-6388 or Mitchell Austin, Staff Attorney, at 202-551-3574
with any other
questions.
Sincerely,
FirstName LastNameChao Xu
Division of
Corporation Finance
Comapany NameXiao-I Corporation
Office of
Technology
August 5, 2022 Page 10
cc: Fred Summer
FirstName LastName