Xiao-I Corp (NASDAQ: AIXI) carries about $6.5 million in outstanding variable-rate convertible notes that, at the current conversion formula, could produce approximately 5.8 million new American Depositary Shares — roughly 10.7 times the company's entire public float of about 545,000 ADSs.
That single ratio is the defining structural fact for this China-based conversational-AI issuer. It earns a dilution risk score of 9 out of 10.
The notes and how they convert
Both outstanding notes were issued by Streeterville Capital, a Chicago-based convertible lender affiliated with John M. Fife, whose network the SEC successfully sued for operating as an unregistered dealer. The June 2026 note carries a face value of $2.17 million; the August 2026 note, $4.33 million. Each converts at 90% of the lowest volume-weighted average price over any trailing ten-day window, minus a fixed $0.05 per ADS — meaning the buyer pays well below the prevailing market price, and the effective discount widens as the ADS price falls. At a $1.30 VWAP, the formula yields a conversion price of about $1.12, an effective discount of roughly 19%.
The structure is self-reinforcing. As conversions add shares and the price declines, the next conversion produces even more shares. Market participants sometimes call this a "death spiral."
An already-converted predecessor tells the story
An earlier $3.25 million Streeterville note, issued in April 2026, fully converted while the ADS fell from $15.47 to $1.20. That single note's lifecycle contributed to a share count that ballooned from roughly 55 million ordinary shares at year-end 2025 to an estimated 233 million ordinary shares by October 2026 — growth of about 321% in nine months.
Authorized headroom is the hard ceiling
Xiao-I has approximately 1 billion ordinary shares authorized. At the current ADS ratio of 420 ordinary shares per ADS, that translates to about 2.38 million ADSs. With roughly 554,000 ADSs already outstanding, the company has headroom for about 1.82 million more — far fewer than the 5.8 million the notes could theoretically produce. Full conversion at current prices would require a shareholder vote to increase authorized capital.
Reverse splits, shelf capacity, and cadence
Three reverse ADS-ratio changes in 25 months — 1-for-9, 1-for-20, and 1-for-7 — have cumulatively compressed the ratio by 1,260-to-1. The company's F-3 shelf registration still holds an estimated $86 million of remaining capacity, dwarfing the roughly $770,000 market capitalization by more than 100 times. A baby-shelf rule — the SEC limit that normally caps offerings at one-third of a small issuer's public float — is currently exempt because of a stale float calculation, but that exemption likely resets when the next annual report is filed around April 2027.
Streeterville has issued one note approximately every 60 days since April 2026, and contractual rights to purchase additional notes suggest the next tranche could arrive around late October or November 2026.
Data feeds undercount the float
Most commercial data services still show about 131,500 ADSs outstanding, derived from the year-end 2025 XBRL filing. That figure misses an estimated 421,000 ADSs issued during 2026 through pre-delivery shares and note conversions — meaning the true outstanding count is roughly four times what screens display.
The August 2026 note alone, at about 3.87 million potential ADSs, represents roughly seven times the current float — more shares than could legally be issued without expanding the authorized share count.