AEI Alset Inc

PROPOSAL THREE

APPROVAL OF A REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK AT A RATIO OF 1-FOR-20 AND AMENDMENT OF THE CERTIFICATE OF FORMATION TO EFFECT THE REVERSE STOCK SPLIT

Our Board of Directors has determined that it is in the best interests of the Company and our stockholders to (a) authorize the Board of Directors to effect, in its discretion prior to June 30, 2023, a reverse stock split of all of the issued and outstanding shares of common stock, par value $0.001 per share, of the Company, at a ratio of 1-for-20 and (b) approve a corresponding amendment to the Company’s Restated Certificate of Formation (the “Certificate of Formation”), in substantially the form attached to this proxy statement as Appendix A, to effect the reverse stock split, subject to the Board’s authority to abandon such amendment.

If the stockholders approve this proposal, the Board of Directors would effect the reverse stock split and cause a Certificate of Amendment to the Company’s Certificate of Formation to be filed with the Secretary of State of the State of Texas only if the Board determines that the reverse stock split would be in the best interests of the Company and our stockholders. The Board may determine in its discretion not to effect any reverse stock split and not to file the amendment to the Company’s Certificate of Formation. No further action on the part of stockholders will be required to either implement or abandon the reverse stock split.

Background and Reasons for the Reverse Stock Split

As previously disclosed, on January 19, 2022, the Company received a notification letter from the Nasdaq Listing Qualifications Staff (the “Staff”) notifying the Company that, because the closing bid price for the Company’s common stock was below $1.00 for 30 consecutive trading days, the Company no longer met Nasdaq’s minimum $1 bid price per share requirement (the “Minimum Bid Price Requirement”). In accordance with Nasdaq’s listing rules, the Company was provided an initial 180 calendar days, or until July 18, 2022, to regain compliance. On July 19, 2022, the Company received an additional notification letter from the Staff that the Staff determined that the Company was eligible for an additional 180 calendar day period, or until January 16, 2023, to regain compliance with the Minimum Bid Price Requirement.

The Staff’s July 19, 2022 determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market with the exception of the bid price requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If at any time before January 16, 2023, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of, subject to the Staff’s discretion, 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.

The July 19, 2022 notification letter also disclosed that if compliance cannot be demonstrated by January 16, 2023, the Staff would notify the Company that its securities will be subject to delisting. In the event of such notification, the Company may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant the Company’s request for continued listing.

The Board of Directors believes that there is a compelling need to secure approval of our stockholders to effect a reverse stock split to satisfy the Minimum Bid Price Requirement or if the Board should otherwise determine that it would be in the best interests of the Company and our stockholders to do so. Accordingly, for this and other reasons discussed below, we believe that giving the Board the discretionary authority to effect the reverse stock split in the manner described in this proxy statement is in the best interests of the Company and our stockholders.

The Board believes that de-listing from Nasdaq would have a material adverse effect on the market liquidity of our common stock as well as other associated implications, including a potential resulting drop in the trading price of our common stock and an increase in transaction costs of trading shares of our common stock.

In order to satisfy the Minimum Bid Price Requirement, the closing bid price of our common stock must be above $1.00 per share, higher than our recent stock price, for ten consecutive trading days. The Board has concluded that, absent a significant market-driven increase in the price of our common stock, the best way for the Company to increase the closing bid price of our common stock to a level satisfactory for meeting the Minimum Bid Price Requirement would be to effect a reverse stock split.

Board Discretion to Implement the Reverse Stock Split

Upon receipt of stockholder approval, our Board of Directors, in its discretion prior to June 30, 2023, may or may not elect to effect a reverse stock split at the authorized ratio. In determining to implement the reverse stock split following the receipt of stockholder approval, our Board of Directors may consider, among other factors:

Certain Risks Associated with the Reverse Stock Split

The Reverse Stock Split May Not Increase the Price of our Common Stock over the Long-Term. Reducing the number of outstanding shares of our common stock through the reverse stock split is intended, absent other factors, to increase the per share trading price of our common stock. However, the effect of the reverse stock split upon the market price of our common stock cannot be predicted with any certainty and we cannot assure you that the reverse stock split will accomplish this objective for any meaningful period of time, or at all. While we expect that the reduction in the number of outstanding shares of common stock will increase the market price of our common stock, we cannot assure you that reverse stock split will increase the market price of our common stock by a multiple of the reverse stock split ratio, or result in any permanent or sustained increase in the market price of our common stock. The market price of our common stock may be affected by other factors which may be unrelated to the number of shares outstanding, including the Company’s business and financial performance, general market conditions, and prospects for future success.

The Reverse Stock Split May Decrease the Liquidity of our common Stock. The Board of Directors believes that the reverse stock split may result in an increase in the market price of our common stock, which could lead to increased interest in our common stock and possibly promote greater liquidity for our stockholders. However, the reverse stock split will also reduce the total number of outstanding shares of common stock, which may lead to reduced trading and a smaller number of market makers for our common stock, particularly if the price per share of our common stock does not increase as a result of the reverse stock split.

The Reverse Stock Split May Result in Some Stockholders Owning “Odd Lots” That May Be More Difficult to Sell or Require Greater Transaction Costs per Share to Sell. If the reverse stock split is implemented, it will increase the number of stockholders who own “odd lots” of less than 100 shares of common stock. A purchase or sale of less than 100 shares (also known as an “odd lot” transaction) may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own less than 100 shares of common stock following the reverse stock split may be required to pay higher transaction costs if they sell their shares.

The Reverse Stock Split May Lead to a Decrease in our Overall Market Capitalization. The reverse stock split may be viewed negatively by the market and, consequently, could lead to a decrease in our overall market capitalization. If the per share market price of our common stock does not increase in proportion to the reverse stock split ratio, then the value of the Company, as measured by our market capitalization, will be reduced. Additionally, any reduction in our market capitalization may be magnified as a result of the smaller number of total shares of common stock outstanding following the reverse stock split.

Impact of the Proposed Reverse Stock Split If Implemented

The reverse stock split would affect all of our stockholders uniformly and would not affect any stockholder’s percentage ownership interests or proportionate voting power, except to the extent that the reverse stock split could result in any of our stockholders receiving cash in lieu of a fractional share. As described below, stockholders otherwise entitled to fractional shares as a result of the reverse stock split would receive cash payments in lieu of such fractional shares. These cash payments would reduce the number of post-reverse stock split stockholders to the extent there are presently stockholders who would otherwise receive less than one share of our common stock after the reverse stock split. The other principal effects of the reverse stock split would be that:

Effect of the Reverse Stock Split on Holders of Outstanding Common Stock

Every 20 shares of issued and outstanding common stock would be combined into one new share of common stock, and the number of shares authorized for issuance would remain the same. As of the record date, 7,425,360 outstanding shares of common stock would result from implementation of the reverse stock split ratio (without giving effect to the treatment of fractional shares):

The reverse stock split would not change the terms of our common stock. After the reverse stock split, the par value of our common stock would remain unchanged at $0.001 per share and shares of common stock would retain their current voting rights and would be identical in all other respects to the shares of common stock currently authorized. The reverse stock split would affect all holders of our common stock uniformly and would not affect any stockholder’s percentage ownership interest in the Company, except that, as described below under “Fractional Shares,” holders of common stock otherwise entitled to a fractional share as a result of the reverse stock split would receive cash in lieu of such fractional share. In addition, the reverse stock split would not affect any stockholder’s proportionate voting power (subject to the treatment of fractional shares). After the reverse stock split, each share of common stock would continue to entitle its holder to one vote on all matters submitted to a vote of stockholders.

After the effective time of the reverse stock split, our common stock would be assigned a new Committee on Uniform Securities Identification Procedures (CUSIP) number, which is a number used to identify our equity securities. After the reverse stock split, we would continue to be subject to the periodic reporting and other requirements of the Exchange Act.

Fractional Shares

No scrip or fractional shares will be issued in connection with the Reverse Stock Split. Stockholders of record and stockholders who hold their shares through a bank, broker, custodian or other nominee who would otherwise hold fractional shares of our common stock as a result of the reverse stock split will be entitled to receive cash (without interest and subject to applicable withholding taxes) in lieu of such fractional shares. Each such stockholder will be entitled to receive an amount in cash equal to the fraction of one share to which such stockholder would otherwise be entitled multiplied by the closing price per share of common stock on the Nasdaq at the close of business on the trading day preceding the date of the effective time of the reverse stock split.

Stockholders should be aware that, under the escheat laws of the various jurisdictions where stockholders reside, where we are domiciled and where the funds will be deposited, sums due for fractional interests resulting from the reverse stock split that are not timely claimed after the effective time of the reverse stock split in accordance with applicable law may be required to be paid to the designated agent for each such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.

Options and Warrants

When the reverse stock split becomes effective, the number of shares of common stock covered by such options and warrants will be reduced to one-twentieth of the number currently covered, and the exercise or conversion price per share will be increased to twenty times the current exercise or conversion price, resulting in the same aggregate price being required to be paid therefor upon exercise or conversion thereof as was required immediately preceding the reverse stock split.

In addition, the number of shares of common stock and number of shares of common stock subject to stock options or similar rights authorized under the Company’s equity incentive plan a will automatically be proportionately adjusted for the reverse stock split ratio, such that fewer shares will be subject to such plans.

Effect on Dividends

The payment of dividends, including the timing and amount dividends, must be made in accordance with our Certificate of Formation and the requirements of the Texas Business Organizations Code. We cannot assure you that any dividends will be paid in the future on the shares of common stock. Any declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory future prospects and contractual restrictions applicable to the payment of dividends, and other considerations that our Board of Directors deems relevant. To the extent that the Board of Directors declares any dividend in the future, we would expect the current amount of the dividend to be proportionately adjusted to reflect the reverse stock split. The Board of Directors’ current expectation is to maintain the current dividend rate through 2021, as adjusted proportionately to give effect to the reverse stock split, if approved by our stockholders.

Interest of Certain Persons in the Proposal

The Company’s officers, directors and 5% stockholders have an interest in this proposal as a result of their ownership of shares of our common stock. We do not believe that our officers, directors or 5% stockholders have interests in the reverse stock split that are different from or greater than those of any other stockholder of the Company.

Effective Time of the Reverse Stock Split

If approved by our stockholders, the reverse stock split would become effective, if at all, when a Certificate of Amendment to our Certificate of Formation is accepted and recorded by the office of the Secretary of State of the State of Texas and after giving the required notice to Nasdaq of the anticipated effective date of the reverse stock split. However, notwithstanding approval of the reverse stock split by our stockholders, the Board of Directors will have the sole authority to elect whether or not and when to amend our Certificate of Formation to effect the reverse stock split.

Effect on “Street Name” Holders

For purposes of implementing the reverse stock split, we intend to treat shares held by stockholders through a bank, broker, custodian or other nominee in the same manner as stockholders whose shares are registered in their names. Banks, brokers, custodians or other nominees will be instructed to effect the reverse stock split for their beneficial holders holding our common stock in street name. However, these banks, brokers, custodians or other nominees may have different procedures for processing the reverse stock split. Stockholders who hold shares of our common stock with a bank, broker, custodian or other nominee and who have any questions in this regard are encouraged to contact their banks, brokers, custodians or other nominees.

Registered “Book-Entry” Holders

Certain of our registered holders of common may hold some or all of their shares electronically in book-entry form with our transfer agent. These stockholders do not have stock certificates evidencing their ownership of common stock. They are, however, provided with a periodic statement reflecting the number of shares registered in their accounts.

Stockholders who hold shares electronically in book-entry form with our transfer agent will not need to take further action to receive whole shares of post-reverse stock split common stock, because the exchange will be automatic.

Exchange of Stock Certificates

If any of your shares of common stock are held in certificate form, you will receive a letter of transmittal from the Company’s transfer agent as soon as practicable after the effective date of the reverse stock split. The letter of transmittal will be accompanied by instructions specifying how you can exchange your certificate representing the pre-reverse stock split shares of common stock for a statement of holding, together with any payment of cash in lieu of fractional shares to which you are entitled. When you submit your certificate representing the pre-reverse stock split shares of common stock, your post-reverse stock split shares of common stock will be held electronically in book-entry form. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-reverse stock split shares of common stock you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-reverse stock split ownership interest.

Beginning on the effective date of the reverse stock split, each certificate representing pre-reverse stock split shares will be deemed for all corporate purposes to evidence ownership of post-reverse stock split shares.

STOCKHOLDERS SHOULD NOT DESTROY ANY SHARE CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.

No Appraisal Rights

Stockholders do not have any appraisal or dissenters’ rights under Texas law or under our Certificate of Formation in connection with the reverse stock split.

Accounting Treatment of the Reverse Share Split

If effected, the reverse stock split will not affect the par value per share of our common stock, which will remain at par value $0.001 per share. Accordingly, as of the effective time of the reverse stock split, the stated capital attributable to common stock and the additional paid-in capital account on our balance sheet will not change due to the reverse stock split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding. Our stockholders’ equity, in the aggregate, will remain unchanged.

In future financial statements, net income or loss per share and other per share amounts for periods ending before the reverse stock split would be recast to give retroactive effect to the reverse stock split. The Company does not anticipate that any other accounting consequences would arise as a result of the reverse stock split.

Material U.S. Federal Income Tax Consequences of the Reverse Stock Split

The following discussion is a summary of the material U.S. federal income tax consequences of the proposed reverse stock split to U.S. Holders (as defined below) of our common stock. This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”), in each case in effect as of the date of this proxy statement. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a U.S. Holder. We have not sought and will not seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a contrary position to that discussed below regarding the tax consequences of the proposed reverse stock split.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our common stock that, for U.S. federal income tax purposes, is:

This discussion is limited to U.S. Holders who hold our common stock as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of a U.S. Holder, including the impact of the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to U.S. Holders that are subject to special rules, including, without limitation: (i) financial institutions; (ii) insurance companies; (iii) real estate investment trusts; (iv) regulated investment companies; (v) grantor trusts; (vi) tax-exempt organizations; (vii) dealers or traders in securities or currencies; (viii) U.S. Holders who hold common stock as part of a position in a straddle or as part of a hedging, conversion or integrated transaction for U.S. federal income tax purposes; or (ix) U.S. Holders who have a functional currency other than the U.S. dollar.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Accordingly, partnerships (and other entities treated as partnerships for U.S. federal income tax purposes) holding our common stock and the partners in such entities should consult their own tax advisors regarding the U.S. federal income tax consequences of the proposed reverse stock split to them.

In addition, the following discussion does not address the U.S. federal estate and gift tax, alternative minimum tax, or state, local and non-U.S. tax consequences of the proposed reverse stock split. Furthermore, the following discussion does not address any tax consequences of transactions effectuated before, after or at the same time as the proposed reverse stock split, whether or not they are in connection with the proposed reverse stock split.

STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE PROPOSED REVERSE STOCK SPLIT ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.

The proposed reverse stock split is intended to be treated as a “recapitalization” for U.S. federal income tax purposes pursuant to Section 368(a)(1)(E) of the Code. As a result, a U.S. Holder generally should not recognize gain or loss upon the proposed reverse stock split for U.S. federal income tax purposes, except with respect to cash received in lieu of a fractional share of our common stock, as discussed below. A U.S. Holder’s aggregate adjusted tax basis in the shares of our common stock received pursuant to the proposed reverse stock split should equal the aggregate adjusted tax basis of the shares of our common stock surrendered (reduced by the amount of such basis that is allocated to any fractional share of our common stock). The U.S. Holder’s holding period in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. U.S. Holders of shares of our common stock who acquired such shares on different dates or at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.

A U.S. Holder who, pursuant to the proposed reverse stock split, receives cash in lieu of a fractional share of our common stock should recognize capital gain or loss in an amount equal to the difference, if any, between the amount of cash received and the portion of the U.S. Holder’s aggregate adjusted tax basis in the shares of our common stock surrendered that is allocated to such fractional share. Such capital gain or loss will be short term if the pre-reverse-stock-split shares were held for one year or less at the effective time of the reverse stock split and long term if held for more than one year. No gain or loss will be recognized by us as a result of the proposed reverse stock split.

Payments of cash made in lieu of a fractional share of our common stock may, under certain circumstances, be subject to information reporting and backup withholding. To avoid backup withholding, each holder of our common stock who does not otherwise establish an exemption should furnish its taxpayer identification number and comply with the applicable certification procedures.

Backup withholding is not an additional tax and amounts withheld will be allowed as a credit against the holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS. Holders of our common stock should consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.

Vote Required for Approval

Pursuant to our Certificate of Formation and Section 21.364 of the Texas Business Organizations Code, approval of Proposal Three requires the affirmative vote of the holders of at least a majority of the outstanding shares of common stock entitled to vote at the annual meeting.

Recommendation of the Board of Directors

The Board of Directors recommends a vote “FOR” THE REVERSE STOCK SPLIT OF THE COMPANY’S COMMON STOCK AND AMENDMENT OF THE CERTIFICATE OF FORMATION TO EFFECT THE REVERSE STOCK SPLIT AT A RATIO OF 1-FOR-20