DEF: Cheetah Net Seeks Reverse Split, $200M Convertible Note Approval

Cheetah Net Supply Chain Service Inc. proposes a reverse stock split and a potentially dilutive $200 million convertible note issuance at its 2025 Annual Meeting.

Summary

• Stockholders will vote on six proposals at the virtual Annual Meeting on November 7, 2025, including the election of five directors and the ratification of Assentsure PAC as the independent auditor for fiscal year 2025.
• A key proposal is the approval of a reverse stock split of common stock at a ratio between one-for-five to one-for-twenty, at the Board's discretion.
• Stockholders are also asked to approve the potential issuance of over 20% of outstanding common stock upon conversion of certain convertible notes, which may occur at a price less than the Nasdaq minimum price.
• The company has a term sheet with ATW Partners Opportunities Management, LLC for up to $200 million in convertible promissory notes, bearing 9% interest.
• The Board of Directors held no meetings during fiscal year 2024, and neither the Compensation Committee nor the Nominating and Corporate Governance Committee held any meetings in the same period.
• Cindy Tang was appointed Chief Financial Officer in February 2025, following the resignation of Robert Cook in August 2024 and Walter Folker as VP of Procurement in October 2024.
• The company repaid $13,423 to CEO Huan Liu for working capital in fiscal 2024, fully settling the outstanding balance.
• A new operating lease for office space commenced on July 23, 2024, with monthly base rent ranging from $42,000 to $45,000, guaranteed by a company 100% owned by CEO Huan Liu.

Sentiment

Score: 3

Explanation: The proposals for a reverse stock split and a highly dilutive convertible note issuance, coupled with significant corporate governance deficiencies (no board or key committee meetings in 2024), indicate substantial underlying challenges and risks for shareholders. These factors suggest a high risk of further value erosion and indicate a company in distress.

Positives

• The company maintains a commitment to sound corporate governance principles, including annual elections, a Code of Ethics, anonymous reporting, an insider trading policy, and a clawback policy.
• The Audit Committee is composed of three independent directors and held three meetings in fiscal 2024, with one member identified as an audit committee financial expert.
• The company fully settled a $13,423 related party debt to CEO Huan Liu in fiscal 2024.
• The Board recommends voting FOR all proposed items, indicating unified management support for the strategic direction.

Negatives

• The proposal for a reverse stock split (1-for-5 to 1-for-20) often indicates a struggle to maintain Nasdaq's minimum bid price requirement and can be viewed negatively by investors.
• The proposal to issue over 20% of outstanding common stock at a price less than the Nasdaq minimum price for convertible notes could lead to significant dilution for existing shareholders.
• The Board of Directors held no meetings during fiscal year 2024, which is a significant corporate governance concern.
• The Compensation Committee and Nominating and Corporate Governance Committee also held no meetings during fiscal year 2024, raising questions about oversight and strategic planning.
• The CEO also serves as Chairman of the Board, and there is no lead independent director, which is often considered less optimal for corporate governance.
• Two executive officers, Robert Cook (CFO) and Walter Folker (VP of Procurement), resigned in 2024, indicating potential instability in key management roles.

Risks

• The reverse stock split may not increase the market price of Class A Common Stock proportionally or maintain it, potentially leading to a decrease in overall market capitalization.
• A reverse stock split could reduce trading volume and the number of market makers for Class A Common Stock, decreasing liquidity.
• Stockholders owning fewer than 100 shares after a reverse stock split may incur higher trading costs for odd lot transactions.
• Failure to maintain Nasdaq's minimum bid price requirement after a reverse stock split could lead to delisting, adversely affecting liquidity and future capital raising ability.
• The potential issuance of shares for convertible notes could result in significant dilution of existing stockholders' ownership and voting power.
• The convertible note terms could lead to a change of control if the lender acquires 20% or more of the outstanding equity or voting power and becomes the largest owner.
• Material weaknesses in internal controls were previously reported by management in a registration statement on Form S-3, indicating ongoing financial reporting risks.

Future Outlook

The Board intends to effect the proposed reverse stock split if approved by stockholders, aiming to increase the market price of Class A Common Stock and maintain Nasdaq listing. The company also intends to implement additional corporate governance principles in the future, including developing executive compensation policies, enhancing public disclosure, and improving stockholder communication. The company may require significant proceeds from sales of debt or equity securities to fund operations in the near term.

Management Comments

• "We are committed to applying sound corporate governance principles. We believe sound governance practices are in the best interests of our stockholders and strengthen accountability within our organization."
• "The Board recommends that you vote FOR the election of each of the director nominees included in Proposal No. 1 and FOR Proposal Nos. 2, 3, 4, and 5."
• "Mr. Liu's leadership of the Company in this dual role is appropriate for the Company at this time because his involvement with the Company's operations and business strategy provide the main focus for the Board."

Industry Context

The proposals for a reverse stock split and a potentially highly dilutive convertible note issuance suggest that Cheetah Net Supply Chain Service Inc. may be facing challenges in maintaining its stock price and securing traditional financing, which can be common for smaller public companies in competitive or capital-intensive industries. The need for capital, as indicated by the $200 million convertible note, points to potential growth initiatives or operational funding requirements within the supply chain sector.

Comparison to Industry Standards

• The company's 60% board independence (3 out of 5 directors) meets Nasdaq's majority independence requirement, but is not at the higher end of best practices seen in larger, more established companies.
• The 100% committee independence for Audit, Compensation, and Nominating committees aligns with best practices and Nasdaq requirements.
• The presence of one financial expert on the Audit Committee meets SEC and Nasdaq minimum requirements, but some larger companies may have more.
• The Board's gender diversity of 20% female (1 out of 5 nominees) is a step towards diversity but lags behind leading industry benchmarks and evolving expectations for board composition.
• The fact that the Board of Directors, Compensation Committee, and Nominating and Corporate Governance Committee held no meetings in fiscal 2024 is highly unusual and falls significantly below any acceptable corporate governance standard, raising serious concerns about oversight and strategic direction.
• The dual role of CEO and Chairman without a designated lead independent director is often viewed as less optimal governance compared to companies that separate these roles or appoint a strong lead independent director to provide independent oversight.

Management Changes

Corporate Governance

Related Party Transactions

• Repaid $13,423 to Mr. Huan Liu, Chief Executive Officer and Chairman of the Board, for working capital purposes during fiscal 2024, fully settling the outstanding balance. These payables were unsecured, non-interest bearing, and due on demand.
• Entered into a non-cancellable operating lease for office space in Irvine, California, commencing July 23, 2024, with monthly base rent ranging from $42,000 to $45,000. The lease is guaranteed by West Buy Media Inc. (now Pacific Storage Holdings Inc.), a Nevada Corporation 100% owned by Mr. Liu.

Stakeholder Impact

• Shareholders: Face potential significant dilution from the convertible note issuance and potential negative market perception and reduced liquidity from the reverse stock split. They will also vote on key corporate governance matters.
• Employees: Subject to executive compensation policies, a 401(k) plan, and potential impacts from management changes.
• Creditors: The company may issue up to $200 million in convertible promissory notes with a 9% interest rate, affecting the company's debt structure.
• Management: Subject to new clawback policies and changes in executive roles, with the CEO maintaining a dual role as Chairman.

Next Steps

• Stockholders are to vote on the proposals at the Annual Meeting on November 7, 2025.
• If the Reverse Stock Split Proposal is approved, the Board will determine the specific ratio (between one-for-five to one-for-twenty) and effect the reverse stock split.
• The company intends to implement additional corporate governance principles, including developing executive compensation policies, enhancing public disclosure, and improving stockholder communication.
• Voting results will be reported in a Current Report on Form 8-K within four business days of the Annual Meeting.
• The Audit Committee will consider stockholder input if the ratification of Assentsure as the independent auditor is not approved.

Key Dates

Recommendation

The combination of a proposed reverse stock split, a highly dilutive $200 million convertible note issuance at potentially discounted prices, and severe corporate governance deficiencies (no board or key committee meetings in 2024) points to a company in significant distress. These factors suggest a high probability of further share price erosion, increased financial risk, and a lack of effective oversight, making the stock a strong sell for seasoned investors.

Keywords

Reverse Stock Split, Convertible Notes, Stock Dilution, Nasdaq Listing Rules, Corporate Governance, Annual Meeting, Director Election, Auditor Ratification, Capital Raise, SEC Filing, Proxy Statement, Supply Chain Service