FuzzyPanda accused Red Cat of engaging in paid stock promotions and claimed CEO Jeff Thompson prematurely announced winning the Army’s SRR Tranche 2 program.
Shares of Red Cat Holdings (RCAT) plunged as much as 14% in morning trade after short seller FuzzyPanda accused the company of engaging in paid stock promotions, adding “that the best time to short a paid stock promotion is when it finally has to deliver results.”
FuzzyPanda alleged that Red Cat, which went public through a reverse merger, has participated in paid stock promotions and that CEO Jeff Thompson “prematurely” announced in November that the company had secured the Army’s Short Range Reconnaissance Tranche 2 (SSR T2) program.
“Then Red Cat did what every great American Manufacturer does to celebrate … it issued toxic death spiral convertible notes,” the report said, adding that this led to key senior engineers cashing out and quitting the company.
On Stocktwits, retail sentiment around the drone maker was in ‘extremely bullish’ territory, up from ‘neutral’ a day ago. Chatter also increased to ‘high’ from ‘low’ levels over the past day.
FuzzyPanda claimed that the Low-Rate Initial Production (LRIP) starter contract announced on Thursday covered only 690 drone systems—about 46% fewer than the company had projected to investors in February.
“Jeff also keeps telling investors the Army revenue is guaranteed and that the entire Army SRR T2 budget will go to Red Cat. But Jeff is obscuring that the Army is not monogamous. The Army SRR T2 program is actually NOT sole sourced,” the report said. FuzzyPanda claimed its research found that Skydio, Red Cat’s main competitor, delivered “hundreds” of SRR T2 drones to the Army in May, leaving less than $10 million in the Army’s budget for Q3 2025.
The short seller said Pentagon officials indicated Red Cat’s LRIP award is only an initial step, with full-rate production contingent on whether or not the company can prove itself. Officials also told FuzzyPanda that the doubts around Red Cat’s ability to scale production were one of the reasons why it took the company eight months to secure its LRIP.
The short seller also spoke to employees, who said that likely manufacturing problems include high initial failure rates, testing bottlenecks, and that the Red Cat Drones are made by hand.
Red Cat’s stock has fallen nearly 35% this year, but gained more than 200% over the past 12 months.
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