Two 59%+ winners, four above 25% in Aug – How this AI model keeps picking winners
Investing.com -- Shares of Red Cat Holdings Inc (NASDAQ:RCAT) plunged 11.7% on Friday after short-selling firm Fuzzy Panda Research published a scathing report raising serious concerns about the company’s operational capabilities and recent military contracts.
The report alleges that the drone manufacturer is grappling with substantial production challenges, citing issues such as hand-assembled drones, high failure rates, and manufacturing bottlenecks. According to Fuzzy Panda, former employees revealed that Red Cat’s drones experienced a 60% failure rate upon initial testing.
In addition to quality control problems, the report points to key departures from the engineering team, including the company’s Chief Technology Officer, Director of Software, and Head of Manufacturing. Fuzzy Panda contends that Red Cat currently lacks critical technical personnel needed to scale up its production operations.
Further raising investor concern, the firm claims that Red Cat’s Low-Rate Initial Production (LRIP) contract with the U.S. Army was significantly smaller than what CEO Jeff Thompson had previously indicated. Specifically, Fuzzy Panda says the contract, signed for 690 drone systems, was 46% below the figure communicated to shareholders.
The report also accuses Red Cat of engaging in questionable financial practices, including the use of paid stock promotions and issuing so-called "toxic death spiral convertible notes"—a type of financing often criticized for its dilutive impact on shareholders.
In a broader industry comparison, the short seller questioned Red Cat’s position relative to rival drone maker Skydio, which it claims has already delivered hundreds of drones under the same Army program that Red Cat is now entering.
As of Friday, Red Cat has not publicly responded to the allegations outlined in the Fuzzy Panda report. The company recently disclosed its LRIP contract with the Army and posted quarterly earnings that missed analysts’ expectations on both earnings per share and revenue.