• NOT Sole Sourced – Army Already Buying Drones from Red Cat Competitor  
• CTO & Top Engineers Bailed 
• Military Officials Revealed “Concerns About RCAT’s Ability to Deliver” 
• Drone Production Issues; High Failure Rate; Manual Testing; Hand Assembled
• Paid Stock Promotions & Death Spiral Financing

Red Cat (RCAT) is a reverse-merger drone company that has engaged in recent paid stock promotions. We are short Red Cat because we believe that the best time to short a paid stock promotion is when it finally has to deliver results.

CEO Jeff Thompson prematurely announced Red Cat had won the Army’s SRR Tranche 2 program in November (for which it finally announced a contract yesterday). Then Red Cat did what every great American Manufacturer does to celebrate … it issued toxic death spiral convertible notes.

Key senior engineers celebrated in a similarly strange way … they cashed out and quit the company.

And when Thompson finally announced on Thursday that Red Cat had signed its Low-Rate Initial Production (LRIP) starter contract, it turned out to be for 690 drone systems — 46% smaller than what Jeff promised to investors back in February 2025. But as we learned in our research, Thompson, whose last company is now worth zero, tells investors a lot of tall tales. Jeff is like any guy with a premature press release problem — he habitually over inflates the size (of contracts).

Jeff also keeps telling investors the Army revenue is guaranteed and that the entire Army SRR T2 budget will go to Red Cat ($21m in FY 2025 and $148.8m in FY 2026). But Jeff is obscuring that the Army is not monogamous. The Army SRR T2 program is actually NOT sole sourced.

Red Cat Competitor Skydio Already Delivered for Army SRR Tranche 2: We uncovered Red Cat’s main competitor, Skydio, delivered SRR T2 drones “in the hundreds” to the Army in May, according to senior Skydio employees. We estimate that leaves about <$10 million in the Army’s budget for Q3-2025.

Pentagon officials told us that Red Cat’s LRIP is only the first step, and that it still has to prove itself before getting a full-rate production deal. And that is far from a sure thing: Defense officials told us it took >8 months for Red Cat to secure its LRIP because of Army doubts about its ability to scale production.

LRIP is “basically a dress rehearsal … LRIP doesn’t guarantee full-rate production.” 

~ Retired Army Colonel & Contracting Officer

Like the Army, we too have serious doubts about Red Cat’s ability to deliver on the LRIP. Former Red Cat employees told us likely manufacturing problems include:

• High initial failure rate – historically 60% of drones failed to initially work
• Testing bottlenecks – Every drone test takes 30 min & requires clear weather
• Red Cat Drones are made by hand.

We toured the Teal factory ourselves and saw the issues first hand.

Another major problem is that key engineers quit Red Cat (CTO, Director of Software, Head of Manufacturing). They have been leaving every month, and many key senior engineering positions have been vacant for months.

It’s not only Red Cat’s engineers who have left — Red Cat is on its 3rd CFO in < 2 years. Red Cat’s previous auditor, BF Borgers, was accused by the SEC of “massive fraud” and “selling fraudulent audits.” Red Cat only switched to a little known auditor, dbbmckennon, 3 weeks AFTER Borgers agreed to be permanently barred in May 2024.

We also uncovered Jeff Thompson’s hidden connections to individuals who the SEC charged for running “pump-and-dump schemes” and called “microcap fraudsters.”

Drone industry insiders and former military officers even described Red Cat’s decision to announce it won the Army’s SRR Tranche 2 program before getting a signed a contract as looking like “a pump-and-dump.”  

“The announcement [of the Army program] was super premature and aimed at driving a reaction in the market for Red Cat …  the SRR T2 [Nov Announcement] was basically a pump and dump for Teal.”    

~ Former Army officer & Senior Drone Industry Executive 

Red Cat’s initial contract was ~50% lower than promised. We believe the actual economics will also be way worse than promised. We are short Red Cat because we believe the best time to short a paid stock promotion is when it is finally forced to deliver.  

Fuzzy Panda Research is Short Red Cat (RCAT)  

Fuzzy Panda Research and Fuzzy Panda “Affiliates” are short securities of Red Cat (RCAT).  Please see additional disclosures at the end of report and in our terms of service. 

PART I – Beware the LRIP – Short Red Cat

Army Program Not Sole Source; Red Cat Still a Long Way from Full Production

• LRIPs Reality – Almost Always Include Design & Manufacturing Changes 
• Army Wants Multiple Suppliers for SRR Tranche 2
• Same Controller and Interchangeable Drones

“LRIP is to prove out the production process … it is not the final step, which would be full rate production.”   

~ Former Assistant Defense Secretary A

Beware of LRIP hype – it’s NOT a big-money, full-rate production deal. It is a preliminary stage where a contractor tries to prove to the Pentagon it can produce. LRIP = Low Rate Initial Production … aka low volume and high oversight. LRIP leads to design and manufacturing changes while the Pentagon: 

• Validates production lines work and meet quality standards. 
• Does field testing with troops before mass production. 
• Catches design or manufacturing flaws. 

In plain English, LRIP does NOT guarantee full-rate production.  

Former Pentagon officials told us that a first-time contractor like Red Cat needs to excel at the LRIP to get a full-rate production deal because it’s a new, unproven supplier. That’s especially true because the Pentagon can buy similar drones from proven competitors, like Skydio.

The Army Wants Many SRR Suppliers, Not Just Red Cat 

“There are so many competitors in this quadcopter market space that the Army doesn’t want to commit to anybody in particular. They want to keep their options open.” 

~ Former Assistant Defense Secretary A

Ignore Jeff Thompson’s talk about how Red Cat/Teal won a “sole source” deal. The Army plans to refresh the SRR drones every 2-3 years, officials told us. And the Army has said it wants as many suppliers and as much competition as possible for the SRR program. 

Army Says SRR T2 Will Fully Include Skydio

“Both Skydio and Teal will support Army Transforming in Contact brigades”

“Multi-vendor awards and continuous competition ensures we can field the most capable and cost effective UAS, at scale, that aligns with Soldier needs.” 

~ Army press release, June 10 

Congressional officials who oversee defense spending also told us the Pentagon is looking to use programs like SRR to spur private companies to make military drones. It wants lots of suppliers, like it has for ammunition, multiple officials and experts told us. 

“I don’t think that the Army wants to go in with one specific vendor” 

~ Congressional staffer who oversees defense spending 

Army Wants Interchangeable Drones & Controllers

The officials told us they want SRR drones to be interchangeable so the Army can buy from Skydio or Red Cat or Anduril or whoever. For example, they want them all to use the same controller.  

They’re looking at … a common controller architecture where if Teal or Anduril builds a drone, the infantry soldier doesn’t have to figure out a unique controller”

~ Congressional staffer who oversees defense spending 

PART II – Skydio Delivers – Short Red Cat  

Competitor Skydio Has Already Delivered For Army SRR Tranche 2

• Skydio = Army SRR T2 Drones Delivered 
• Skydio Delivered “Hundreds” of Drones Within 5 Days 

Skydio announced in May 2025 that it had delivered drones supplied to the Army under the SRR program Tranche 2. A senior Skydio executive told us that for the SRR Tranche 2 contract that Skydio had already supplied the Army with drones “in the hundreds.” 

“When the Army contracted Skydio to fill this urgent need, we shipped systems within 5 days”  

~ Skydio CEO & Founder Adam Bry in May 5 press release 

We learned on Thursday’s earnings call that Red Cat is finally supposed to start SRR deliveries later this month. Jeff Thompson can spin that as a positive all he wants, but what we see is a company that has struggled to get its drones off the ground while its competition soars.

 

Skydio had previously supplied Tranche 1 of the SRR program, and Red Cat had been claiming that SRR Tranche 2 was going to be sole-sourced and only purchased from Red Cat. This is clearly false.

Drone Wars: Skydio Soars; Red Cat Death Spirals

 

Skydio, NOT Red Cat, Making NATO Deals 

Jeff Thompson keeps promising that Red Cat is going to make big NATO deals – he’s said it at a Red Cat town hall last year, and in an interview with Alpha Wolf Trading and at other events.  

He did it again on Thursday’s earnings call, saying, ““we’ve had some great fly offs in Europe.”

What he did not say was that Red Cat had secured any NATO deals.

But Skydio has been announcing European deals all year:

• Skydio said in July that it was now providing drones to 15 NATO members.     
• Skydio announced a deal to supply drones to Norway’s Defense Ministry in July.  
• Skydio said it won a deal to supply drones to Spain’s defense ministry in February.    
• Skydio said in June it had opened a European R&D office in Finland.     

PART III – Where Did Red Cat’s Top Engineers Go? – Short Red Cat  

Red Cat’s Top Engineers Flew Away to Competitors – Cited Red Cat’s Old Tech 

• Suing Former CTO For Leaving = Act of Desperation
• Key Engineering Positions Left Vacant

Jeff Thompson prematurely announcing the Army award resulted in a brain drain. Red Cat tied key engineers’ vesting and compensation to the “announcement” of winning the SRR program, and the premature press release made George Matus, Teal’s founder and former CTO, an overnight multi-millionaire. So George sold and jumped ship. He knew the hardest parts were yet to come, so he bailed. Good work George. 

Key Engineers Left – Red Cat’s Technology is Old

A Senior person at Vector, the company where George Matus landed, told us George left Red Cat because it is working with old technology.

“George left because the Black Widow drone was a design that was 5 years old, so it’d essentially be 7 year old technology by the time it got delivered. George knew there was better technology out there.”

~Senior Vector Employee  

Red Cat’s Chief Revenue Officer actually says the same thing about their own drone. “to meet the 4 year old spec, it’s archaic technology”

George isn’t the only Red Cat/Teal engineer who went to Vector. A senior executive there told us that Red Cat’s best engineers had proactively reached out to them. On LinkedIn, we found that multiple other key Red Cat/Teal engineers followed George Matus to Vector, including:

• Director of Software Engineering,  
• VP of Manufacturing 
• Other Senior Mechanical & Design Engineers.  

Engineers are logical, they vote with their feet. We think the brain drain is another sign of the difficulties Red Cat has been having ramping up production. 

Engineers Are Leaving so Red Cat is Suing – An Act of Desperation

On August 4^th, 2025, Red Cat filed a lawsuit against former CTO and Teal Drones founder, George Matus. The complaint basically acknowledged Red Cat’s desperation, saying that 12 engineers have left so far and that Teal’s talent losses have been hard to replace.

If a company’s entire advantage are confidential trade secrets and manufacturing processes then they should incentivize the developers of those trade secrets to stay. Instead, Red Cat did the exact opposite. The inventor of most of Teal’s tech and keeper of it’s proprietary methods literally was able to sell all his stock at a peak and the company congratulated him as he walked out the door.  

Key Engineering Positions Still Left Vacant:

It’s no wonder Red Cat sued Vector. Red Cat is currently lacking the engineering talent to deliver on scaling up production. Once the key engineers bolted to a competitor it left Red Cat actively trying to hire for many key positions.

Key Jobs that are vacant at Red Cat include

• Director of Manufacturing, Director of Software Engineering, and a Director of Mechanical Engineering.  VP of Operations

PART IV – Hand-Assembled Drones Don’t Always Work – Short Red Cat  

Red Cat Production Challenges – Drones Assembled by Hand; High Failure Rates; Slow Testing 

• Formers Disclose – High Failure Rate: Only 40% of Drones Initially Worked   
• Flight Testing = Large Bottleneck – Each Drone Test Takes 30 mins or More   
• Each Drone is Screwed Together by Hand   
• We Toured Red Cat’s Factory & Left Doubting Its Ability to Deliver   

Since 2023, RCAT has invested virtually nothing in Capex, only $1.9 million. We toured Red Cat’s Teal Drones facility in person and it showed. There’s no sleek, fully automated production line spitting out quadcopters – its own promotional videos show you what we saw: individual workers screwing drones together, by hand!

We spoke with multiple former Red Cat engineers and toured Red Cat’s factory, and we believe the company faces serious obstacles to scaling its production.      

Production Issues – Teal’s High Initial Failure Rate = 60%!

We spoke to former Teal Drone engineers and learned that on the last program they tried to scale production that Teal Drones had a 60% initial failure rate.  

The former Teal senior engineers told us that “First pass yield was 40%, where you take it off the line and the thing works” they also said that “10% had to be scrapped entirely.”  

Primary issues that this senior engineer pointed out were:  

• Sensors not having quality calibrations and parts not getting soldered down properly  
• Slow at making repairs – Broken drones – would sit on the shelf and wait for an engineer since they didn’t have a repair technician 
• After additional calibrations on the 60% that didn’t work Teal was able to get the yield up to 70%.

These issues were regarding the scale up of the Teal 2 drone which the Black Widow is the upgraded successor to.

Management “can sell the world, but I don’t know if they can execute what they sell”   

~ Former Red Cat Executive & Engineer

Production Bottleneck = Manual Flight Testing that Requires Clear Skies 

Teal Drones is based in Salt Lake City, Utah. A city better known for it’s deep powder and great skiing, NOT the number of clear sunny days. Unfortunately for Red Cat’s dreams of mass production their drone testing process requires drone tests to be done only during day light hours and when the weather is good. 

We spoke to several former Red Cat/Teal Drone employees who all told us that a major bottleneck in the production process is their drone testing process. They cited many issues with the testing process and explained how every drone has to be flight tested individually by a human outdoors in a nearby field.  

Drone Testing Issues Included: 

• Time Consuming – Each manual test take ~30 minutes  
• Weather Problems – Testing only occurs during day light hours and when the weather is good.   
• Pairing Issues – Complaints about it being time consuming to pair a drone to a receiver, walk out to a field, need to get a gps signal, download the flight logs. 

Compare this to Red Cat’s Chinese competitor DJI who has been able to automate its flight testing through significant investment.  

Factory Tour That Took Less Than 15 Minutes.   

Spoiler Alert: No Robots in Sight – Drones Being Screwed Together by Actual Human Hands  

We did a surprise visit of the Teal Drones facility in South Salt Lake, Utah. Despite showing up unannounced the Teal staff couldn’t have been nicer and offered to take us on a tour. They showed us around the factory and even offered us snacks. Unfortunately, we couldn’t take photos to show you the inside since our tour guide requested we didn’t but what we saw is the same thing you can see in Teal’s own promotional videos.   

• The facility is 2 large clean warehouses with racks of drone parts lying around. 
• Manufacturing appeared to be mostly done by hand with assembly stations filled with screwdrivers and soldering equipment.  
• Engineers working in cubicles in ½ of the facility on one side while on the other side stations for drones to be assembled by hand.   
• Noticeably absent was any automated assembly or robotic testing.  

Former employees told us a significant part of the assembly process for each drone is done by hand and that drone testing is done manually in a field nearby.

Bottom Line: Nice folks working at a nice warehouse. No robotic assembly lines, and nothing like the vast automated warehouses that pump out tens of thousands of DJI drones a month in China. 

Automating the Factory Would Cost Est >$50 million

In the August 14^th townhall management finally disclosed the cost of automating their own production lines. Management announced they were applying for loans of nearly $50 million from the DoD’s Office of Strategic Capital in order to accelerate the automation of their facilities.

PART V – Red Cat’s Money Losing Economics – Short Red Cat  

Even Best Case Scenarios Leave Red Cat Deep in the Red – Big Losses

The large potential revenue numbers thrown around by Jeff Thompson mask an ugly reality. We estimate that Red Cat will still sustain heavy operating losses this year and next. We are being extremely generous in our assumptions by holding SG&A, R&D, and Marketing fixed at current annualized figures without accounting for the incremental costs that come with scaling production.

In the best case scenario we estimate that Red Cat gets about half the 2,290 systems the Army is initially budgeting for (see FY 2026 budget request here). And even then it loses $26.6 million.

Competitors who have reached scale production, such as Skydio and Aerovironment, see gross margins in the 35-40% range. But they have developed their own software.

Since the Army has already tapped Skydio for SRR T2 drones, and has publicly stated it wants multiple vendors for SRR, we don’t believe RCAT will see more than 50% of the funding that’s been budgeted for FY2026.

Bullish Case = 50-50 Split with Skydio; Gross Margins similar to Skydio & AVAV

Base Case = 67-33 Split with Skydio; Gross Margins w/out software

Worst Case = An LRIP Trip

We generously included low operating expenses based on Q2 R&D, Marketing, and SG&A which is improbable because to scale manufacturing of drones made by hand you will obviously need a lot more people.

Why aren’t we including lots of cross-selling? The Black Widow drone was developed based on old specs specially for the Army, so military experts we spoke with did not foresee significant opportunities for cross selling the drones to other government agencies. The Army has said it plans to refresh the suppliers every 2-3 years.

PART VI – Army Concerned Red Cat Can’t Deliver – Short Red Cat

Army Contract Hold-up was Due to Concerns About Red Cat’s Ability to Deliver

• Former Defense Officials said Contract Delay Indicated Army’s “Lack of Confidence” 

We spoke with a former Cabinet secretary, two former Assistant Defense Secretaries, a retired member of the Joint Chiefs of Staff, retired generals and colonels, multiple former senior defense officials and former Red Cat engineers and executives. They told us the Army is concerned whether Red Cat can reliably deliver hundreds or thousands of working drones at a time. 

“There have been a lot of hurdles to clear. Price is high and Teal doesn’t have experience … can they pump out drones? The Army doesn’t know … it’s holding things up.”  

~ Retired Army Colonel & Contracting Officer

Getting more drones is a top Pentagon priority. The nine-month delay in nailing down Red Cat’s LRIP for such an important program – and a relatively inexpensive one by Pentagon standards – is “extremely unusual,” the former officials and experts said. 

The Army SRR Tranche 2 is not a complex procurement program that takes years, like a new fighter jet or main battle tank. Getting a LRIP should have happened within weeks of Red Cat’s win in November, the military official said.

“[There is] a lack of confidence in Teal’s ability to deliver.”  

~ Former Assistant Secretary of Defense A

Defense procurement experts said it is a ROOKIE MISTAKE, at best, in defense contracting to make projections before contracts are set, budgets are passed and so-called task orders are issued by the Pentagon.

They said Red Cat boasting about the money it would be making reeked of something far worse than mere inexperience. They called it “suspicious” that it’s taken Red Cat nine months to sign a contract for such a straight forward program.  

“None of what Red Cat is saying passes the smell test – it’s all very fishy” 

~ Former Pentagon Procurement Official

PART VII – Red Cat’s & Jeff Thompson’s Dirty Secrets – Short Red Cat  

Jeff Thompson & Red Cat’s Dark History = Death Spiral Converts, Paid Stock Promotions, CFO Turnover, and Barred Auditors

Jeff Thompson – Previously was the CEO of another reverse merger that allegedly engaged in Paid Stock Promotion. The company was Towerstream (TWER) and while Jeff was CEO for ~10 years the stock declined -98%. Towerstream featured multiple infamous investors who the SEC later charged for running a “brazen market manipulation” in 3 other microcap companies. The SEC called the group “Microcap Fraudsters.”

Death Spiral Convertible Notes Issued AFTER Army Award Announcement

Red Cat has a history of raising money via toxic convertible notes known as death spiral financing.  

Shockingly, Red Cat was forced to raise capital with very toxic terms as recently as February 2025 and in November 2024. They even raised toxic debt in the days immediately AFTER they announced winning the Army SRR Tranche 2.

Terms of these two toxic financing deals included :

• A guaranteed ~20% profit for the investor
• Free warrants = 1,326,000 warrants that keep resetting to lower exercise prices
• Share repayment issued at 90% of the 5 lowest days VWAP

This is some of the most toxic paper we at Fuzzy Panda have seen a company issue in recent years. It also includes a feature where Red Cat can’t even repay the convertible notes or buy back the warrants now that the company has been able to raise capital in other offerings at better terms.  

Paid Stock Promotion AFTER Army Announcement

We found evidence that Red Cat used paid stock promotion through ZipTrader and RedChip Companies. We believe Red Cat is no different than Thompson’s previously failed company, and investors should be wary.  We even discovered RCAT paying for stock promotion AFTER they “won” SRR Tranche 2 prototyping competition!  

Why on earth would you need to do that with such a big “contract” in hand?  

Paid Stock Promotion in Jan 2025:

 More Paid Stock Promotion with RedChip:

  

We also discovered numerous suspicious promotional YouTube videos regarding Red Cat, some run by known paid stock promotion services like Goldwyn Media. However, many of these Red Cat hype videos do not disclose being paid for promotions.  

Are these YouTube stock promotion companies just doing it for fun? Or could this be illegal undisclosed stock promotion?  We’ll leave it to our readers to decide

Goldwyn Media – No Paid Stock Promotion Disclosure For RCAT YouTube Videos? Are they Doing it for Free?  

Other YouTube content comes from accounts like “Alpha Wolf Trading” or “mr. sicko Trading” in addition to PJ Daniels 

3 CFO’s in <2 years  

RCAT has had three CFO’s in less than 2 years.  

Joseph Hernon was RCAT’s CFO from when it IPO’ed til June 2024. Previously, Jospeh was the CFO of Towerstream, Jeff Thompson’s previous company that went to zero.  

Leah Lunger took over the CFO position from March – December 2024 before resigning just weeks after RCAT announced the SRR win, and selling ~60% of her holdings. 

 “Sham Audit Mill” Auditor  

All good bad things come in threes. RCAT has also had three auditors in their short history as a public company, with their longest standing auditor being the notorious BF Borgers. 

BF Borgers was charged by the SEC and accused of “massive fraud” and “selling fraudulent audits,” RCAT’s first auditor was, Ciro E. Adams who later had it’s registration revoked and the engagement partner barred by the PCAOB. 

RCAT waited until the weeks after BF Borgers was permanently barred by the SEC to hire a new auditor. RCAT then hired as their new auditor, an audit firm that is ranked 29^th in the Western United States by Audit Analytics, dbbmckennon as their new auditor. That’s like Fuzzy Panda saying we’re big in Japan.  

Red Cat = Reverse Merger 

Red Cat’s 10-K’s no longer discloses its true origins as a reverse merger. Red Cat, founded by Jeff Thompson, came public via reverse merger in 2019 with an OTC pink sheets company called TimeFireVR, a failed virtual reality and crypto company.

PART VIII – I’m On A Boat? – Short Red Cat

Promotional Pivot? – Strategic Boat Partner = Another Paid Stock Promotion

• Partner Ocean Power Technologies ~$0.50 Stock & Paid Stock Promotion
• 0 Marine Patents

In our experience, you know a paid stock promote is running out of stories to tell when management starts pivoting. For example, EV crap-co Workhorse Group started pivoting from hyping a potential USPS contract to talking about drones before it collapsed. And now Red Cat started its pivot, going from quadcopter drones to autonomous boats.

“Most of the globe is water, right?” ~Jeff Thompson, Red Cat earnings, Aug. 14

“If you look at a lot of the coast there, it’s all water.” ~Jeff Thompson, Red Cat earnings, Aug. 14

Rather than using the town hall to dig into the economics of the Black Widow LRIP contract or explain why the contract was ~50% smaller than promised or 8 months late, Red Cat management spent a significant amount of time talking boats.

Unfortunately for Red Cat investors, we think Jeff’s marine fantasy is dead in the water. The strategic partner they have chosen, Ocean Power Technologies, is another penny stock. and we uncovered that it is also another paid stock promotion.

PART IX – Connections to “Microcap Fraudsters” – Short Red Cat  

Jeff Thompson’s Connections to “Microcap Fraudsters” & Their Friends and Family

• Jeff Thompson’s Towerstream Had Multiple Investors that the SEC Called “Microcap Fraudsters”

Towerstream (TWER) – The company Jeff Thompson ran for ~10 years featured multiple individuals that the SEC charged for “market manipulation” of 3 other securities. The individuals that the SEC later charged for running “pump-and-dump schemes” and their family members at one point controlled >25% of Towerstream’s shares outstanding according to TWER’s 2016 S-3.

Members of this “group of prolific South Florida-based microcap fraudsters” ultimately entered into consent judgements to settle the SEC’s allegations and agreed to penny-stock bans of (5-years, 10 years, and a permanent ban).

Towerstream’s former CFO, Joseph Hernon, also served as Red Cat’s CFO until mid-2024.  

“Lawyer at Center of SEC Pump & Dump Case” = Early RCAT Investor  

A large initial investor in Red Cat’s stock was a lawyer which a Barron’s article refers to as “The Lawyer at the Center of SEC Pump-and-Dump Case.” This Barron’s article was related to the same group charged by the SEC for running “micro-cap pump schemes.”

The lawyer proceeded to sue Barron’s as well as an independent journalist, Teri Buhl, for defamation but a judge reportedly “tossed out” the case.

Note – No charges were ever filed by the SEC against this lawyer, nor did the SEC publicly accuse him as being a co-conspirator in this group, nor are we.

Jeff Thompson Sold Red Cat Assets at an Est 48% Discount to Brother of Alleged Leader of Pump-and-Dump Schemes

Our analysis indicates that in July 2024, Jeff Thompson sold $8.4 million Red Cat assets¹ for the purchase price of just $4.4 million. A 48% discount to the stated value of the assets in RCAT’s filings (Note 7).

One of the two fund’s that Jeff Thompson’s privately negotiated agreement occurred with was Titan Multi-Strategy Fund which is controlled by the brother of the person the SEC alleged was the “primary strategist” of the “pump-and-dump schemes.”

 

Note – We did NOT find any of the charged members of the group of micro-cap fraudsters in Red Cat’s cap table. Red Cat was organized around the same time as the SEC brought charges against the group of individuals. We were shocked to uncover that Thompson was actively selling Red Cat’s assets at large discounts to family members of the group. Hmm …

PART X – “Lies, Damned Lies” ~Mark Twain – Short Red Cat   

Jeff Thompson’s Tales About the Army SRR ‘Win’   

Let’s compare Jeff Thompson’s statements (aka “Thompson’s Tall Tales”) with the facts.  

#1 Army SRR Tranche 2 is NOT a Sole-Source Contract

Reality: 

• The Army has said it will use “multi-vendor awards” for SRR, and it has already bought Tranche 2 drones from Skydio 
• “Both Skydio and Teal will support [the] Army” ~ Army press release, June 10, 2025  

Thompson’s Tall Tales: 

• “Teal was the only vendor selected to move into production” – Red Cat Town Hall, Nov. 19, 2024 
• “The Black Widow … winner of SRR sole source” ~ Red Cat Earnings, Dec. 16, 2024 
• “Red Cat remains … sole winner of the” SRR Tranche 2 ~ Red Cat press release, April 14, 2025  

#2 LRIP 46% Smaller Than Thompson Said it Would Be

Reality:

• Red Cat said on Thursday that the LRIP was for 690 systems ~ Red Cat earnings, Aug. 14

Thompson:

• “We know that the LRIP they want to do is like 1,300 systems” ~ Investor Day, Feb. 27, 2025

#3 Red Cat is Not Guaranteed $400 million or $260 million or $100 million or $65 million (Thompson’s said it all)

Reality:  

• Army budget docs show it plans to spend $21 million in FY25 on SRR Tranche 2 drones. 
• And the Army used up a lot of that money buying drones from Skydio.

Thompson’s Tall Tales:  

• “At least $260 million … up to, yeah, $400 million” ~ StoryTrading YouTube, Nov. 26, 2024    
• “We’re guaranteed $100 million this year” ~ PJ Daniels Show, Jan. 14, 2025  
• “SRR specifically is $25-$65 million” for 2025 ~ Red Cat Investor Day, Feb. 27, 2025   

#4 Red Cat Raised Money & Diluted Shareholders After Thomspon Said it Would Not

Reality: 

• November 26, 2024 – $6 million dilutive death spiral convertible note with 326k warrants
• February 10, 2025 – $15 million dilutive death spiral convertible note with 1 million warrants

Thompson’s Tall Tales: 

• “We’re not doing a capital raise right now” ~ Red Cat Town Hall, Nov. 19, 2024 
• “We’re not going to go out and do a huge raise. If we do a raise, it will be $10-$15 million” ~ Alpha Wolf Trading YouTube, Nov. 21, 2024 
•  “We’ve got plenty of ways to access capital without dilution” ~ Earnings Call, Dec. 16. 2024 

#5 Thompson Said No One Selling Stock. Then Sold Stock 

Reality: 

• Thompson sold $8 million worth of stock in December 2024 

Thompson’s Tall Tale: 

• “No one is selling any shares” ~ Alpha Wolf Trading, Aug. 28, 2024  

#6 Thompson said LRIP Was Imminent 6x in 9 Months 

Reality: 

• Red Cat finally signed it’s LRIP on Aug 14.
• Does nine months later count as “very soon,” “any day now” or “tomorrow morning?” 

Thompson’s Tall Tales: 

• “This long-term contract….”~RCAT PR, Nov. 19, 2024
• “We finally got the contract” ~ PJ Daniels Show, Jan. 14, 2025 
• “Sometime in Q1 [2025] … after we finish the low-rate initial production contract” ~ Town Hall, Nov. 19, 2024 
• “Sometime in March, we’re hoping to get the LRIP contract” – Red Cat Investor Day, Feb. 27, 2025 
• “Then we’d sign LRIP, which we hope is very soon” ~ Earnings Call, March 31, 2025 
• Expecting a low-rate production order for SRR “very soon” ~ Defense Daily, July 28, 2025 
• “We expect to have this contract any day now, if not tonight or tomorrow morning” ~ Earnings Call, May 14, 2025 

Conclusion – Short Red Cat  

Timeline Reveals an Ugly Truth  

• Paid Stock Promotion AFTER Award
• Death Spiral Converts Issued AFTER Award 
• CTO & Top Engineers Leaving AFTER Award
• Key Engineering Positions Left Empty 
• Suing Former CTO to Stop Competition 

Actions speak louder than words (aka premature press releases). Investors don’t need to develop military contacts to see the underlying problems at Red Cat, and its potential production issues. Instead we recommend that investors just ask, “Why?” 

Are the economics of the Army SRR award going to be anywhere near as good as Red Cat management promises? If so, then why would Red Cat’s management immediately resort to desperate tactics befitting a failing penny stock in the months following the announcement?  

• January 2025 – Why would Red Cat resort to spending essential capital on paid stock promoters? 
• February 2025 – Why would Red Cat raise short-term capital via death spiral converts? 
• March 2025 to July 2025 – Why do key engineers keep quitting, every month? 
• April 2024 – Why is Red Cat pivoting the narrative to talking about boats and announcing a partner that is also paying stock promoters?
• August 2025 – Why would Red Cat sue the former CTO if it’s own future is great? 

It’s August of 2025 and Red Cat finally secured an Army contract that they told everyone they got back in November 2024. But that contract is a whole lot smaller than Red Cat promised. They also now have serious competition for the budget dollars that they claimed were only for their drone.

We are short Red Cat because we are betting against this paid stock promotion being able to deliver on the hype they promised. Many of their former senior engineers seem to be making the same bet, but they are betting with their careers by leaving Red Cat for a competitor.

Fuzzy Panda Research is Short Red Cat Holdings (RCAT) 

Appendix – Palantir’s Software – Short Red Cat 

Paying Palantir For Software – Great for Promotional PR, Bad for Margins 

• Palantir Clarifies Red Cat is a Customer NOT a Partner
• More Hype – RCAT Announced 5 AI “Partners” in less than 3 years 

RCAT is a Palantir customer. Not Palantir’s “partner.” 

In another Jeff Thompson “Tall Tale” Jeff tells investors Red Cat is “Partnered” with Palantir. The reality is that Red Cat is just a Palantir customer, as Palantir’s press release clarifies. Red Cat is paying Palantir to use their VNav software in Black Widow drones and to use Palantir’s Warp Speed manufacturing software. The fact that Palantir is not listed on Red Cat’s Partner’s page also indicates that Red Cat is just another customer to Palantir.  

The reality is that Red Cat will be sending high gross margin software $ directly to Palantir rather than to Red Cat shareholders.  

Partnerships look very different. For example, Palantir reportedly was looking at investing $200 million directly into Shield AI, another drone company.  

Red Cat is just one of many drone companies paying Palantir for software: 

• Flyby Robotics 
• Saildrone 
• Ondas  
• Cyberlux 

Red Cat has also promotionally announced multiple AI partners in the past:  

• Nearthlab – Apr 2025 
• Palladyne AI – Oct 2024 
• Primordial Labs – Feb 2024 
• Athena AI – Mar 2023 
• Tomahawk Robotics’s Kinesis AI – Oct 2022 

Appendix – Lawsuit Absurdities – Short Red Cat

Absurd Takeaways from Red Cat’s Lawsuit Against its Former CTO

We view the idea of suing your former CTO and the creator of a majority of your patents as completely absurd. Below are some of the most intriguing parts of the Red Cat lawsuit against its former CTO and Teal Drones founder, George Matus.

Former CTO George Matus is an Inventor of 100% of Teal’s Patent

Our patent research shows 100% of Teal Drone’s 14 Patents list George Matus as either the primary or secondary inventor. Of Red Cat’s total patents, Matus is the inventor of 64%. Can someone steal IP they invented? 

Stop Paying for Stock Promotions & Pay Your Engineers More!

The lawsuit highlights multiple times that George Matus got a $50,000 salary raise in his new contract. $50,000 is basically the exact same amount that Red Cat spent on just 2 days of paid stock promotion with ZipTrader.

Engineers would probably to be more excited to work at Red Cat if the CEO spent more time dealing with the competition and less time doing YouTube interviews with people who appear to be paid stock promoters. 

Factory Tours for Competitors & for Short-sellers Too!

Red Cat complains George Matus gave Vector founders a factory tour that yielded “first-hand business intelligence by observing Teal’s processes.” Ironically Red Cat gave us, an activist short-seller, a factory tour even though we showed up completely unannounced. The Teal processes we saw were not impressive. Is having employees use screwdrivers and soldering tools to assemble drones by hand supposed to be a proprietary process?  

Red Cat Employs the same Advisor & Drone Expert as Vector

The special drone expert and advisor who unveiled Vector’s new drone, Hammer, on Fox News is also an advisor to … drum-roll please … Red Cat.

Red Cat’s lawsuit says it had no idea Vector was in the drone space until they saw their common advisor on TV. C’mon! Does Red Cat not pay attention to who they hire?

 

Reminder – George Matus Made $0 Originally Selling Teal Drones to Red Cat:

From an old Teal shareholder lawsuit you can see that George Matus actually made $0 from the sale of Teal to Red Cat. Teal’s venture investors had $21.3 million of liquidation preferences when the company was sold for $14 million in stock. That left George’s 9,150,000 shares of Teal worth $0.

Red Cat needs to stop wasting shareholder’s money on stock promotions and lawyers. If they paid their own employees better and spent more money on Capex and R&D, their key engineers would stop fleeing.

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