Berman Tabacco announced it is investigating potential securities law violations by Red Cat Holdings, Inc. The investigation follows a report published by Kerrisdale Capital on January 16, 2025, which alleged that Red Cat overstated the value of its U.S. Army Short Range Reconnaissance (SRR) drone contract.
Kerrisdale Capital claimed that while Red Cat reported the SRR agreement was worth potentially hundreds of millions of dollars, U.S. Army budget documents indicated a budget of just below $25 million for 2025. The report also raised concerns that the Army might select new contractors every two to three years.
Furthermore, the Kerrisdale Report alleged that Red Cat lacked the production capacity to deliver on its projects, stating the company would need to produce new drones three times faster than its best-selling drone to meet its 2025 guidance. This investigation is significant as it casts doubt on the company's stated contract value and operational capabilities.
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