Red Cat Holdings Inc (RCAT)

[nickmerck]

I was long, but have recently done more research and will try to compensate my losses so far by creating a short position.

there are reasons for this. the situation with the previous owners has been discussed here. i thought with new people in charge, things must improve. after doing my own research, i found this:

jeff thompson ran towerstream (OTCMKTS: TWER), and that stock [1] as well as industry insiders tell the story [2]. the fact that jeff thompson is now living in puerto rico indicates that he made out with good money from that company. the only way this could have happened was by having investors hold the bag, just like with reed and tfvr.

the newly purchased rotor riot has entire facebook groups mocking their conduct [3]. even in their own group you can see posts popping up about defrauded employees[7], customers and investors. those posts disappear quickly, so they are trying to hide it. none of the businesses they started previously ever became successful, and they always seemed to sell under adverse conditions. before red cat, a company called racedayquads bailed out rotor riot. that deal didn't even last 6 months [8].

just talk to the people thompson and kapper had previous dealings with, and they will tell you everything you need to know. i am not going to disclose the names of my sources, but 1 day on linkedin and google with a few phone calls will bring up all the info you need to know.

through the facebook group [3] I got in touch with drone industry insiders, and they told me some interesting things. dji, amazon, ups or other big players could replicate the functionality provided by redcat in a few weeks and roll it out free of charge in their drone fleet. dji for example have the apps and hardware rolled out to accomplish all of it. these companies have superior lobbying and legal representation with the FAA. So any deal with a large company is unlikely to happen or last.

there are no other competitors that redcat could integrate into, because the proposed laws would exclude anyone not making full drones from being compliant, and compliance is what redcat sells. the drone industry has very few large players. redcat has no knowledge to make drones competitively.

the rotor riot store was not able to support their own costs of operation [4]. even with a 80-100% YOY they would still make a loss. they have been in business for years so growth is unlikely. the rate at which fans are turning on them and how traffic is decreasing on their website [5], a decrease in sales is more likely. the 34k reported amounts to less than half of the yearly revenue figures they suggested. people here have mentioned that their stock continues to go in and out. this shows that they have no cash on hand, the target stock turnover for ecommerce stores is 1 to 3 months [6], and other stores have the items in stock so supply is steady.

i am of the opinion that shorting this stock is like printing money. redcat can't sell their hardware to anyone to make money off the cloud platform, rotor riot will continue to lose money. both are secular headwinds to each of their business divisions. i posit that it is just a matter of time until they have to start selling stock to pay obligations, and at that point the stock price will deteriorate, which accelerates selling. either that, or they find investors dumber than us to hold the bag. but that is a serious gamble.

[1] https://www.google.com/search?q=OTCMKTS:+TWER
[2] https://www.glassdoor.com/Overview/Working-at-TowerStream-EI_IE27459.11,22.htm
[3] https://www.facebook.com/groups/1775094849450475/
[4] https://www.marketwatch.com/press-release/10-q-red-cat-holdings-inc-2020-03-23
[5] https://www.alexa.com/siteinfo/rotorriot.com
[6] https://smallbusiness.chron.com/should-inventory-ratio-manufacturing-38030.html
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